In recent times, the term ‘startup’ is not just a type of company, it has become a way of living. These companies are the lifeblood of our economy and have encouraged innovation across the globe, which has resulted in an enhanced way of living for people everywhere. Startups are led by entrepreneurs who put in all their effort to make their dreams come to life. Even though most startups have to face the wrath of failure, some entrepreneurs don’t give up and manage to change the world.
So, if you’re looking to make your dreams come true by launching your own startup, here’s the ultimate guide that can help you cross the first stage of this difficult and long, yet fruitful journey.
What Is a Startup
Before we delve deep into the semantics of startups, let’s start with the basics by answering the most simple question first; ‘what is a startup?’
Ideally, a startup or a start-up is a company that has been initiated by an entrepreneur who is trying to develop and validate a scalable business model.
Founded by one or more entrepreneurs, startups tend to introduce new and unique products and services to the market. A typical startup tends to start off as a shoestring operation, with the initial funding coming in from the founders, or their friends and families.
Once their idea is off the board and they have done the initial research, the entrepreneurs then attempt to raise a substantial amount of money to further develop their product. However, to achieve a sufficient amount of investment, they need to provide some proof-of-concept or a prototype of their product to assure the investors that it is worth investing in.
Even though a majority of startups fail for multiple reasons, some of the most revolutionary entrepreneurs who changed the world created startups like Microsoft, founded by Bill Gates; Ford Motors, founded by Henry Ford; and McDonald’s, founded by Ray Kroc.
The Overwhelming Rise of Startups Due To Millenials
Starting a business has never been so much in ‘trend’ as it is today. Almost every second millennial is a company owner and is attempting to build their own empire. In fact, a report published by CBS News states that one in five millennials have or plan to quit their day job to start their own business, especially those in the 18-34 age bracket.
But, why are millennials so attracted to the idea of launching a startup, even though it’s a well-known fact that most of these companies fail? Multiple studies show that three-quarters of companies that receive investments never actually return that investment. With these odds, millennials should be running in the other direction, however, they aren’t. After some analysis, we have identified some of the main reasons for this.
Meaning Over Money
The millennials are arguably one of the most self-aware and profound generations. This is primarily due to the amount of information available online, along with the plethora of views and opinions. Moreover, they have been brought up by a generation who is almost always on the run, either for money or success. Hence, it only makes sense that this generation chooses happiness over the traditional corporate-ladder climbing. By starting their own company, millennials are able to pursue their dreams, instead of getting stuck in mundane routines.
It Has Never Been This Easy
The internet has all the possible answers a new-born entrepreneur can have. Right from getting a company registered and finding investors and resources, to marketing and attracting more customers, everything is possible on the internet. Hence, it is incredibly easy for an individual to start their own company. Moreover, with a plethora of information available online, anyone can learn the basics needed to succeed. For example, if you don’t know what ‘term sheet’ means, Google it and you will have 106 million answers waiting for you.
Now, it’s important to note that just because many millennials are choosing to become entrepreneurs, it doesn’t mean that they are bound to succeed. Even with all the added benefits that they have, they need to face multiple challenges and struggles to actually sustain an entire company. So, only time will tell how the entrepreneurial generation will evolve, but on this is for sure, the startup revolution is here to stay.
The Impact of the Startup Revolution in India
With the third-largest startup ecosystem in the world, India is quickly emerging as a growing startup nation. This country is expected to witness a YoY consistent annual growth of 12-15%.
The country dominated the tech startup niche as it has emerged as the 3rd fastest growing hub for technology startups. With over 50,000 startups recorded in India in 2018, between 8,900 to 9,300 startups are technology-led. Moreover, 1300 new startups were born in 2019 alone, which implies that 2-3 tech startups are registered in India on a daily basis.
Primarily, cities like Bangalore and the NCR region are known as the main startup hubs of India, as they house more than 80% of the total number of startups in the country. However, now even smaller cities like Pune and Jaipur have started to establish themselves in the startup industry. Due to this, India holds the 57th position in the Global Innovation Index. While this sector was initially dominated by B2B companies, the number of B2C companies are on the rise. As a result, it comes as no surprise that over 35 billion USD has been investing in Indian startups from all over the world in the past few years.
Based on our research, we have provided the major driving factors of this exceptional growth rate.
One of the major drivers of the growth of startups in India is the smartphone and internet penetration, which is expected to reach 490.9 million by 2022. With a YoY growth of 11%, the number of active internet users in India is growing at a rapid scale. Due to this, people have access to more information and are able to learn about new brands easily. This gives new startups a window of opportunity as they are able to directly compete with bigger brands on the same platform.
Access To The Global Market
Again aided by the power of the internet and latest technology, India startups aren’t limited to marketing and selling their products and services just to India audiences. They can access the global market and promote their business all around the world. This increasing the chances of a company succeeding tenfold, not only in terms of expanded market potential but also at higher cost value.
A Huge Talent Pool
With great education institutes, India is buzzing with a huge pool of talent. Without the necessary human resources that are available in India, achieving the exceptional startup growth rate would have been next to impossible. Moreover, with youth opting to educate themselves in the latest technologies and the IT sector, the talent pool is only going to keep strengthening.
The Government of India has introduced multiple pro-entrepreneurship policies like ‘Startup India,’ ‘Make In India,’ ‘Digital India’ and others. These policies play a huge role in supporting and encouraging business owners to pursue their passion.
Government of India startup portal – www.startupindia.gov.in
There is no doubt that India is growing, and the rise of startups is playing a huge role in the economy. We have identified the key areas where startups have attained the most success.
- YoY Growth Rate: 22%
- Startups That Made An Impact: Flipkart, ShopClues, Snapdeal, etc.
- YoY Growth Rate: 28%
- Startups That Made An Impact: Cult, Netmeds, GetActive, etc.
- YoY Growth Rate: 31%
- Startups That Made An Impact: PolicyBazaar, BankBaazar, PhonePe, etc.
- Potential to reach: INR142 billion by 2021
- Startups That Made An Impact: Unacademy, BYJUs, Learning Delight, etc.
- Potential to reach INR986 billion by 2021
- Startups That Made An Impact: Yatra, GoIbibo, OYO, etc.
- Potential to reach INR15,595 billion by 2020
- Startups That Made An Impact: Delhivery, Blackbuck, etc.
- Potential to reach INR1088 billion by 2020
- Startups That Made An Impact: Swiggy, Grofers, Justdial, etc.
Many of these companies have achieved greats heights of success and have crossed the $1 billion mark to enter the unicorn startup club.
What Are Unicorn Startups: An Overview
Coined by venture capitalist Aileen Lee, a privately owned startup that is valued over $1 billion is known as a unicorn. Back then, such an occurrence was rare, hence, Lee chose a mythical animal to represent the rarity of these successful ventures. However, over time this phenomenon isn’t rare anymore, which resulted in the introduction of terms like Decacorn, a company that has a valuation of $10 billion and Hectocorn, companies valued over $100 billion.
A report published by Google states that as of April 2020, there were over 465 unicorns globally, with the largest being Ant Financial, DiDi, Airbnb, Stripe, and Palantir Technologies.
Coming to India, there are 30 unicorns as of date, with 75% of these companies being headquartered at Bangalore and Delhi-NCR. 21 of these companies were launched in 2018 and 2019.
A study states that by 2025, India will house around 75-100 unicorns, with the eCommerce and Fintech sectors leading with the maximum number of $1 billion companies.
The primary unicorns in India were majorly consumer-facing, like Flipkart and Ola, however, emerging companies show a new trend. Today, unicorns are emerging from sectors like social networks, data analytics, logistics technology, education, etc.
Hence, competition is fierce in almost every niche, and if you are looking to launch your startup, there are a couple of terms that you should know about first.
What is Decacorn, Hectocorn Startup: An Overview
First coined by The Bloomberg Business, a Decacorn is a company having a worth of over $10 billion. It is derived from the Greek-based prefix “deca” which means ten. The rise of consumer technologies has the capability of having worldwide traction. This has led to the decline of unicorns. A decade ago a billion-dollar valuation was a strong position to create a long-lasting advantage.
However, as of now, this paradigm seems to have shifted toward Decacorn Companies.
The Decacorns operate in the following industries like Digital Media/ AI, On-Demand, Fintech, eCommerce/Marketplace, Big Data, Consumer Electronics, Gaming, Blockchain, Biotechnology, computer Hardware & Services, Internet Software & Services, and Hardware.
The top ten Decacorn Companies globally as of January 2019 are Bytedance, Uber, Didi Chuxing, WeWork, Lu.com, Airbnb, SpaceX, Palantir Technologies, Stripe, and JUUL Labs.
Apart from that, India has also become home to 3 reputed decacorns, namely BYJU’s, PayTM valued at $16 billion, and OYO valued at $10 billion.
The fast-growing Indian hospitality business Oyo has reached a valuation of $10 billion after its founder, Ritesh Agarwal, purchased $2 billion in shares from venture capital firms named Sequoia Capital and Lightspeed Venture Partners.
Recently, India’s largest edtech company, BYJU’s made it to the list of decacorns and the 3rd decacorn in India. Byju’s has achieved that much-coveted decacorn status following the latest funding round led by Silicon Valley venture capitalist Mary Meeker’s Bond Capital. Having 50 million users on its platform, even though paid user count is 3.5 million, its annual renewal rates are as high as 85%. After raising an undisclosed amount of funding from a BOND, a global technology investment firm, Byju’s valuation has soared to $ 10.5 billion.
Similarly, there are companies with a valuation of over $ 100 billion. These companies are called hectocorn. It is derived from the Greek prefix term “Hecto” meaning “one hundred.” These companies are also referred to as Super- unicorns. Till now, The world has seen the rise of 6 hectocorns namely Apple, Google, Microsoft, Facebook, Oracle, and Cisco.
Also Read – List of Business/ Startup Ideas
The Top 8 Most Useful Startup Terms To Know
1) Angel Investor
An angel investor is known as a person who invests their personal money in a startup at a very early stage, in exchange for equity in the company. There is no specific requirement for someone to be an angel investor. They can be a high net worth entrepreneur or a family member for a friend who wants to invest in a great idea. While angel investors tend to shell out lesser money than a venture capitalist, angel groups invest high funds for bigger business opportunities.
2) Venture capitalist (VC)
A venture capitalist invests in business professional in exchange for an equity share in the company. They either operate individually or are part of a venture capital firm. The main difference between VCs and angel investors is that VCs invest in companies that already have some proof-of-concept, and invest high amounts of money.
3) Burn Rate
This term is referred to as the amount of money you are spending each money, compared to the capital of the company. To identity your burn rate, you need to divide your capital amount by the amount of money spent. It’s important to keep a track of the burn rate, as this is often an early indicator of a failing startup, or if you need to consider changing your current strategy.
4) Convertible Note
Entrepreneurs use convertible notes in an attempt to attract angel investors without putting a valuation on the company. Basically, a note is worth a pre-decided percentage of equity ownership in a company. The note only turns into actual equity when another investor joins the pool.
5) Series Funding
Also known as seed stage, a seed round is referred to the different phases of when a company raises funds for the business. The stages are named alphabetically, like Series A, B, C, D, E, and so on.
This is the first round of venture capital funding, after an angel investment. These funds are used to improve the final product or service. Essentially, the funds are used with an aim to reap a long term capital by promoting a potential profit generating idea.
In this round of funding, the money is used for advancing the business beyond the development stage and to increase the company’s market potential and demand. Generally, the venture capitalists who are investing in this stage are extremely involved with the business plans, as here the success probability of the business is determined.
All funding rounds henceforth are with an aim of scaling up. At this point, there should be a substantial flow of revenue. Hence, the funds are used purely for scaling an already successful business, focusing on increasing the growth and profit rate.
6) Going Public
Another way for a company to raise funds is by going public, or a company’s IPO, initial public offering. Basically, you will be offering shares of your company to the public for purchasing. Ideally, an IPO deal is structured by investment bankers, after your company is valued by analysts.
Simply put, this term refers to how much value your company is worth, which generally plays a huge role when you plan to sell shares. However, it’s a bit more complicated than that. There are various ways of determining the valuation of your company, which is divided in pre-money valuation and post-money valuation.
Pre-Money Valuation: how much a startup is worth before funding
Post-Money Valuation: the value of the startup plus the funding
A valuation of the company is derived at every round or stage of funding.
Essentially, an exit strategy is creating a plan for the future of the company, and how you envision getting money from it. There are multiple types of exit strategies, including selling the company, getting acquired, merging with another company, going public, or liquidating the business entirely.
Ideas are easy, Implementation is Hard.
After going over this guide, we are sure you have a good idea of the startup world and how you can launch your company. Just ensure you have a validated idea, plans for funding, and a rapid growth mindset, and your startup will surely be on the path to success.
Related – A Complete Guide On Entrepreneurship1