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START-UPS AS A DRIVERS OF INNOVATIVE ECONOMY

22.11.2016 12:25

[Секция 1. Экономика, организация и управление предприятиями, отраслями, комплексами]

Автор: Stepanenko A., student, Pridneprovsk State Academy of Civil Engineering and Architecture; Galushko O.I., senior lecturer, Pridneprovsk State Academy of Civil Engineering and Architecture


We live in time of highly developed technologies and intensive scientific-research progress. There are a lot people who are interested in setting their own business up, not only for profit, but also for personal satisfaction from work. In recent years, the word «start-up» has become very popular. A startup is a young company that is just beginning to develop. Startups are usually small and initially financed and operated by a handful of founders or one individual. These companies offer a product or service that is not currently being offered elsewhere in the market, or that the founders believe is being offered in an inferior manner [1]. The purpose of this theses is to investigate the role of the start-up and the importance of innovation for economic development.

In a knowledge-based society, innovation is the driving force of the economy on all levels and in all types of organizations. Due to high risks present when introducing new products and services, innovations are usually commercialized via isolated formal formations such as startup companies. In the early stages, startup companies' expenses tend to exceed their revenues as they work on developing, testing and marketing their idea. As such, they often require financing. Startups may be funded by traditional small business loans from banks or credit unions, by government-sponsored Small Business Administration loans from local banks, or by grants from nonprofit organizations and state governments. Incubators can provide startups with both capital and advice, while friends and family may also provide loans or gifts. A startup that can prove its potential may be able to attract venture capital financing in exchange for giving up some control and a percentage of company ownership [1].

Startups may be small companies but they can play a significant role in economic growth. They create more jobs which mean more employment, and more employment means an improved economy. Not only that, startups can also contribute to economic dynamism by spurring innovation and injecting competition. New entrepreneurs can bring new ideas to the table, much needed to stir innovation and generate competition.

Startups have a direct-impact on the cities that they make their homes. Look at how Infosys has changed Bangalore, Alibaba impacted Hangzhou, Microsoft changed Redmond and Google transformed Mountain View, California. All these companies started small, but as they grew, they transformed the cities where they operated. They improved employment patterns providing job opportunities to both experienced and young professionals. This led to surge in inflow of graduates and relocation of experienced professionals from different cities.

However, not all is so simple, not all entrepreneurs who want to start a business will be able to do this because every startup has its own characteristics. There are six varieties: lifestyle, small business, scalable, buyable, social and inside a large company. The founders who start these are all “entrepreneurs.” But there are significant differences between the people, funding and strategies involved. Not understanding those differences can screw up your chance of success. There are 6 different classes of startups, let’s look at their features [2]:

1) Lifestyle entrepreneurs live the life they love, work for no one but themselves and pursue their personal passion. In order to get something you need to dedicate to it, to be fond of doing that. it is very important for business.

2) Small business startups mainly work to feed the family and live in comfort.

3) Scalable startups are interested not only in earning for living but rather in creating the equity in a company that eventually will become publicly traded or acquired, generating a multi-million-dollar payoff (like Google, Skype, Facebook, Twitter etc).

4) Buyable startups have acquisition targets. Many of these startups bypass traditional VCs by using crowd or angel funding. This class of startup is likely to be sold to a larger company for $5 million to $50 million. 

5) Social startups are driven to make the world a better place, not only to take market share or to create to wealth for the founders. They may be organized as a nonprofit, for-profit or hybrid.

6) Large company startups created by corporations as almost every large company understands that it also needs to deal with ever-increasing external threats by continually innovating. 

However, not every country has a well-developed industry start-ups and investment in this business. But if talk about Ukraine there are first positive steps, but they are rather some positive exceptions, rather than they are full-fledged trends that determine the development of the industry. Nevertheless, the Ukrainian start-ups have been begun to actively invest. The volume of investments in this area since the beginning of 2016 grew by 36% and reached $ 4.8 million. A total of 20 investment deals were closed. And for the last two years UAngel investors have invested in start-ups of more than $ 7 million it is about 87 projects [3].

The average amount of investment per project was $ 48.1 thousand UAngel Investors also actively participate in syndicated transactions. There have been seven syndicates, totaling $ 1.2 million for two years. Lately, business angels have invested in the Ukrainian startups and their share in the community's portfolio is 69.2%. According to this it is probably that we can wait for the success and development of our economy. But unfortunately, there is no favorable environment for the creation and survival of start-ups in Ukraine [3]. Unfortunately, we are not taught to build a technology business at schools, universities. Model fast construction companies, regular tests, iteration and rapid growth as a result will become a key to any business, oriented to the mass consumer. This should be the basis for all specializations related to entrepreneurship, in any university.

Today there are smart technically-savvy professionals in Ukraine, who can create products, and their wages are lower than world prices. That is, we already have the conditions to stage of ideas, prototyping and MVP. However, we do not have the environment which would help start-ups to appear. We need more investors to early stage of financing. Moreover, from qualified angel investors who invest not only in his spare time money earned by their core business, and those who are fully engaged in venture capital investment and support for start-ups in the early stages. Such, who will be immersed in the industry. So we need constant activity on the part of angel investors. Also the government should take a part in developing the area for startups. 

So, Ukraine has no own large market in order to startups can grow quickly, but there are prerequisites for the creation of product and innovation. If Ukraine will be able to use their strengths and focus only on how to make the initial stages of the life of startups, the most productive, and most importantly will not try to build a copy someone else's environment, our country could become a unique incubator for new technology start-ups, in which they will pass the initial phase of life and go for growth in the international market. This can help the country become a central European technology and innovation hub.

Facilitating settings for ambitious innovative entrepreneurship is fundamentally different to facilitating settings for self-employed necessity entrepreneurship. Startup companies are thus those that have ambition and potential to become gazelles that can, with quick growth, create a large number of new jobs. This is often, but not always, the case for companies from high-tech industries. The majority of developed countries in a knowledge-based society encourage startup entrepreneurship from the aspect of investment into the future as well as from the aspect of actively designing long-term economic policy.




References:

1. http://www.investopedia.com/ask/answers/12/what-is-a-startup.asp#ixzz4OZzzbheC

2. http://blogs.wsj.com/accelerators/2013/06/24/steve-blank-the-6-types-of-startups-2/

3. http://ubr.ua/market/startup-time/skolko-investory-gotovy-vkladyvat-v-ukrainskie-startapy-420418



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