Understanding startups

Find out what a startup is, and why it’s worth considering a startup pathway

Some of the best ideas for startup companies begin with research. Universities are a rich breeding ground for change-making ideas, innovations and new approaches to tackling some of the world’s most challenging problems.

Launching a startup company is one of the ways to take your research discovery or innovation and expand it, improve it and ensure it reaches a broader audience.

What is a startup?

A startup company could be a for-profit business or a social-purpose venture. In a university, a startup usually refers to a new company, founded and run by researchers with the support of the university and based on the founders’ research or new ideas. The aim is to bring a unique product or service to market and grow a self-sustaining business.

Why get involved in a startup 

There are many reasons to get involved as a founder or supporter of a startup company. For example, you may want to:

  • follow an entrepreneurial pathway if it’s most likely to deliver the impact you want to achieve
  • explore an entrepreneurial career path as a business founder and owner
  • play a significant hands-on role in developing your idea or innovation
  • reduce reliance on grant funding
  • create opportunities for employment
  • achieve recognition and personal fulfilment.

Some common startup terms 

Founders

The people who drive the formation of a startup, hold equity in the business and create its vision and business plan.

Spin-out, or University spin-out

A new company founded by the University to commercialise its intellectual property, at least partly owned and controlled by the University.

Social enterprise or social purpose venture

Enterprises that have a social impact but are run on commercial principles. They compete in marketplaces on their own merits but are:

  • driven by a public or community clause, be it social, environmental, cultural or economic
  • derive most of their income from trade, not donations or grants
  • use the majority (at least 50 per cent) of their profits to work towards their social mission.

Source: Finding Australia’s Social Enterprise Sector Report 2016

Value proposition

This is a statement of how the startup’s product or service solves a problem for its customer, by:

  • removing obstacles that prevent them from doing their job
  • enhancing their success at it.

Startup constitution 

A startup’s constitution defines the details of the company’s day-to-day governance. The constitution complements the shareholders’ agreement. In some cases, the constitution is made widely available (for example, to employees), but the shareholders’ agreement is kept confidential. In other cases, the main items of the constitution are included in the shareholders’ agreement.

Shareholders’ agreement 

The shareholders’ agreement documents the relationship between the startup’s shareholders (its founders and investors) and the startup. It defines:

  • how much of the startup each shareholder owns
  • the process for issuing new shares
  • the shareholders’ participation in the governance of the startup.

A complementary agreement – the constitution – defines the details of the day-to-day governance of the startup.

Pre-seed and seed stage

The University defines pre-seed funding as the earliest stage of funding for a new company, and typically refers to the period when a company's founders are first getting their operations off the ground. The goal of pre-seed funding is to enable startup founders to demonstrate that their new research or idea fulfils a market need. Pre-seed funding usually sits in the realm of up to $A500,000.

Seed funding is usually the first official equity funding stage sitting between $A500,000 - $A2 million. It typically represents the first official money a startup raises. Seed funding helps a company’s founders finance its first steps and might include things like customer and/or market research or new product development as well as the creation and validation of product prototypes.

Exit

The eventual sale of a startup, through acquisition by another company or initial public offering. This means the floating of some or all of the shares of the startup on a public stock exchange. An exit gives shareholders the opportunity to sell their shares.

First published on 7 March 2023.

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