Startups are young enterprises that are formed to provide idiosyncratic products or services, thus created to solve real-life problems. One or more entrepreneurs form startups to develop products for which they think demand exists. These entrepreneurs get funds for the startup from either their savings or by attracting investors and funders to finance their business.
A person who is interested in working in a startup must know the basics of the startup, i.e., its meaning, its types, and the important terms that are used in a startup.
In this article we will be going to cover the meaning of the most important and frequently used terms in a startup, some of them are discussed below:
When entrepreneurs use their own money or savings to fund their startup, it is said to be Bootstrapping. It is a situation where the entrepreneur instead of depending on or relying on funds from other sources of investment, uses his own funds to start a business. By Bootstrapping one can have strict control over the business, but this may also increase the financial strain on them in some cases.
Companies like GrabOn, Gxpress and HappyFox are some companies bootstrapping their way to success.
Venture Capitalist is an individual who invests in different companies with a view of getting an equity share in the exchange for it. VCs may invest their money in small companies or startups that wish to expand but do not have access to the market. The firms which perform such functions are known as Venture Capital Firms. These firms make financing decisions and invest in companies or startups which may have emerging growth in the future.
Some of the well-known VCs are Jim Breyer, an early investor in Facebook, and Peter Fenton, an investor in Twitter.
INITIAL PUBLIC OFFERING
When a company starts offering its shares on the stock market to invite more and more public investments, it is known as Initial Public Offering. Any company – new, young, or old which is listed can offer its shares to the public. Offering an IPO is a business-expanding activity, it is done with a view to bringing more capital to improve business, for better infrastructure, or for repaying loans.
Some of the companies which have recently issued their IPO are Elin Electronics Ltd. Moxsh Overseas Educon Ltd. Arihant Academy Ltd. Uma Converter Ltd.
MINIMUM VIABLE PRODUCT
“MVP is that version of a new product that allows a team to collect the maximum amount of validated learning about customers with the least effort”. – ERIC RIES
MVP shows the key features and selling points without costing a fortune to make a full-fledged product before it gets funding. So in simple words, MVP is just a version of the product with enough features by which the early customers and potential investors can provide feedback if needed.
EMPLOYEE STOCK OWNERSHIP PLANS
When a company gives ownership rights to its employees in the form of company stocks, it is known as ESOP. In this, an option is given to the directors, officers, or employees of a company to subscribe for shares at a future date at a predetermined price. Along with giving certain benefits to the company, ESOP creates a feeling of belongingness among the employees which encourages them to work more efficiently for the company so that the company’s success can be transferred into financial rewards.
Companies like Flipkart and Myntra also issued ESOP in their initial years of starting.
SWEAT EQUITY SHARES
Sweat Equity Shares is more like an award for the hard work and dedication of employees towards their work. Sweat equity shares means shares that are issued by a company to its employees or directors at a discounted rate or as a consideration for providing their services to the company. These shares are only issued to a permanent employee or a director. Any company can issue these shares by passing a Special Resolution at a general meeting.