A startup is a young company that is just beginning to develop. Startups 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.
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. Startups may be funded by traditional small business loans from banks or credit unions, by government-sponsored Small Business Administration loans from local banks, or by grants from non profit organizations and state governments. Incubators can provide startups with both capital and advice, while friends and family may also provide loans or gifts. A startup that can prove its potential may be able to attract venture capital financing in exchange for giving up some control and a percentage of company ownership.
Because startups don’t have much history and may have yet to turn a profit, investing in them is considered high risk. Here are some ways that potential lenders and investors can value a startup in the absence of revenues:
- The cost to duplicate approach looks at the expenses the company has incurred to create its product or service, such as research and development and the purchase of physical assets. However, this valuation method doesn’t consider the company’s future potential or intangible assets.
- The market multiple approaches look at what similar companies have recently been acquired for. The nature of a startup often means that there are no comparable companies, however. Even when there are comparable company sales, their terms may not be publicly available.
- The discounted cash flow approach looks at the company’s expected future cash flow. This approach is highly subjective.
- The development stage approach assigns a higher range of potential values to companies that are further developed. For example, a company that has a clear path to profitability would have a higher valuation than one that merely has an interesting idea.
Because startups have a high failure rate, would-be investors should consider not just the idea, but the management team’s experience. Potential investors should also not invest money that they cannot afford to lose in startups. Finally, investors should develop an exit strategy, because until they sell, any profits exist only on paper.
A startup company (startup or start-up) is an entrepreneurial venture typically describing newly emerged, fast-growing business. Definition of the startup usually refers to accompany, a partnership or an organization designed to rapidly develop scalable business model. Often, startup companies deploy advanced technologies, such as Internet, communication, robotics, etc. These companies are generally involved in the design and implementation of the innovative processes of the 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.
Startups in India
Prime Minister Narendra Modi on Saturday launched the “Start-Up India Action Plan” that aims to enable an eco-system to promote and nurse entrepreneurship across the country. Startup India in an action plan to develop an ecosystem to promote and nurture entrepreneurship across the country. This is based on an action plan aimed at promoting bank financing for start-up ventures to boost entrepreneurship and encourage startups with jobs creation. A startup is an entity, private, partnership or limited liability partnership (LLP) firm that is headquartered in India, which was opened less than five years ago and have an annual turnover less than Rs25 crore. To be eligible for considering as startup, the entity should not be formed by splitting up or reconstruction and its turnover should not have crossed Rs25 crore during its existence.
The objective is that India must become a nation of job creators instead of being a nation of job seekers. The Prime Minister of India will formally launch the initiative on January 16, 2016 from Vigyan Bhawan, New Delhi. The event will be attended by a vast number of young Indian entrepreneurs (over 2000) who have embarked on the journey of entrepreneurship through Start-ups.
As a key component of this “Start-up India” launch, Government of India is organizing a global workshop on “Innovation and Start-ups” on January 16, 2016. Shri Narendra Modi, Prime Minister of India will be the Chief Guest on the occasion. This workshop aims to provide a platform to bring together all stakeholders, stimulate dialogue on key challenges that the Indian innovation ecosystem currently faces, and provide the potential solutions to address them.
Fostering a fruitful culture of innovation in the country is a long and important journey. This initiative will go a significant way in reiterating Government of India’s commitment to making India the hub of innovation, design and Start-ups.
Are there financial benefits?
In patent costs, the startups can claim an 80% rebate. That means, if a startup applies for a patent, the government will fund the defence of the patent, and give rebate of 80% in the fees. The government will also pay fees of the facilitator for helping the startup obtain the patent. Faster patent registration and protection for Intellectual Property Rights (IPRs) is provided under the Scheme. Patent filing procedures to be simplified. Significant reduction in fees for filing Patents.
What are the advantages for startups regarding registration?
The government is launching a mobile app on 1 April 2016 and a portal that will allow companies to register in a day. In addition, there would be a single point of contact for Start-up India hub. In addition, there will be single window clearance for clearances, approvals, and registrations.
What is the government’s role in boosting start ups?
The Ministry of Human Resource Development (HRD) and the Department of Science and Technology have agreed to partner in an initiative to set up over 75 startup support hubs in the National Institutes of Technology (NITs), the Indian Institutes of Information Technology (IIITs), the Indian Institutes of Science Education and Research (IISERs) and National Institutes of Pharmaceutical Education and Research (NIPERs).
What are the special benefits for startups in public procurement?
Startups in the manufacturing sector are exempted from the criteria of prior ‘experience/ turnover’ without any relaxation in quality standards or technical parameters in public procurement (by government).
How much funding is available for this scheme?
Rs10,000-crore fund for new enterprises, equal opportunity in government procurement, a Rs500-crore credit guarantee scheme and easier exit norms. Japanese Softbank, which had already invested $2 billion in Indian startups, has pledged total investments of $10 billion.
What are benefits under the provision on Income Tax?
Under the Scheme, Income Tax exemption is available for first three years. However, the startup will be eligible for tax benefits only after obtaining certificate from the Inter-Ministerial Board, setup for this purpose.
Is there any exemption in capital gains tax?
Yes. If the money is invested in fund of funds recognised by the government, the investor can claim capital gains tax exemptions. In addition, existing capital gain tax exemption for investment in newly formed MSMEs by individuals shall be extended to all startups.
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