Definition of a startup
Start-up means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
- Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.
- Provided also that an entity shall cease to be a Start-up if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/ registration.
The organizational function of the startup is to search for a repeatable and scalable business model.
A startup founder has three main functions:
- To provide a vision of a product with a set of features
- To create a series of hypotheses about all the pieces of the business model: Who are the customers? What are the distributions channels? How do we build and finance the company, etc.
- To quickly validate whether the model is correct by seeing if customers behave as your model predicts.
A startup is funded differently. While both a startup and small business will likely start with funding from the founder’s savings, friends and family, or a bank loan; if a startup is successful, it will receive additional series of funding from angel investors, venture capitalist, and eventually, an initial public offering (IPO). With each series of funding, the startup founder’s equity is eroded, while ownership of the company diversifies.
Eligibility for being a startup in India:
- A recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India.
- An incubator, which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation
- A recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI.
- Be funded by an Incubation Fund/ Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business.
- Be funded by GoI as part of any specified scheme to promote innovation.
- Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.