With the current pandemic, a lot of people have been entrenched or have shorter hours at work. Human beings, as adaptable beings as we are, have found a lot of means to make ends meet or supplement the amount short for the projected monthly expenses they need. A lot of these people have created businesses especially now that almost everything is being shifted digitally.
Some have created businesses out of offering services like tutoring, online booking of cleaning and sanitizing services, writing, and the like. While others made small businesses out of selling products, drop shipping, reselling, rebranding of goods, and others. Others have grander ideas that would need capital from other institutions as an investment.
A start-up is a recently founded company headed by one or more entrepreneurs to develop a product or service to the market.
Its initial funding is very limited, usually lent by family, friends, or the founders' own savings. It has been found that the funding rounds from seed capital to series A is 22 months, then the next one is 24 months, and the next phase 27 months. That said even if it only takes 6 days to start a business in the US, a five-year-old company can still be considered a startup. This is emphasized as funding is half the work in start-ups.
In 2018, there were approximately 30.2 million small businesses operating in the US which created 2 million jobs for one year alone.
So the economic value of a startup is a force to be reckoned with. Even if it is said that only 2 out 5 start-up companies are profitable and 1 in 3 breaks even while the rest is at a loss when there were 145 active unicorns in 2018, it generated a worth amounting to $555.9 billion.
The failure rate of startups remains at 90%, 10% in its first year.
The ones who surpass the first year, 70% of them fail from year 2 to 5. The reason why so many startups fail even if they have good ideas is misreading the demand for their product. This has been found 42% of the time. The 29% is running out of funds and personal cash for the founders. Other reasons for failure noted by experts are weak founding teams found at 23% of the start-ups and 19% being beaten by the competition. This usually occurs from years 3 to 5 of the startup.
Cash flow is a well-known problem for start-ups. But there are investors that are willing to fund a business if they see the potential and the valuation of the company suggests that it may succeed. These are several examples of avenues that startups could tap for funding for their business:
- Traditional institutions like banks which offer small business loans, credit unions, and government-sponsored Small Business Administration loans locally. There are also grants given by non-profit organizations and state governments.
- Angel investors or venture capitalists who receive proposals for business in exchange for stakes in the company. Individual venture capitalist firms receive 1,000 proposals each year that require at least $250,000 in funding. Venture capital funding has reached $155 billion in 2017. All hoping for the 1% unicorn startup like Uber, Airbnb, Slack, Stripe, and Docker. Bytedance, a Beijing-based start-up is a most valued startup at $75 billion. This company also owns the app TikTok.
- There are also business incubators that startups can join. This is usually associated with business schools and non-profit organizations. What they do is provide mentoring, office space, and most times even seed funding to startups.
There are different ways in which startups are valued.
Since most startups fail, it is a very risky place to invest. They have not much of a history and even lesser to none of the profits to show. That is why venture capitalists usually find ways to check if a company is a sound investment.
One of these ways is the market approach.
This is the valuation of a start-up in contrast to the acquired companies similar to the start-up. However, this strategy cannot be used if the concept of the start-up is really unique or one of its kind.
The next one would be the discounted cash flow approach.
Here the company profits are foreseen and future cash flow is computed. However, this is very subjective.
There is also a venture capitalist approach to valuation that doesn’t consider the future cash flow of the company nor its potential.
They check the value of a company by the cost that it takes to duplicate what has been already done in the company. This includes the development of the products or services and the cost of its physical assets. This is called the cost to duplicate approach.
Lastly, there is something called the development stage approach which values the startup company by the development that it has already made.
For example, even if a company does not make much profit but has a website that has good traffic and could prove some sales, it would have a higher value than a startup that is merely an idea.
How about you? Have you ever thought of starting your own business? Or have you owned a business before? Do you have a potential concept right now that could make money even during the pandemic? With that, you need to visualize it and write your ideas. It is good to say, a piece of paper or a notebook.
But when you are explaining it or trying to figure something out, a bigger surface to help you gain clarity of idea. At Flexispot, they have the Height Adjustable Whiteboard Standing Desk. This is an awesome desk that could be propped up as a whiteboard. So you can have two office furniture in one great product.
It can also be wheeled around easily with its 4 easy-rolling caster wheels that can turn 360 degrees and have a release and lock feature. That way when you are speaking while writing, the whiteboard doesn’t move an inch.