For years, investors treated startups as smaller versions of large

companies; this was problematic because there is a vast

organizational difference between a startup, small business, and
large corporation, which necessitates different funding strategies
and KPIs. Thus, a startup is often misunderstood for simply a small
new business. The truth is, there is significant difference between
the two. So what do we mean by the concept of startups? What
are their basic phases and how they are funded?
A startup is a young company that is just beginning to develop,
and designed to grow fast. They are usually small and initially
financed and operated by a handful of founders or one individual.
These companies offer a product or service that is not currently
being offered elsewhere in the market, or that the founders
believe is being offered in an inferior manner. And because
startups don't have much history and may have yet to turn a
profit, investing in them is considered high risk.
They pass by different phases and realistically, we can break them
into four stages:
-

Discovery: Startups in this stage are focused on the

understanding of whether or not their idea or concept has
value. In other words, would anybody pay to get what the
idea or concept would provide.
Validation: First attempts to sell the product or service and
gauge the potential market, its value as well as experience in
how best to achieve sales. Activities at this stage concern,
refining the product, establishing the metrics.
Efficiency; Customers must be acquired efficiently, product
must be deliverable at a profit and business model must be
fine-tuned. Activities that are likely to occur at this stage are
clarifying the value proposition, enhancing the growth
process, and creating scalability or sales.
Scale- It about attempting to drive firm growth
aggressively, this is possible when the company really has
defined a business model that works, and expands this
model to address the large opportunity, outside the local
geography, nationally, or globally.

As far as funding, in the early stages, startup companies'

expenses tend to exceed their revenues as they work on

developing, testing and marketing their idea. As such, they often

require financing. So Startups may be funded by traditional small
business loans from banks, by government-sponsored Small
Business Administration loans from local banks, or by grants from
nonprofit
organizations
and
state
governments. Business
angels also can provide startups with both capital and advice,
while friends and family may in the other hand, provide loans or
gifts.
So a startup that can prove its potential may be able to attract
venture capital financing in exchange of giving up some
control, and a percentage of company ownership.