Startup stock

Author : morteza heydari zad”((challenge))”
E_mail : Mo.Heydarizad@gmail.com Page 1
Startup company :
A startup company or startup or start-up is an entrepreneurial venture or a new
business in the form of a company, a partnership or temporary organization designed
to search for a repeatable and scalable business model. These companies, generally
newly created, are innovative in a process of development, validation and research
for target markets. The term became internationally widespread during the dot-com
bubble when a great number of dot-com companies were founded.Because of this
history, startups are often assumed to be solely technology-based companies, but this
is not necessarily true: the essence of startups is generally related to the concepts of
ambition, innovation, scalability, and growth.
Definition :
The exact definition of “startup” is widely debated, however at their core most
definitions are similar to what the U.S. Small Business Administration describes as a
“business that is typically technology oriented and has high growth potential”.
One popular definition by Steve Blank and Bob Dorf defines a startup as an
“organization formed to search for a repeatable and scalable business model.”. In this
case “search” is intended to differentiate established late-stage startups from small
businesses, such as a restaurant operating in a mature market. The latter implements
a well-known existing business strategy whereas a startup explores an unknown or
innovative business model in order to disrupt existing markets, as in the case of
Amazon, Uber or Google. Blank and Dorf add that startups are not smaller versions of
larger companies: a startup is a temporary organization designed to search for a
product/market fit and a business model, while in contrast, a large company is a

permanent organization that has already achieved a product/market fit and is
designed to execute a well-defined, fully validated, well-tested, proven, verified,
stable, clear, unambiguous, repeatable and scalable business model. Blank and Dorf
further say that a startup essentially goes from failure to failure in an effort to learn
from each failure and discover what does not work in the process of searching for a
repeatable, high growth business model.
Paul Graham says that “A startup is a company designed to grow fast. Being
newly founded does not in itself make a company a startup. Nor is it necessary for a
startup to work on technology, or take venture funding, or have some sort of “exit”.
The only essential thing is growth. Everything else we associate with startups follows
from growth.” Graham added that an entrepreneur starting a startup is committing to
solve a harder type of problem than ordinary businesses do. “You’re committing to
search for one of the rare ideas that generates rapid growth.”
Aswath Damodaran stated that the value of a startup firm “rests entirely on its
future growth potential.” His definition emphasizes the stage of development rather
than the structure of the company or its respective industry. Consequently, he
attributes certain characteristics to a startup which include, but are not limited to, its
lack of history and past financial statements, its dependency on private equity, and its
statistically small rate of survival.
Evolution :
Startup companies can come in all forms and sizes. Some of the critical tasks are
to build a co-founder team to secure key skills and resources in able to conduct
research and build a first minimum viable product (MVP) to validate, assess and

develop the ideas or business concepts. In addition to this opportunities to establish
further and deeper understanding of the ideas or business concepts as well as their
commercial potential are important. A Shareholders' agreement (SHA) should be
agreed early on to confirm the commitment, ownership and contributions of the
founders and to deal with the intellectual properties being generated for the startup.
Business models for startups are generally found via a bottom-up or top-down
approach. A company may cease to be a startup as it passes various milestones, such
as becoming publicly traded in an IPO, or ceasing to exist as an independent entity via
a merger or acquisition. Companies may also fail and cease to operate altogether. The
size and maturity of the startup ecosystem where the startup is born and grow, have
a clear effect on the volume and success of the startups.
Investors are generally most attracted to those new companies distinguished by
their strong co-founding team, risk/reward profile and scalability. That is, they have
lower bootstrapping costs, higher risk, and higher potential return on investment.
Successful startups are typically more scalable than an established business, in the
sense that they have the potential to grow rapidly with limited investment of capital,
labor or land. Timing has often been the single most important factor for biggest
startup successes, while at the same time it's identified to be one of the hardest
things to master by many serial entrepreneurs and investors. Startups encounter
several unique options for funding. Venture capital firms and angel investors may
help startup companies begin operations, exchanging seed money for an equity stake.
In practice though, many startups are initially funded by the founders themselves.
This is known as Bootstrapping. Factoring is another option, though not unique to
startups. Other funding opportunities include various forms of crowdfunding, for
example equity crowdfunding.

Startup business partnering :
Startups usually need to form partnerships with other firms to enable their
business model. To become attractive to other businesses startups need to align their
internal features, such as management style and products with the market situation.
In their 2013 study Kask and Linton develop two ideal profiles, or also known as
configurations or archetypes, for startups commercializing inventions. The Inheritor
profile calls for management style that is not too entrepreneurial (more conservative)
and the startup should have an incremental invention (building on a previous
standard). This profile is set out to be more successful (in finding a business partner)
in a market that has a dominant design (a clear standard is applied in this market). In
contrast to this profile is the Originator which has a management style that is highly
entrepreneurial and have a radical invention (totally new standard). This profile is set

out to be more successful (in finding a business partner) in a market that does not
have a dominant design (established standard). New startups should align themselves
to one of the profiles when commercializing an invention to be able to find and be
attractive to a business partner. By finding a business partner a startup will have
greater chances to become successful.
Startup culture :
Startups use a casual attitude in some respects to promote efficiency in the
workplace, which is needed to get their business off the ground. In a 1960 study,
Douglas McGregor stressed that punishments and rewards for uniformity in the
workplace are not necessary, because some people are born with the motivation to
work without incentives. This removal of stressors allows the workers and researchers
to focus less on the work environment around them, and more at the task at hand,
giving them the potential to achieve something great for their company.
This culture today has evolved to include larger companies aiming at acquiring
the bright minds driving startups. Google, amongst other companies, has made
strides to make purchased startups and their workers feel right at home in their
offices, even letting them bring their dogs to work. The main goal behind all changes
to the culture of the startup workplace, or a company hiring workers from a startup
to do similar work, is to make the people feel as comfortable as possible so they can
have the best performance in the office. Some companies even try to hide how large
they are to capture a particular demographic, as is the case with Heineken recently.

Co-founders :
Co-founders are people involved in the cultivation of startup companies.
Anyone can be a co-founder, and an existing company can also be a co-founder, but
frequently co-founders are entrepreneurs, engineers, hackers, venture capitalists,
web developers, web designers and others involved in the ground level of a new,
often high-tech, venture. The language of securities regulation in the United States
considers co-founders to be "promoters" under Regulation D.
The U.S. Securities and Exchange Commission definition of "Promoter" includes:
(i) Any person who, acting alone or in conjunction with one or more other persons,
directly or indirectly takes initiative in founding and organizing the business or
enterprise of an issuer;
Not every promoter is a co-founder. In fact, there is no formal, legal definition of
what makes somebody a co-founder. The right to call oneself a co-founder can be
established through an agreement with one's fellow co-founders or with permission
of the board of directors, investors, or shareholders of a startup company. When
there is no definitive agreement (like SHA), disputes about who the co-founders are
can arise.
Startup investing :
Startup investing is the action of making an investment in an early-stage
company (the startup company). Beyond founders' own contributions, some startups
raise additional investment at some or several stages of their growth. Not all startups
trying to raise investments are successful in their fundraising. The solicitation of funds

became easier for startups as result of the JOBS Act. Prior to the advent of equity
crowdfunding, a form of online investing that has been legalized in several nations,
startups did not advertise themselves to the general public as investment
opportunities until and unless they first obtained approval from regulators for an
initial public offering (IPO) that typically involved a listing of the startup's securities on
a stock exchange. Today, there are many alternative forms of IPO commonly
employed by startups and startup promoters that do not include an exchange listing,
so they may avoid certain regulatory compliance obligations, including mandatory
periodic disclosures of financial information and factual discussion of business
conditions by management that investors and potential investors routinely receive
from registered public companies.

Evolution of startup investing :
After the Great Depression, which was blamed in part on a rise in speculative
investments in unregulated small companies, startup investing was primarily a word
of mouth activity reserved for the friends and family of a startup's co-founders,
business angels and Venture Capital funds. In the United States this has been the case
ever since the implementation of the Securities Act of 1933. Many nations

implemented similar legislation to prohibit general solicitation and general
advertising of unregistered securities, including shares offered by startup companies.
In 2005, a new Accelerator investment model was introduced by Y Combinator that
combined fixed terms investment model with fixed period intense bootcamp style
training program, to streamline the seed/early stage investment process with training
to be more systematic.
Following Y Combinator, many accelerators with similar models have emerged
around the world. The accelerator model have since become very common and
widely spread and they are key organizations of any Startup ecosystem. Title II of the
Jumpstart Our Business Startups Act (JOBS Act), first implemented on September 23,
2013, granted startups in and startup co-founders or promoters in US. the right to
generally solicit and advertise publicly using any method of communication on the
condition that only accredited investors are allowed to purchase the securities.
However the regulations affecting equity crowdfunding in different countries vary a
lot with different levels and models of freedom and restrictions. In many countries
there are no limitations restricting general public from investing to startups, while
there can still be other types of restrictions in place, like limiting the amount that
companies can seek from investors. Due to positive development and growth of
crowdfunding, many countries are actively updating their regulation in regards to
crowdfunding.
Startup investing rounds :

When investing in a startup, there are different types of stages in which the
investor can participate. The first round is called seed round. The seed round
generally is when the startup is still in the very early phase of execution when their
product is still in the prototype phase. At this level angel investors will be the ones
participating. The next round is called Series A. At this point the company already has
traction and may be making revenue. In Series A rounds venture capital firms will be
participating alongside angels or super angel investors. The next rounds are Series B,
C, and D. These three rounds are the ones leading towards the IPO. Venture capital
firms and private equity firms will be participating.
Startup investing online :
The first known investment based crowdfunding platform for startups was
launched in Feb. 2010 by Grow VC, followed by the first US. based company
ProFounder launching model for startups to raise investments directly on the site, but
ProFounder later decided to shut down its business due regulatory reasons
preventing them from continuing, having launched their model for US. markets prior
to JOBS Act. With the positive progress of the JOBS Act for crowd investing in US.,
equity crowdfunding platforms like SeedInvest and CircleUp started to emerge in
and platforms such as investiere, Companisto and Seedrs in Europe and OurCrowd in
Israel. The idea of these platforms is to streamline the process and resolve the two
main points that were taking place in the market. The first problem was for startups
to be able to access capital and to decrease the amount of time that it takes to close a
round of financing. The second problem was intended to increase the amount of deal
flow for the investor and to also centralize the process.

Internal startups :
Large or well-established companies often try to promote innovation by setting
up "internal startups", new business divisions that operate at arm's length from the
rest of the company. Examples include Target Corporation (which began as an
internal startup of the Dayton's department store chain) and threedegrees, a product
developed by an internal startup of Microsoft((annex))
.
((annex)) : Microsoft Corporation : (commonly referred to as Microsoft) is an
American multinational technology company headquartered in Redmond,
Washington, that develops, manufactures, licenses, supports and sells computer
software, consumer electronics and personal computers and services. Its best known
software products are the Microsoft Windows line of operating systems, Microsoft
Office office suite, and Internet Explorer and Edge web browsers. Its flagship
hardware products are the Xbox game consoles and the Microsoft Surface tablet
lineup. It is the world's largest software maker by revenue, and one of the world's
most valuable companies.
Microsoft was founded by Paul Allen and Bill Gates on April 4, 1975, to develop
and sell BASIC interpreters for Altair 8800. It rose to dominate the personal computer
operating system market with MS-DOS in the mid-1980s, followed by Microsoft
Windows. The company's 1986 initial public offering, and subsequent rise in its share
price, created three billionaires and an estimated 12,000 millionaires among

employees. Since the 1990s, it has increasingly diversified from the operating system
market and has made a number of corporate acquisitions. In May 2011, Microsoft
acquired Skype Technologies for $8.5 billion in its largest acquisition to date.
As of 2015, Microsoft is market dominant in both the IBM PC-compatible
operating system (while it lost the majority of the overall operating system market to
Android) and office software suite markets (the latter with Microsoft Office). The
company also produces a wide range of other software for desktops and servers, and
is active in areas including Internet search (with Bing), the video game industry (with
the Xbox, Xbox 360 and Xbox One consoles), the digital services market (through
MSN), and mobile phones (via the operating systems of Nokia's former phones and
Windows Phone OS). In June 2012, Microsoft entered the personal computer
production market for the first time, with the launch of the Microsoft Surface, a line
of tablet computers.
With the acquisition of Nokia's devices and services division to form Microsoft
Mobile Oy, the company re-entered the smartphone hardware market, after its
previous attempt, Microsoft Kin, which resulted from their acquisition of Danger Inc.
The word "Microsoft" is a portmanteau of "microcomputer" and "software".
Restarters :
Failed entrepreneurs, or restarters, who after some time restart in the same
sector with more or less the same activities, have an increased chance of becoming a

better entrepreneur. However, some studies indicate that restarters are more heavily
discouraged in Europe than in the US.
Trends and obstacles :
If a company's value is based on its technology, it is often equally important for
the business owners to obtain intellectual property protection for their idea. The
newsmagazine The Economist estimated that up to 75% of the value of US public
companies is now based on their intellectual property (up from 40% in 1980). Often,
100% of a small startup company's value is based on its intellectual property. As such,
is important for technology-oriented startup companies to develop a sound strategy
for protecting their intellectual capital as early as possible.
Startup companies, particularly those associated with new technology,
sometimes produce huge returns to their creators and investors—a recent example
of such is Google, whose creators became billionaires through their stock ownership
and options. However, the failure rate of startup companies is very high.
One common reason for failure is that startup companies can run out of
funding, without securing their next round of investment or before becoming
profitable enough to pay their staff. When this happens, it can leave employees
without paychecks. Sometimes these companies are purchased by other companies,
if they are deemed to be viable, but oftentimes they leave employees with very little
recourse to recoup lost income for worked time.

Although there are startups created in all types of businesses, and all over the
world, some locations and business sectors are particularly associated with startup
companies. The internet bubble of the late 1990s was associated with huge numbers
of internet startup companies, some selling the technology to provide internet access,
others using the internet to provide services. Most of this startup activity was located
in the most well known startup ecosystem - Silicon Valley((annex))
, an area of northern
California renowned for the high level of startup company activity:
The spark that set off the explosive boom of "Silicon startups" in Stanford
Industrial Park was a personal dispute in 1957 between employees of Shockley
Semiconductor and the company’s namesake and founder, Nobel laureate and co-
inventor of the transistor William Shockley... (His employees) formed Fairchild
Semiconductor immediately following their departure...
After several years, Fairchild gained its footing, becoming a formidable presence
in this sector. Its founders began leaving to start companies based on their own latest
ideas and were followed on this path by their own former leading employees... The
process gained momentum and what had once began in a Stanford’s research park
became a veritable startup avalanche... Thus, over the course of just 20 years, a mere
eight of Shockley’s former employees gave forth 65 new enterprises, which then went
on to do the same...
Recently the patent assets of failed startup companies are being purchased by
what are derogatorily known as patent trolls who then take the patents from the
companies and assert those patents against companies that might be infringing the
technology covered by the patent.

((annex)) : Silicon Valley is a nickname for the southern portion of the San Francisco
Bay Area, which is located in part of the U.S. state of California known as Northern
California. It is home to many of the world's largest high-tech corporations and
thousands of startup companies. Geographically, it encompasses all of the Santa Clara
Valley, the southern half of the San Francisco Peninsula, and southern portions of the
East Bay. It includes parts or most of Santa Clara County, San Mateo County, and
Alameda County. San Jose is considered to be the Capital of Silicon Valley.
The word "valley" refers to the Santa Clara Valley, where the region has
traditionally been centered, which includes the city of San Jose and surrounding cities
and towns. The word "silicon" originally referred to the large number of silicon chip
innovators and manufacturers in the region. The term "Silicon Valley" eventually
came to refer to all high tech businesses in the area, and is now generally used as a
synecdoche for the American high-technology economic sector. It also became a
global synonym for leading high-tech research and enterprises, and thus inspired
similar named locations, as well as research parks and technology centers with a
comparable structure all around the world.
Silicon Valley is a leading hub and startup ecosystem for high-tech innovation
and development, accounting for one-third of all of the venture capital investment in
the United States. It was in the Valley that the silicon-based integrated circuit, the
microprocessor, and the microcomputer, among other key technologies, were
developed. As of 2013, the region employed about a quarter of a million information
technology workers.

"Perhaps the strongest thread that runs through the Valley's past and present is
the drive to 'play' with novel technology, which, when bolstered by an advanced
engineering degree and channeled by astute management, has done much to create
the industrial powerhouse we see in the Valley today."

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