How to start a startup: A clear path for founders

Do you have an idea for the next big thing? If so, you’re already well on your way to starting a startup.

But a brilliant idea is just the beginning. There are infinite factors to consider when starting a company, from developing your business idea to building your team to establishing your business. It’s a long, complicated road ahead. To keep it simple, we’ve boiled it down to some of the main categories with guides, templates, and tools to help you at every step.

How to find and validate your startup idea

A successful startup begins by solving a real problem that people are willing to pay to fix, not just by having a product idea—in fact, having no market need is the top reason startups fail, accounting for 42% of collapses. The best ideas often come from a pain point you are passionate about and uniquely positioned to solve. Think about a challenge you've faced in your own life or work that doesn't have a good solution. This personal connection can fuel your determination through the ups and downs of the startup journey. The goal is to find a pain point that a specific group of people experiences, as this forms the foundation for everything that follows.

Many aspiring founders think they need a world-changing idea before they can start. In reality, the best startups often come from a deep understanding of a specific, frustrating problem. This focus helps you identify your first potential customers and gives you a clear direction for what you need to build, which will inform the early startup metrics you track.

Customer discovery: How to know if you have a good idea

Once you've identified a problem, you need to validate that other people feel the same way. This process, known as customer discovery, is a critical activity for early-stage founders and involves talking to potential users about their experiences. These conversations are not sales pitches; they are opportunities to listen and learn.

Your goal is to confirm that the problem is significant enough that people would pay for a solution, and you can ground your research in real data using resources like the Small Business Administration’s (SBA) state-by-state snapshots of small business activity. As Heather Hartnett, CEO at Human Ventures, explains during Carta’s Startup Fundraising 101 webinar: "You should talk to at least 100 customers to see if you have any insight. If you're a founder, you should know that problem inside and out and what customer is going to want to use it." This feedback is invaluable and will guide your product development strategy.

Conduct market research

Market research is how you validate that your idea is more than just a personal frustration. It’s the process of talking to potential customers to confirm that the problem you see is one that others experience and want solved. This early feedback is invaluable and helps you avoid building something nobody wants. It’s your first reality check.

To conduct effective market research, you can follow a few simple steps. The goal is to listen more than you talk and to understand the customer's world deeply.

• Identify your target customer: Start with a specific group of people who you believe experience the problem most acutely. Being specific here is better than being broad.

• Prepare open-ended questions: Your goal is to learn about their problems, not to pitch your idea. Ask questions that encourage them to share their frustrations and current workarounds, such as "What's the hardest part about managing your inventory?" or "When’s the last time you tried to solve this problem?"

• Listen for patterns: Pay close attention to recurring themes and pain points in your conversations. If multiple people independently bring up the same frustration, you're likely onto a real, widespread problem.

• Look for buyer intent: Early signals that people are actively looking for a solution or are very unhappy with existing options suggest a strong market need. When someone says, "If you built that, I would pay for it tomorrow," you're getting a strong signal.

What to include in your business plan

Think of your business plan less as a formal document and more as a storytelling tool. It can help you organize your thoughts and clearly communicate your vision to potential co-founders, early hires, and future investors.

Your business plan should be a living document that evolves as you learn. In a tough market where hard pivots are happening everywhere, this flexibility is a survival skill. It serves as your strategic guide during the early stages of your company, helping you stay focused on what matters most. It’s a roadmap that you can adjust as you gather more information.

Here are the key sections to include. Each section should be concise and clear, getting straight to the point.

• The problem: Clearly define the pain point your startup is solving. Explain why it's a significant problem for your target customers and what makes the current situation unacceptable.

• Your product: Describe your product or service. Detail how it directly addresses the problem you've identified in a unique or superior way.

• Target market: Identify exactly who your customers are. Research the market size to show the potential scale of your business and the opportunity for growth.

• The competition: Acknowledge your competitors and explain what makes your approach different or better. In an opportunistic, but crowded field where nearly half of all late-stage capital raised in 2024 went to AI companies, differentiation is a key component of any investor pitch deck.

• Your team: Highlight the experience and skills of your founding team. Especially in the early stages, investors often bet on people as much as they do on an idea. As serial entrepreneur Tim Eades notes, when raising a seed round, some investors were willing to commit capital based on their belief in the team even without an ironclad proof of concept. Use your business plan to explain why you are the right person to tackle this specific problem, detailing the unique expertise, past successes, and industry relationships you bring to the table.

• Marketing strategy: Outline how you’ll reach your target customers and drive adoption. Highlight the main channels you’ll use (such as content marketing, search engine optimization, social media, partnerships, or events) and why they fit your target audience. Briefly explain your messaging approach and how your tactics support scalable, cost-effective growth.

• Financial projections: Provide a high-level forecast of your expected revenue and expenses as part of your startup's financial reporting. This doesn't need to be perfect, but it should be thoughtful and based on reasonable assumptions about your market and business model.

Free pitch deck templates

Our free template developed in partnership with the expert team at Lyonshare.

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Who should be on your founding team?

Starting a company is a difficult and often lonely journey. Surrounding yourself with a team of experts you trust to help you grow your budding business is critical, including co-founders, lawyers, and advisors.

Co-founders

Having a co-founder means sharing responsibility, so you’re not totally on your own. Choose a partner who has complementary skills or knowledge to your own. Most importantly, find someone who will share your vision for the company.

A co-founder can provide much-needed moral support and bring a diverse set of skills to the table, which can be key for handling the challenges of building a business. The data supports this: While solo founders led 35% of all new companies incorporated in 2024, they were less successful in raising venture capital, accounting for just 17% of companies that secured a VC round that year.

When choosing co-founders, look for people you trust, respect, and can communicate with openly, especially under pressure. Think about past colleagues, classmates, or friends who have demonstrated resilience and a strong work ethic. The early days of a startup are intense, and since small businesses collectively employ 45.9% of American workers, your founding team is the bedrock not just of your company's culture, but of its future impact.

Keep in mind that you and your co-founder(s) will need to make some early decisions about how to split up ownership of the company. While this step might not seem urgent when your company is little more than an idea, this decision will have important implications down the line, especially if your company achieves success.

How to have the co-founder equity talk

Discussing how to split founder shares, or equity, can feel awkward, but it's a conversation that must happen before you start building. Putting off the equity discussion is a common mistake that can lead to serious disputes, especially since most co-founders don't split ownership down the middle. While equal splits are trending up, a 2024 analysis found that the majority of two-person founding teams still opted for an uneven split.

Two key terms will come up in this conversation: vesting and cliffs.

A four-year vesting schedule with a one-year cliff is the most common structure for equity grants. For management teams at private equity-backed corporations, this setup accounts for about 30% of all new grants, making it the most common combination. The one-year cliff is particularly standard: When a grant includes a cliff, data shows that the vast majority of cliffs—at least 95%—are set at the one-year mark.

→ Tool: Model founder equity percentages with Carta’s co-founder equity split tool

Lawyers

Selecting a team of lawyers or a law firm is on par with choosing your co-founder. Most founding teams will have to start thinking of their legal needs once they’re ready to accept a check from investors. Having the right legal team to assist you through the process of forming and financing your company can make a big difference in your ownership and control of the company going forward.

→ Guide: Learn how to find the right lawyer for your startup

Advisors

Startup advisors can offer valuable advice when your company is young, but many startups (especially pre-seed, idea-stage ones) don’t have much cash on hand to compensate them. Giving advisors a percentage of your company in the form of advisory shares allows you to reward the people who help your company grow with ownership and skin in the game.

→ Guide: Learn more about how advisory shares work

How to set up your company's legal foundation

Setting up your business as a legal entity and registering it with a state is important. While colloquially called incorporation, formation is the official term.

Incorporation is a non-negotiable step that makes your company a real entity in the eyes of the law, investors, and employees. It protects your personal assets and sets the stage to secure funding and hire employees. Don't skip this part or try to cut corners.

Deciding when to incorporate and how to incorporate your business can have huge implications down the road. From understanding tax implications to properly setting yourself up for future investment and growth, there’s a lot riding on your choice.

Getting your legal house in order from the beginning saves you from costly cleanup later. The basic steps are straightforward and set a professional tone for your new venture:

• Know when to incorporate your startup, and file the necessary paperwork with your state.

• Apply for a federal tax ID number, also known as an Employer Identification Number (EIN).

• Open a separate business bank account to keep your company's finances distinct from your personal ones.

C corp vs. LLC: What's right for your startup?

The choice you make between establishing a C corp vs. an LLC is one that will affect how you're taxed and whether you can raise money from certain investors. For most high-growth tech startups, the C corporation (C corp) is the standard choice because it's the structure venture capitalists (VCs) are set up to invest in. This is backed by data: Among the tens of thousands of startups on Carta (the majority of which are VC-backed), traditional corporations make up over 90% of the companies on the platform, while LLCs account for just eight percent.

• Corporations: Common types of corporations include C corps and S corporations (S corps), which have the same underlying legal entity type but are taxed differently. When you form an entity, you’ll have to pay fees to set it up, file a Certificate of Incorporation, comply with all regulatory and tax requirements, and file other various reports.

• Limited liability company (LLC): A limited liability company (LLC) is a business structure that legally separates business assets from your personal assets. This structure protects business owners from being pursued personally for repayment of debt or liability associated with their businesses.

Here’s a simple breakdown of the two:

→ Learn more: C corp vs. LLC

While Carta supports both structures, the C corp is the well-trodden path for startups that plan to grow quickly and seek funding from institutional investors.

Ownership and equity management

Holding equity means you have an ownership stake in the business. A wide range of people and entities can own equity in a company, including the company’s founders, investors, employees, advisors, and consultants.

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The cap table

A capitalization table, or cap table, is the official record of who owns what in your company, making proper cap table management a high priority. It lists every person and entity with an ownership stake, from founders and investors to employees with equity granted through a stock option plan. It's the single source of truth for your company's equity.

Many founders begin with a spreadsheet to manage their cap table. But as a company grows, what starts as a simple document can become messy and complicate crucial events. Starting with a clean, accurate cap table from day one is one of the smartest moves you can make. A disorganized cap table can raise red flags for investors, create major headaches during fundraising, and lead to unexpected share dilution.

For Sivan Cotel, CFO at Mezcalum, having a clean cap table is about showing investors you're organized so they'll want to continue investing. "If someone writes a check and then there’s no Carta, just a spreadsheet, they might be hesitant when it’s time to potentially write a second check."

Free cap table template

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How do you fund your startup?

There are several startup funding sources to get the initial money you need, and it's encouraging to know that significant capital is available—in fiscal year 2024 alone, the SBA had a $56 billion impact on small businesses.

Rounds of fundraising follow certain naming conventions: Pre-seed comes before seed, which comes before series A, which is followed by series B, and then down the alphabet. These stages also functionally describe how mature the company is and can give investors an idea about how much financial risk they’d be taking on.

As an early-stage startup founder, it’s normal to want to accept funding wherever you can find it. The true value of an investment, however, often comes from your relationships with the investors you choose to work with. The partners you bring into your business, and the tenor of the relationships you build with them, are often more important than the “name recognition” of the venture capital firms they work for.

Types of investors

For a high-growth company, understanding the different types of investors is key, as raising money from angels and venture capitalists is the typical route. Common sources of startup financing include:

• Bootstrapping: This refers to funding your business with your own savings. Bootstrapping gives you complete control as a business owner but can limit your growth speed.

• Friends and family: Raising small amounts of money from people in your personal network can be a quick way to get started, but be sure to treat it as a formal business transaction.

• Angel investors: These are wealthy individuals, known as angel investors, who invest their own money in early-stage companies, often in exchange for equity.

• Venture capital: These are institutional firms that invest other people’s money into high-growth startups with the potential for a large return.

• Accelerators and incubators: Accelerators and incubators (like Y Combinator) are programs that guide, mentor, and help fundraise for startups in exchange for an equity stake in the company.

→ Guide: Types of startup investors

While angel investors and VCs are common funding routes, don’t overlook government-backed capital. The SBA has delivered more than $1.2 trillion in loans and grants to millions of small businesses. These programs provide not just initial capital, but also invaluable mentorship, resources, and a network to help you grow.

Free fundraising checklist

Learn how to navigate the fundraising process with confidence.

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Fundraising options

Most companies raise funds every 15 to 18 months, hoping to raise enough capital for a 12– to 14-month cash runway. Your funding options will vary depending on which stage your company is in.

Typical fundraising options for founders include:

• Seed fundraising: Also called seed funding, this is the preliminary capital, most often from VCs or angels, which helps launch a business or develop a prototype or minimum viable product (MVP).

• Priced round: When a startup is raising a round of financing at a specific valuation, it’s known as a priced round. In other words, priced rounds are equity investments based on a negotiated valuation of a company.

• Convertible securities: A type of investment that lets founders raise money while postponing negotiations on the company’s valuation until a later time. Convertible notes and SAFEs are the two most common types of convertible instruments.

→ Tool: SAFEs and convertible notes calculator

Understanding SAFEs for early-stage fundraising

A Simple Agreement for Future Equity (SAFE) is the most popular instrument for early-stage fundraising, and its dominance continues to grow. In the first quarter of 2025, SAFEs comprised a record-high 90% of all pre-seed rounds. The instrument is also the clear favorite for the next stage of fundraising: From late 2023 to late 2024, founders used SAFEs in 64% of seed rounds, compared to just 27% for priced equity rounds and 10% for convertible notes.

A SAFE is a popular instrument for early-stage fundraising. It allows an investor to give you money now in exchange for the right to receive equity in your company at a later date, usually during your first priced round like a seed funding round.

SAFEs are popular because they are generally faster and less expensive to execute than a traditional priced round of funding. They allow you to secure capital quickly without needing to set a formal valuation for your company yet.

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Victor Gardrinier, co-founder of SolarMente, notes that investors are comfortable with the platform. "Carta is useful, because the brand is recognized. Investors will usually ask us, ‘Can you add me on Carta?’ and ‘Send me the signature.’... Carta feels like it’s the standard." Founders can use Carta’s fundraising tools to generate, sign, and manage SAFEs, which automatically updates their cap table and keeps them investor-ready.

Working with your investors

An investor update is detailed information about your company’s financials, key hires, and customer wins. Sending investor updates at regular intervals is a way to build trust and confidence with your backers as your company grows.

Term sheets are typically used by lead investors to express their initial interest in your company during a priced round. They are preliminary, non-binding documents that are followed up with a formal agreement if the deal moves forward. Term sheets may be used during a seed round, but they are more common at the Series A round and beyond.

→ Download: Investor updates template

Alternative fundraising options

There are multiple ways to fund your company. Some less common, but often equally effective, funding options are:

• Tranche financing: A type of financing in which investors release funds in parts as your company hits certain milestones instead of providing one lump sum.

• Venture debt: Venture debt is a bank loan for companies between venture capital funding rounds with less associated dilution for shareholders.

• Equity crowdfunding: The process of collecting small contributions from a large number of people, typically online. Some equity crowdfunding websites specialize in fundraising for businesses and can get the pitch out to a large group of general investors (unaccredited investors included).

• Other loans: Some companies might qualify for small business loans with a longer payoff period.

• Down round: A down round is when a company raises a VC financing round and the pre-money valuation of the company is lower than the post-money valuation of the previous round.

• Bridge rounds: A bridge round is extra money a company raises between priced rounds that helps founders extend their last round of fundraising.

→ Tool: Use our cash burn rate calculator to help you manage your cash flow

Pitching investors

A pitch deck is a presentation that a founder or executive uses to tell investors about their company during the company’s fundraising process. It can be the foundation of an in-person fundraising presentation, or can be shared on its own as a written document.

A pitch deck typically includes information about the company and its leadership, the market opportunity it is targeting, and the company’s revenue and business models. See examples of Carta’s pitch decks for our series A and series D rounds.

→ Tool: Download our pitch deck template

Valuing your company

To manage your company’s equity and keep track of what shares are worth for each holder, it’s essential to know the valuation of your company, which is an assessment of the worth of a company at a given time. You can measure the valuation in several ways.

• 409A valuations: A 409A valuation is an independent appraisal of the fair market value (FMV) of a private company’s common stock (the underlying security reserved mainly for founders and employees, but not investors) on the date of issuance. In order to offer or issue equity to service providers, understanding the FMV is crucial unless you want to risk severe IRS penalties for the company and equity holders.

• Pre-money valuation: A pre-money valuation is based on the terms of a deal being offered by an investor, and states the value of your company not including the investment amount itself. It helps determine the ownership stake that investors will receive in exchange for investing in your startup.

• Post-money valuation: A post-money valuation is the value of your company after it has received a round of funding, and it is also based on an investor’s deal terms. It is calculated by adding the new investment value to the pre-money valuation of the company.

• Preferred price: Preferred price is the price-per-share for preferred stock issued by your company to investors. The price of preferred stock is typically higher than the price of common stock, which is usually held by founders and employees.

• Internal rate of return (IRR): IRR is a method VCs and other investors use to track the performance of private company investments before other profitability metrics are available. The internal rate of return shows the annualized percent return an investor’s portfolio company or fund has earned (or expects to earn).

Free 409A valuation report example

See what a complete 409A valuation looks like with this free example 409A report.

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Hiring a team

Compensation is what you pay employees in exchange for their time, work, or services. Getting comp wrong or failing to properly invest in your employees can be the difference between a thriving company and a failed startup.

Here are some of the steps founders can follow to create a compensation plan:

• Develop your company’s compensation philosophy

• Define roles and levels (job architecture)

• Create performance management guidelines

• Build your hiring plan

• Create a forward-looking headcount plan

• Consider incentives including bonuses and equity

• Determine first hires (and what you’ll pay them)

Hiring employees overseas adds an additional layer of complexity. Companies must familiarize themselves with regional labor regulations and customs, as well as salary levels, in order to make effective job offers.

→ Guide: How to create a job leveling framework

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Startup taxes

Taxes are never simple, but they become exponentially more complicated when you’re growing a new startup. Founders have several key tax considerations to keep in mind.

Federal, local, and payroll taxes

You’ll face federal- and state-level taxes as a startup founder. Depending on the state in which you’re incorporated or in which you conduct business, you may also owe city- or county-level business taxes.

After you hire your first employee, your company is required to withhold and pay Social Security, Medicare, and other payroll taxes too.

Corporation vs. LLC taxes

Whether your company is a corporation or an LLC will affect its tax liability.

• LLC taxes: LLCs can “pass-through” taxes to members, meaning any profits or losses aren’t recognized by the LLC itself, but rather by all LLC members on their individual tax returns. Most LLCs must prepare an annual tax document called a Schedule K-1, which outlines each member’s income, losses, deductions, and credits for the tax year.

• Corporation taxes: Corporations including C corps may be subject to double taxation. That means the corporation itself pays taxes on its profits and, usually, ‌distributions to shareholders are also subject to taxes.

→ Guide: Learn more about business tax deadlines for LLCs and corporations

Equity compensation taxes

Issuing equity comes with various tax implications for your company and for your employees, depending on the type of reward. Tax treatment for stock options (ISOs or NSOs) is different from tax treatment for RSUs or RSAs.

Educating your employees about the tax liabilities of their equity should be a priority for any company. Not only does equity education help your employees, but the last thing any founder has time for are endless questions about taxes.

→ Guide: Learn how taxes work for ISOs and NSOs

QSBS

If your startup qualifies as a small business (according to the IRS’s rules for eligibility), then it’s possible your employees and other equity recipients can take advantage of the qualified small business stock (QSBS) exclusion. QSBS status offers a 0% capital gains tax rate for federal purposes, up to a cap.

→ Tool: QSBS calculator

Deductions and credits

Startups may be able to take advantage of certain tax credits and deductions, which can lower your company’s tax liability. To maximize your startup’s tax benefits and ensure your business is compliant with state and federal tax codes, we strongly recommend working with a tax professional or accountant.

Company tax reporting requirements guide

Step-by-step guide for understanding when and how to report taxes related to equity.

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How to build your minimum viable product (MVP)

A minimum viable product (MVP) is the most basic version of your product that solves the core problem for your first set of users. The goal isn't to build every feature or functionality you've ever dreamed of. It's about building just enough to be useful and get it into the hands of real people.

Think of the MVP as a tool for learning. Its main purpose is to test your assumptions and gather feedback from the market. This feedback will tell you if you're on the right track and what you need to build next, helping you avoid wasting time and money on a product nobody wants.

How to get your first users and listen to their feedback

Getting your first users is about finding a small group of early adopters who feel the pain of the problem you're solving most acutely. These are the people who are actively looking for a better way and are willing to try an imperfect, early version of your product. You can find them in online communities, industry forums, or through your personal network.

Once you have these first users, your job is to listen intently. Their feedback is gold. They will tell you what they love, what they hate, and what's missing. This direct line to your users is what will help you iterate on your product and move toward finding product-market fit.

Exit strategies

An exit event is most startup founders’ pot of gold at the end of the rainbow and is traditionally a celebratory occasion. Typically an IPO or M&A gives existing shareholders the chance to access liquidity and potentially realize on-paper gains by selling some or all of their shares.

IPO

An initial public offering (IPO), or “going public,” is when a company begins trading its shares on a stock exchange for the first time. IPOs allow a company to raise capital in the public market by selling newly issued shares and allowing its existing shareholders to sell their shares. Usually, an IPO is the first opportunity for the general public to buy a stake in a high-growth tech startup.

→ Checklist: IPO readiness guide and checklist

M&A

M&A stands for mergers and acquisitions and is used colloquially to describe transactions where one company (the buyer) purchases all or a portion of another company (the target). Buyouts, consolidations, acqui-hires, or restructurings are all terms you may have heard that fall under the broader umbrella concept of M&A.

Keep in mind, exit events still require some heavy lifting. ​​A purchase price allocation (PPA), for example, is frequently required for tax and financial reporting following a merger or acquisition.

As always, consult your startup’s lawyer or tax advisor at every stage, even if the finish line is right around the corner. At Carta, we help startups grow. Learn why over 50,000 startups use Carta for cap table management, equity advisory, valuations, and more.

Your journey is just beginning

Starting a company is a marathon, not a sprint. The path is filled with unexpected challenges and incredible rewards, and you're joining a massive wave of entrepreneurship—since 2021, Americans have filed applications for more than 20 million new businesses.

Each step, from validating your idea to building your team, lays the groundwork for what's to come.

You don't have to go it alone. Carta is designed to be a partner for the entire founder journey. The same platform you use to create your first cap table on Carta Launch will scale with you as you raise funding, create a hiring plan, and eventually prepare for one of several exit strategies.

We're here to help you turn the complexities of equity into a strategic advantage. Request a demo to see how we can help you start your startup.

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Frequently asked questions about starting a startup

What is a startup?

A startup is any new business in its early stages of operations and fundraising. Startups can be in any sector, including technology, healthcare, and agriculture. Startups are private companies that are not publicly traded. When a company has an exit event like an IPO or M&A, it is no longer considered a startup.

What is an entrepreneur?

An entrepreneur is an innovator who brings a new idea, skill, or product to market. Entrepreneurs start a new business by absorbing a high risk for the chance of a high reward.

What free startup resources are available for entrepreneurs?

Entrepreneurs can take advantage of several free resources, including mentorship, startup accelerators, and online resources. Carta provides infrastructure for innovators to grow. Learn more about our free resources for founders by visiting the Carta Classroom or signing up for Carta Launch to get started.

Can you start a startup with no experience?

Lack of experience shouldn’t stop you from sharing your next great idea with the world. Many successful startup founders have little or no experience in their new chosen industry. Free resources, a strong network, and grit can help supplement a lack of experience.

How much money do you need to start a startup?

There's no single answer, as costs vary widely depending on your industry and business model. Focus on calculating what you need to build your MVP and operate for the first several months, covering expenses like office space and software. From bootstrapping to angel investors, VCs to priced rounds, there are no rules for how much money you need to launch a startup. You can launch a startup with a few thousand dollars or millions of dollars, depending on the type of business, location, or industry.

How do I start a startup team with no money?

Prior to fundraising, you can start your team by leveraging your network or offering equity in exchange for peoples’ time, money, or advice.

What should I do if I have no idea how to start a startup?

If you’re not sure where to start, you can access free articles and video lessons exclusively for founders in the Carta Classroom.

What is the best way to find a co-founder?

To find a co-founder, leverage your personal and professional network, attend local events for startup founders.

How do you know if your startup idea is good?

Testing the market is the best way to see if your idea will be successful. You can do this by seeking help from friends and family, other founders and entrepreneurs, or conducting market research. Entrepreneurs often launch initial versions of their products or services into the market in a limited way. This allows them to gather data on how the product is being used and how they may improve it to gain more users.

Why is it so hard to start a business?

Starting a business from scratch requires a high level of commitment from founders, as well as time and money. And unfortunately, even businesses with sufficient funds fail. Timing and luck play a role too—some ideas are excellent, but may not catch on with customers for a variety of reasons. Competition in your industry, the overall financial market, and other unpredictable hurdles add to the complexity of starting a business.

Is it true that most startups fail?

While a lot of startups fail, it's difficult to pin down an exact percentage. Depending on your source of information, it’s been estimated that between seven to nine out of every 10 startups fail. Determining true failure rates is a difficult exercise. The data shows that failure is a significant and growing risk for startups; in fact, one report found that failures surged by 58% in the first quarter of 2024 alone. At Carta, we use our data to determine the overall State of Private Markets.

When should I hire a startup lawyer?

It's wise to engage a startup lawyer as soon as you decide to incorporate your company or bring on a co-founder. An experienced startup lawyer can help you set up your legal structure correctly and avoid costly mistakes.

Can I start a startup while working a full-time job?

Many founders begin building their companies on the side while maintaining a full-time job to cover their living expenses. However, once you accept external funding from investors, they will typically expect you to commit to the startup full-time.

What is the difference between a startup and a small business?

While the popular view is that entrepreneurship comes in two sizes—a small business or a high-growth startup—the main difference truly lies in the ultimate goal.

A startup is designed for rapid growth and massive scale, often with the help of venture capital, while a small business typically aims for sustainable, long-term profitability without the pressure of explosive growth.

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