What Is a Start-Up? Definition, Starting One, Example

What Is a Start-Up?

By Jeremy Bowman – Updated Dec 12, 2024 at 2:16 PM

Key Points

Start-ups, typically tech-focused, need substantial funding to grow and may include any industry.
Initial funding often comes from personal networks, angel investors, or VC firms.
Investing in start-ups pre-IPO is hard for retail investors; platforms for shares exist.

Companies go through several stages of the business life cycle, and almost all major companies begin as start-ups. Although the term is relatively new, the concept has been the same -- even for businesses founded in the 1800s. These days, most investors think of a start-up as a tech company, but it can apply to a new company in any industry.

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Welcome We Are Open sign in the window of a start-up business. — Image source: Getty Images.

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The first round of fundraising is called the seed round. Once the start-up has raised money in the seed round, they'll hire employees, get the equipment and office space they need, and get to work building the company, developing the product, and making sales.

As they grow, the goal is to raise more money in future funding rounds until the company is large enough to go public or get acquired, allowing early investors, like VC firms, to cash out and exit.

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Some platforms allow individual investors to buy shares of start-ups through an exchange with employees who typically hold stock in the company. There are also crowdfunding platforms for new projects and businesses, but these are typically for businesses smaller than the start-ups raising money through VC firms.

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Since launching over the summer, Mistral AI has introduced a beta model called Frontier AI, aiming to create a family of open models. Investors in Mistral AI are likely eyeing the monster valuation that privately held ChatGPT-creator OpenAI just reached at $90 billion, a sign that investors are clearly bullish on the trend.

That's evidence that a well-positioned start-up can be hugely successful before it goes public.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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