When you’re looking to invest, in anything and any sense of the word, it’s important to know what it is that you’re getting into. That’s why we find it extremely important to understand and define what exactly a startup is.

Not only with this definition structure the investing you are about to do, but it sets the stage for the types of startups that you are likely to lean towards when it comes time to invest.

So what is a startup?

“A startup is a company with limited operating history that is newly formed with the intentions to develop a product of service for a market”.

It seems like a fairly dry statement when worded that way, but it is important to have that functioning definition when moving forward. What we find interesting is the breakdown of what a startup truly is. For that we looked to Steven Gary Blank and his book The Four Steps to the Epiphany and based our structure around the outline he created:

What are startups? For our definition there are four types:

    1) Startups that are entering an existing market.

    2) Startups that are creating an entirely new market.

    3) Startups that want to resegment an existing market as a low cost entrant.

    4) Startups that want to resegment an existing market as a niche player.

Failing to recognize the key differentiators in what types of startups exist is an immediate strategic error when thinking about investing. It’s very important for an investor to recognize the types of a startup they are investing in so their expectations of capital requirements and ROI are understood.

Next we’ll begin our exploration of the four types of startups, starting with type number 1.