Entrepreneurship 101 — Startup Basics (Part 1)
With all the fuss about startups, entrepreneurship and emerging technologies such as “blockchain” and “IoT”, it can be easy to get lost in the jargon. For those who are still uninitiated to the startup craze, here’s a primer on some of the key concepts and terms in the startup business.
1. What is a startup and what differentiates them from a “standard” business?
There are multiple ways in which a startup is different from your “standard” business. The problem with defining a startup is that the definition is constantly changing and will mean different things to different people. At a very basic level, a startup’s common differentiator is its ability to “grow”: startups are companies that are designed to grow very quickly. The traditional definition of a startup is a company that will require some form of external capital, whether that be from Venture Capitalists or from Angel Investors. This capital will help them finance the operations and growth of their business and impact their “scalability”, the business’s ability to exponentially scale their business operations. That’s why you won’t see your local fish ’n’ chip shop being named a hot startup any time soon because they probably don’t have any desire to scale exponentially. Additionally startups can be distinguished from a standard small business through the nature of their business. Startups often try and “disrupt” a pre-established industry by entering the market and shifting the fabric of the market (e.g. Uber disrupting the traditional taxi and transportation industry) but this may not apply to all startups.
2. What is a VC?
In startup world, VC stands for “Venture Capital”. They are a type of private equity investment firm with a lot of capital who invests their money and time in financially supporting a startup. They will usually have a portfolio of different startups that they believe have the highest growth potential. VCs often provide capital in exchange for startup “equity” (see below). Startups are constantly trying to network or gain the attention of Venture Capitalists to get funding for their business operations.
3. What is Equity?
In simplistic terms equity is a “stake” in the company, it refers to the number of shares a person or entity owns in a company e.g. the shares that an employee/investor/cofounder is entitled to. When it comes to investments, startups are often given funding by an investor in exchange for equity of a company (as in they are given a stake in the company).
4. What is an Angel Investor?
An angel investor is an individual who invests in a startup (as opposed to an investment firm) and provides financial backing to help the startup’s business operations. In return, just like a VC, the angel investor will likely be given equity of the startup. Often, an angel investor will use their own money to invest in a startup as opposed to a pooled source like that used by a VC. Angel investors can often come in the form of other entrepreneurs who’ve made it big and are using the money they’ve earned to finance other startups.
5. What are Accelerators and Incubators?
Although accelerators and incubators often do very similar things in the sense that they provide guidance and opportunities to startups, there are some key differences that make them easy to set apart from one another. At a basic level, both incubators and accelerators help startups grow their business by providing mentoring or access to business support networks. Both also want to help startups attract a top VC to fund them.
In terms of accelerators, the prime goals of these are (you guessed it!) to accelerate the growth of an existing company. Accelerators often run an acceleration program with a set timeframe which can be anywhere from a few weeks to a few months. The startups are given an opportunity to work with a group of mentors and a large network of other professionals and entrepreneurs. Additionally, accelerators provide startups with a small seed investment (an initial investment) in exchange for a small amount of equity. Popular accelerators such as “Y Combinator” or “Chinaccelerator” run programs that are highly sought after. Check this great article by Atlanta Lants that lists accelerators in Australia. Thousands of startups often apply to be selected for these programs but only a handful are taken on board.
On the other hand, incubators are focused more on “incubating” the ideas of the startup with the end goal of building up a workable business model. Incubators often focus more on assisting early-stage startups and often do not a have a development program for startups. Unlike accelerators, it is uncommon for an incubator to have an application process but most of the time an incubator will focus on a specific market or type of startup (known as a vertical). Incubators can often be sponsored by companies, governments, or VC firms. Incubators often partner with a co-working space (essentially a shared office or working environment) and startups are required to move into the work environment provided by the incubator for the duration of their incubation.
Notable incubators include: Cicada Innovations and Slingshot
6. What is Intrapreneurship?
Intrapreneurship is a fancy term for individuals within a corporate or other established companies (not a small-time startup) that drive innovation from within the company. As discussed earlier, startups often try to “disrupt” an industry by changing the entire fabric of a market, and this can involve changing consumer habits or replacing companies who were once dominant in a market. In an age where the “disruption” of markets is all the rave, companies and large corporations have naturally felt threatened by nimble startups who can dethrone them with new technology and a focus on “innovation”. This is where “intrapreneurship” fits in. Intrapreneurship is the process of maintaining the competitiveness or dominance of a company (in the face of startups) by pursuing innovative products or services. Intrapreneurs are often given a great deal of freedom to experiment and grow their initiative within the company by channeling their creativity and resourcefulness. The goal is to revolutionise the manner in which the company executes its services or designs its products and essentially reinvent the wheel of the company so that the company maintains its position within its market or is able to capitalise on other markets.
More coming soon! Have a term or concept you’re confused about?
Feel free to e-mail us at marketing@textbook.ventures for any other terms or concepts in the startup world you want explained, or just leave a comment below.
