How new-age startups are dependent on external

funding, which may lead to worsening of

economic cult
Saaransh Agarwal
April 2023

1 Introduction
A startup is a company that is in its early stages of operation and is often
founded by one or more entrepreneurs seeking to develop a new product or
service. Startups are characterized by their focus on innovation, growth, and
scalability. Unlike established companies, startups typically operate with lim-
ited resources, high uncertainty, and a high degree of risk.
Startups often aim to disrupt existing markets or create new ones by devel-
oping unique solutions to unmet needs or problems. They typically operate in
technology-driven industries such as software, biotech, and e-commerce. Star-
tups often leverage technology to streamline processes, reduce costs, and reach
customers more effectively.
One of the defining features of a startup is its focus on growth. Startups
often seek to rapidly scale their operations, customer base, and revenue. To
achieve this, startups may seek investment from venture capitalists or other
investors to fund their growth.
The startup culture is characterized by creativity, risk-taking, and a will-
ingness to experiment and learn from failure. Startups often operate in a fast-
paced, dynamic environment where innovation is encouraged, and employees are
empowered to make decisions and take ownership of their work.
Overall, startups play an important role in driving innovation and economic
growth, and many successful startups have transformed entire industries and
created new markets.

2 Abstract
The abstract of the research topic ”How new-age startups are dependent on
external funding may lead to worsening of economic cult” focuses on the poten-
tial negative impact of the current trend of new-age startups relying heavily on
external funding.

1
 The research paper examines the phenomenon of new-age startups, which
have emerged in recent years as a major force in the global economy. These
startups are characterized by their focus on innovation, scalability, and rapid
growth, which are achieved through external funding from venture capitalists,
angel investors, and other sources.
However, the paper argues that the dependence of these startups on external
funding may lead to a worsening of economic culture. This is because exter-
nal funding creates a culture of hyper-growth and rapid scaling, which often
comes at the expense of sustainable business practices and long-term profitabil-
ity. This hyper-growth mentality can lead to a ”bubble” mentality, in which
startups overvalue their own potential and create unrealistic expectations for
future returns.
Furthermore, the paper argues that the reliance on external funding creates
a power dynamic in which startups become beholden to their investors, who
often have significant control over their business decisions. This can lead to a
focus on short-term profit at the expense of long-term growth and sustainability,
which can be detrimental to both the startup and the wider economy.
The paper also examines the potential consequences of this trend on the
wider economy. The overvaluation of startups and the culture of hyper-growth
may lead to a bubble that could burst, causing significant economic damage.
Furthermore, the focus on short-term profit and unsustainable business practices
could lead to a decline in overall economic growth and stability.
Overall, the paper argues that the current trend of new-age startups relying
heavily on external funding may have negative consequences for both individual
startups and the wider economy. The paper concludes by suggesting that a shift
towards more sustainable business practices and a greater focus on long-term
growth and profitability may be necessary to avoid the potential pitfalls of the
current startup culture.

3 Life cycle of startups

However, startups are diversified and complex in nature, these entities have
their lifecycle. Hopefully, research on startups’ lifecycles is well-developed in
the last few years. Since the sequence of activities and stages might vary among
different startups, a holistic perspective is presented in this paper to offer a
better understanding of the lifecycle of startups. The stages are as follows
(Figure 1):

4 (i) Bootstrapping stage:

In this very early stage, the entrepreneur himself/herself initiates a set of activ-
ities to turn his/her idea into a profitable business. However, he/she considers
a higher risk or even uncertainty level, continues working on the new venture
idea, makes a team, uses personal funds, and asks family members and friends

2
 Figure 1: Lifecycle of the startups (source: self- elaborated)

for their investment in the idea. Bootstrapping, which is sometimes defined as

highly creative ways of acquiring the use of resources without borrowing (Freear
et al., 2002), is considered to be one of the areas of entrepreneurship research
that most need to be addressed (Ebben Johnson, 2006). The purposeof this
stage is to position the venture for growth by demonstrating product feasibil-
ity, cashmanagement capability, team building and management, and customer
acceptance (Brush et. al., 2006). Moreover, angel investors are more likely to
invest in this stage. In sum, as Harrison et al. (2004) argue: “bootstrapping
is a way of life in entrepreneurial companies”. This argument reveals the rea-
son why most of the theories of startups are borrowed from entrepreneurship
theories (see, Entrepreneurship theories focusing on startups).

4.1 (ii) Seed stage

After the bootstrapping stage, the founder enters into a new stage, which is the
seed stage1. This stage is characterized by team work, prototype development,
entry into market, valuation of the venture, seeking for support mechanisms such
as accelerators and incubators, and average investments to grow the startup.
Frankly speaking, for most startups the seed stage is a mess and is construed as
highly uncertain (Salamzadeh, 2015 a). The seed stage is characterized by the
initial capital that is used to do product and/or service (Manchanda Muralid-
haran, 2014). Thus, founder seeks for support mechanisms such as accelerators,
incubators, small business development centers, and hatcheries to accelerate the
process. A great number of startups fail in this stage. Since they could not find
support mechanisms and in best case they would turn to a low profit company
with a low rate of success. On the other hand, those who succeed in receiving
support would have a higher chance of becoming profitable companies. It goes

3
without saying that valuation is normally done at the end of this stage.

4.2 (iii) Creation stage

Creation stage occurs when the company sells its products, enters into mar-
ket, and hires first employees (Salamzadeh, 2015). Some scholars believe that
entrepreneurshipstops when the creation stage is ended (Ogorelc, 1999). This
supports the argument that most of the theories which cover startups are bor-
rowed from entrepreneurship theories and not management and organization
theories (see Entrepreneurship theories focusing on startups). At the end of
this stage, organization/firm is formed and corporate finance is considered as
the main choice for financing the firm. Venture capitals could facilitate the
creation stage, by funding the venture. 1
Abstract
The key concern is the Profitability with startups nowadays, huge cash
burns are further neglected by VC’s which are now set-off with the term
”growth”. Eventually, The startups need to be profitable to sustain in
the long run, as a company can only withstand when it is having positive
cash flows.

5 Data by crunchbase on the amount of funding

in North America
North American startup investment fell sharply in the fourth quarter, closing
out 2022 with funding far below the prior year’s record-setting levels.
In total, investors put 36.1billiontoworkacrossallstagesinQ4, perCrunchbasedata.T hat′ sawhopping63

6 Conclusion
This paper explained and conceptualized startups by elaborating their lifecycle.
The lifecycle includes three main stages, which are bootstrapping stage, seed
stage, and creation stage. Moreover, the paper studies the startup funding data
interpretates the revenue of the company.

7 References
Bhave, M. P. (1994). A process model of entrepreneurial venture creation.Journal
of business venturing, 9(3), 223-242. Boeker, W. (1988). Organizational origins:
1 Some scholars consider pre-seed stage between bootstrapping and seed stage. Moreover, to

some scholars bootstrapping is the pre-seed stage. Also, some scholars consider bootstrapping
as startup stage. Some other scholars believe that the creation stage is identified as the
period between the nascence of a business idea until the moment of sustainable profits. Here
by startups the author means the early stage of any business, venture, or entrepreneurial
activity until it turns into a firm.

4
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