One of the serious topics in the economy is the discussion of entrepreneurship and investment in startups, which sometimes opens different and diverse paths for investors. Investors always strive to find the best, most reliable, and quickest return paths for their investments, one of which is identifying new ideas that meet the day’s societal needs, known as startups.
Understanding the Concept of Entrepreneurship and Investment in Startups
Entrepreneurship is recognized as a serious concept in economic discussions and has a close relationship with startups. FFMag first introduces you to the precise definitions of entrepreneurship and startups to better understand the topic of entrepreneurship and investment in startups.
What is Meant by Entrepreneurship?
A general and primary definition is that entrepreneurship is starting a business with the goal of making a profit. With the growth and development of societies and the very extensive changes and the very widespread increase in factors affecting the economy and related topics, this definition has also changed to be more precise, extensive, and dynamic.
In a general statement, entrepreneurship is a process in which individuals or a group of entrepreneurs take advantage of a business opportunity and situation to engage in one of the following methods and create jobs and a source of income for a number of people:
- Offering a specific product
- Creating a new process in the market circulation
- Improving and developing specific goods or products
- Providing specialized services in a specific area
- Defining and creating a production method
Typically, each of the above is organized and formed through a newly established center or company and sometimes takes shape with the growth and development of a small business in operation; for example, a significant and special change in a specific product or a fundamental change in operational strategy can be considered a field of entrepreneurship.
With this definition, we can take a clearer look at the relationship between entrepreneurship and investment in startups; but before that, let’s learn more about startups.
What is a Startup?
Startups are young companies that start their activity to develop a product or offer a specific and unique type of service. They strive to overcome customer resistance to their product or service. Their work is based on innovation, and their goal is defined as rectifying deficiencies or shortages in the supply of goods or providing services. Interestingly, various industries recognize them as disruptive centers!
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The Relationship Between Entrepreneurship and Investment in Startups
As mentioned, startups are at the beginning of their economic activity, and their most prominent feature is high costs and having little or no income. They have no choice but to attract capital from individuals, centers, or credible sources to continue and compete in the market so that they can profit from their product or services by introducing their activity.
Since these companies are always looking for innovation and identifying serious customer needs, different investors are inclined to circulate their money and benefit from their profits by supporting them.
Investing in Startups; Opportunity or Risk?
Investors, in exchange for financial support and strengthening the required economic resources of startups, obtain a portion of the shares or profits of them; however, it must not be forgotten that entering the world of entrepreneurship and investing in startups is always accompanied by economic risks and the possibility of not getting the investment back.
The majority of fledgling companies seeking capital for their nascent activity are in fields such as technology, health and medicine, medical services, software production, various internet activities and virtual services, design and development of needed goods, offering a new solution for existing problems, and similar cases. With all this said, many of today’s big companies were once fledgling, small, and at-risk centers not so long ago.
In this regard, investors, considering the high risk potential and necessary future outlooks and the level of innovation and companies’ alignment with customer needs or desires, spend their assets in support of them and sometimes wait for them to gain power and become big competitors in the economic arena, one of the important conditions of which is efficient and calculated management.
Ways of Investing in Startups
There are different methods for investing in newly established companies and centers, which are considered very necessary for entrepreneurship and investing in startups. FFMag introduces these methods to enthusiasts:
Personal Investors
In this simplest method, an entrepreneur with personal capital, which may not be very large, starts their business or company. This type of approach can also be referred to as bootstrapping. Before such an action, individuals must definitely perform precise planning and clear budgeting and ensure the economic justification of their company’s launch.
Angel Investors
This type refers to individuals who, in return for their capital, obtain a significant share in the startup. This method is one of the most common ways of attracting capital at the beginning of the journey. Typically, angel investors do not bet on companies without a history and high-risk; however, if they receive economic justification and a successful review of the work, they are considered among the best and most suitable investors.
Collaborative Investors
Another path for entrepreneurship and investment in startups that takes place from the beginning is the participation of investors in production and income. This group of people will also receive shares of the company in exchange for their investment and prefer activities that they are highly confident in their productivity; like technological activities or the health and medicine field.
Crowdfunding
This method means that public investors scattered in society choose their desired startup through some online platforms designed for this purpose and, in exchange for this financial support, ask for rewards, products, or services of this kind; some also prefer to own a number of company shares in exchange for their support.
Bank Loans
Receiving bank loans has always been presented as a financial source for launching new businesses and entrepreneurs, especially young producers. They are often available to individuals or fledgling companies with low interest or profit rates and with a long-term return period.
Venture Capital
The characteristic of this type of investment is the high sensitivity of participants along with large amounts of capital. This group is mainly willing to invest in works and companies that have a high profitability potential and whose chances of success in entrepreneurship and investing in startups are evaluated at a significant level. Startups with a proven and specific history are more successful in attracting this group.
Family Funds
This method is also one of the fields where families with concentrated and significant wealth come together to launch specific or diverse startups together or in partnership.
Conclusion
Entrepreneurship and investing in startups have significant importance in economic discussions. Investors can support fledgling companies through several methods and achieve suitable profits in exchange for their investment and financial support. FFMag introduces these methods to interested parties.
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By David Taha