Startup venture vs lifestyle business

It’s important to differentiate between a lifestyle business and a startup venture. A lifestyle business is a small business with a slow, gradual growth plan. The business’ purpose is to provide ongoing income for its founders. 

Lifestyle businesses make an important contribution to employment and to the economy – but a restaurant in one town, a chain of hairdressers, or even a franchise (e.g. running a McDonald’s restaurant) is not a startup.

In contrast, a startup venture is a high-growth, fast-paced business. Rather than providing a source of employment income, a startup is a growth-based project: entrepreneurs create startups with the intention of growing the venture as quickly as possible. The expectation is to sell (exit) the business or to go public within a specified number of years (generally five to 10). The entrepreneur aims for a substantial profit and is aware of the high-risk nature of the venture.



One of the most significant differences between a lifestyle business and a startup venture is its method of funding. 

While most businesses require some form of funding, lifestyle businesses are generally funded with personal funds, small business loans, and loans from friends and family. 

A startup venture may begin in the same way, but with the expectation of gaining outside capital from strategic investors. These investments come at various stages throughout the life of the startup, funding the venture’s various stages of growth.



Startups are expected to grow quickly. Achieving growth rates of 5% to 7% per week is good. 10% per week is exceptional. 

As a rule of thumb, a startup on the unicorn track will have growth rates in its first 4-years of:

Year 1 – triple (300%+) 

Year 2 – triple

Year 3 – double (200%+)

Year 4 – double




Whereas a lifestyle business aims to achieve profitability as soon as possible, typically within 12 to 24 months, a startup venture generally does not become profitable for several years. 

The startup entrepreneur is charged with spending the business’ revenue on growth, rather than generating profitability for the business owners or investors. The hope is to receive a return on investment of more than 100x at such time as the venture is sold or goes public (IPO).

How to find Angel investors for your startup

Many startups face the challenge of finding the funding to bring a product or service to market. Though some may still have to bootstrap, securing financing has fortunately become easier to secure.

Startups can now crowdfund, join a startup incubator or accelerator, or approach angel investors or venture capital firms, among many other options.

Here we explain how to find angel investors for your startup.


What is an angel investor?

Angel investors are high-net-worth individuals who invest in the early stage of a startup, usually in the pre-seed or seed stage.

In exchange, the angel investor receives equity or convertible debt, which can be changed into equity at a later date.


About angels

An angel investor is typically a wealthy individual who funds a startup for a stake in the company’s ownership. Angel investors are a good option when a startup doesn’t qualify for bank financing, or is too small for a venture capitalist (VC) to invest in.

As opposed to venture capitalists who demand fast high-revenue growth rates, angel investors are more concerned with the passion and commitment of the founder or co-founders, and the market opportunity they’ve identified.

Angels have a more hands-on approach and invest where they can play a part. Therefore, do your research to identify an angel investor who would be a suitable fit for your startup. Consider their money, personality, experience, and network.


Where do angel investors get their money?

The average angel investor is usually someone who has sold their own startup and wants to invest in others. Alternatively, they may be successful individuals who have made money from their careers and want to get into startups. Lastly, wealthy families may invest through their family offices. 


Do you need an angel investor?

At the beginning of your startup, you will most probably use your own money. Later, you may borrow from friends and family – but in due time, you will need more money in order to grow. At this point, you might need an angel investor.


When to bring an angel investor aboard

It’s best to bring an angel investor on board when you have exhausted all other financing channels. Other appropriate times include when you want to reach your goals faster than you would alone, or to minimise your own financial risk.

You can also look for angel investors if you need to hire talent, buy equipment, are short of cash flow, or need office space, among other potential needs for your startup.


Some quick pointers about raising money:

1) Have your pitch on point

An angel investor may have 50 startups pitching to them in a month – yet, in a year, they may invest in only 10. So, make it easy for them to say yes to you: spoon-feed them everything they want to know; don’t make them have to work hard to understand your pitch. 

2) Create some FOMO

Create an underlying fear of missing out (good old-fashioned FOMO) in potential angels. To do this, generate a perception of traction in the investor community and show the early adoption of your product.

3) Converting the first angel is the hardest

Once you have one angel investing in your startup, it’ll be easier to attract others. In line with the human behaviour of looking for social proof, a potential angel investor might say, ‘If another investor has put in their money, then I will too.’ Therefore, work tirelessly to get your first angel investor through the door.

4) Accept that timing is out of your control

For example, some angel groups meet monthly or quarterly, meaning waiting to meet them and receiving a decision about whether you’re a good investment option for them. 


Angel investors’ typical investment profile 

Angels favour investing in startups within their own industry. For example, a real estate mogul is more likely to invest in a real estate startup. In this case, angels would know the industry’s ins and outs, and have the contacts helpful for building and growing the startup.

Nonetheless, this doesn’t mean that angel investors never invest in startups outside of the industries they have experience of. 

It’s good for startup companies to evaluate what additional value potential angel investors may bring to the table, beyond money. Having active angel investors will be an asset to your startup.


How to find an angel investor

Getting to the meat of the matter, where do you find angel investors? This may feel daunting, like looking for a needle in a haystack.

Nothing could be further from the truth. Angel investors are all around you, and have become much more accessible in recent years. 

Here are some places where you may find an angel investor:


1) Friends and family

Friends and family are an excellent starting point. If they include a network of high-net-worth individuals, you can pitch them your business idea.

This can be one of the easiest ways to secure funding for your startup; studies show that people prefer to invest in people they know over people they don’t.

If there isn’t a high-net-worth individual in your circle, don’t be afraid to ask around; your friends and family may know someone. The six-degrees-of-separation rule couldn’t be more accurate when looking for an angel investor. 

Lastly, if you’re comfortable going into business with family, ask a well-off family member to invest in your startup. This option isn’t for everyone, but if it feels right, go for it. 


2) Angel groups and networks

Another place to look is in angel groups and networks, where individual angel investors come together to invest collectively. 

The amount of these groups has grown exponentially in recent years: according to the Angel Capital Association (ACA), there were only ten in 1996. 

A group of angel investors usually has between 100 and 200 members. Advantages of a group include a lower risk of investment for individuals, and better due diligence, owing to their numbers. Additionally, they can make more sizable investments, have a diversified portfolio of investment, and groups gain easier access to startup deals.

To find an angel investor group, search LinkedIn, seek personal introductions, attend pitch night events, and attend local coworking spaces, incubators, and accelerators. 

Look for groups in your region and those that invest in your industry, and establish whether mentoring is offered. The ACA website may be helpful in the USA, or if you’re in the UK check out the UK Business Angels Association.


Angel investor events

If your startup is in its early stages, angel investor events may be one of the best places to find an angel investor, allowing one-on-one opportunities to pitch your idea. 

If you are passionate and exude enthusiasm about your idea and go to enough of these events, you may bag an angel investor sooner than you think. To find the next angel investor event, go to Eventbrite and search in your area.


Online platforms

Technology has increased accessibility to angel investors. A quick search online can give access to thousands of angel investors. 

Here is a list of platforms in the US and the UK:




The nature of funding and operation varies across these platforms. Some charge, others are free, and each has its own terms and conditions. So, do your research before choosing which network to engage with.


Do I need a Co-founder or a CTO?

There are so many reasons why expanding your leadership team with exceptional talent is a good idea. First and foremost, bringing talented individuals in-house is always a smart move.

This is the attitude of successful startup founders. They are self-aware enough to recognize when it’s appropriate to source additional levels of expertise.

Founders are often brilliant individuals – but rarely will you find someone who has the bandwidth to lead and manage every aspect of a growing company. 

In this article we will consider two of the most important roles in a startup – a Co-founder and a CTO.


What is a co-founder?

Here’s a question: what do Garrett Camp, Ev Williams, Whitney Wolfe, and Evan Sharp have in common? Well, they’re young(ish). They’re successful. They’re wealthy. And there’s one more thing: they’re all co-founders. 

Without their input, Uber, Twitter, Tinder and Pinterest may never have gotten off the ground, let alone gone on to become the global enterprises many of us take for granted.

However, despite the vital role of these men and women, many people aren’t quite sure what a co-founder is. So, let’s take a closer look at how essential they are to a startup. 

While a founder’s creativity and tenacity will get them so far, they’ll need a whole host of other skill sets and attributes if they’re to succeed.

Skill sets vary depending on the industry. However, regardless of their niche, each founding team has a fundamental list of responsibilities, including:

  • Creator, inventor, entrepreneur
  • Networking
  • Financing & fundraising
  • Recruiting staff
  • Leading and developing a team
  • Creating a company product
  • Understanding their target market

A co-founder is someone who helps to establish a company. They’re present way before the first product/service launch, before the first sales come in and the finances start to flow.

The co-founder role explained

A founder may turn to a co-founder to complement their skill set, or the co-founders might have founded the startup together. The co-founder isn’t just along for the ride. 

Though the original idea may not be theirs alone, they must share the founder’s drive, passion, and determination to bring the product or service to the market. In addition, co-founders will take on the same, or even increased levels of commitment and risk as one another.


What’s the difference between an early employee and a co-founder?

Though these terms can become confused, there’s a significant difference between the two roles. 

An early employee is not a co-founder. They are recruited into the startup, rather than joining the founding team; they’re a worker employed by the company, not an investor or a partner, but quite often get equity or options as part of their compensation package.


Who gets a co-founder title?

Although one to two co-founders is typical, some startups have up to five. There’s no limit to having more, if it’s beneficial to the startup. But a co-founder title needs to be earned and the person needs to be bringing something of value to the startup. Don’t hand out co-founder titles unless you are sure they are merited.


Why bring in a co-founder?

Common reasons include:

  • A founder valuing the skill set and expertise of a co-founder
  • The need for extra financial resources
  • The founder wanting someone to share the risk with
  • Access to the co-founder’s network of contacts
  • Providing support and aiding decision making.

But there’s more to it than that. As they say, it’s tough at the top. And it can be lonely, too; that’s another core reason for involving a co-founder, so there is someone to share the journey with.

Everyone needs moral support sometimes, and good entrepreneurship includes accepting that most successful startups didn’t get there without having a good team in place.

Eighty-seven percent of entrepreneurs credit their success to working with a co-founder. If you’re not convinced, American entrepreneur Sam Altman considers that, “Co-founder relationships are among the most important in the entire company.”


What to look for in a potential co-founder

What’s the best way to find a co-founder for your startup? There are some basic steps every founding member can take to find a potential partner. 

First, make a list of the attributes your ideal co-founder would have. And yes, this does mean being honest about your own limitations, so be realistic here.

Next, what is most needed to move the startup forward? For instance, technical expertise? Is money tight? Or is the team lacking skills in marketing or finance? 

Consider attributes such as:

Personality traits: As well as complementary skills, look for a co-founder with the right personality traits; every founder needs someone to balance their foibles and weaknesses.

Honesty: No entrepreneur needs to be told what they want to hear: they need a partner honest enough to spell out an idea’s flaws.  

Confidence: Team up with someone who believes in themselves and their business acumen. The ability to make decisions and share their own ideas is a valuable asset in an uncertain startup world.

Commitment: Establishing a startup means working long hours and sacrificing parts of your social life; it will inevitably eat into the entrepreneur’s personal time. It’s therefore vital that the co-founder be willing to make similar sacrifices, to avoid resentments building.

Fresh perspective and new ideas: A co-founder should be able to help develop an idea and take it to the next level. Seek out someone famed for their innovative thought processes, and who really knows how to deliver a marketable product.

Background: Find out everything there is to know about a potential co-founder: do they have a history of past disputes? A proven track record of bringing products or services to market? 


Finding a co-founder

Finding the ideal co-founder needn’t be difficult. Consider:

Former partners and workmates: This can be an ideal starting point; does an existing or former colleague have the required attributes?

Friends: Some advise against mixing business with friendship, but it can work out just fine. If Larry Page and Sergey Brin weren’t friends, we mightn’t have Google. 

Relatives: Brothers-in-law William Proctor and James Gamble came together to bring us one of the world’s biggest consumer goods companies (which is now worth more than $350 billion).

Alternatively, try good old fashioned face-to-face networking, online networking (e.g. StartHawk, Silicon Drinkabout, CoFoundersLab, or Founders Nation), social media channels, or startup accelerators.

Managing co-founder relationships

Things can get complicated. A major reason for startup failure is a disagreement with a co-founder. So, want to know how to avoid legal conflicts and manage the partnership? 

First, ensure good communication from the start and manage expectations. Common conflicts involve:

  • Decision making
  • Equity share
  • Creative differences
  • Changing circumstances
  • Personal roles.

So, focusing on these areas, clealt divide responsibilities at an early stage. For example:

  • Will both co-founders share an equal workload? 
  • Is the co-founder comfortable with their role and what’s expected of them? 

Draw up co-founder agreements (make sure you understand what is in them!). Establish a vesting schedule and set out contractual agreements.


Do I need a CTO?

When it comes to product development, you need leaders with a solid understanding of the technical development process. Leaders who know exactly what it takes to get the job done are often more empathetic than those who are only skilled in project management.

Hiring a CTO might be a good idea if:

  • You need a partner to help you push the technical side of your startup forward
  • Your startup is growing and needs more experienced technical leadership
  • You are simply overwhelmed by the technical demands of your startup
  • The existing technology leader is not up to the task.

CTO’s typically play a central role in product development, overseeing all aspects of how a product is being developed to further meet the needs of the end-user.

They will usually be in charge of managing all software developers, both in-house and freelancers, to ensure they are effectively driving product innovation.

With their technical expertise and management skills, they must ensure a software product is ready to meet the needs of the end-user.


Does a startup need a CTO?

Not necessarily. The CTO might not be one of the founding team. Powering up the development team with some front end and back end tech talent is key. This can be achieved by hiring a technical lead or a technical advisor before committing the cost and equity to a CTO.

Whether you hire a CTO or a technical lead, these candidates should have experience mentoring software developers and programmers. You want to see a track record of performance across several startups of different shapes and sizes, project planning and developing roadmaps.


Can a CTO be a co-founder?

There’s no reason why an existing co-founder couldn’t assume the role of Chief Technology Officer. In the early days, it might make sense for a co-founder to also assume the role of CTO.

In the short term, it might be convenient to let an existing co-founder take on this role. In the long term, if the co-founder lacks the necessary technical knowledge and expertise for the role, does this have the potential to stunt growth.

As you expand and grow, you might want to start thinking about getting some real leadership expertise in this role. If you can make this transition, it could be a game-changer.

Early stage startups experiencing rapid growth in a short space of time may choose to hire a technology officer to fill an urgent need for senior leadership.


How much equity do you need for a CTO?

Depending on whether they are founders or non-founders, a CTO of an early stage startup could expect to receive equity compensation in the region of 1-33%.

If the officer is also a technical co-founder, they can expect to receive a large equity stake. It all depends on how many people are currently working on the team and where the company is in terms of investment.


How much money does a full-time CTO make?

Some full-time CTOs in established late stage startups can earn as much as £160,000. For many small startups, paying an employee a salary of this magnitude would potentially be unsustainable in the long-term. 

When you throw equity compensation into the mix, you can get a full-time salary down to a more achievable number. The national average salary for a CTO is £121,167 in the United Kingdom.

For startups in the early stage (Idea through Pre-Seed) it is much more realistic to pay a CTO in the region of £70,000-£80,000.

Equity and salary are two levers you can pull in your negotiation. 

How investors will value your startup

Ever watched Dragons’ Den and seen the Dragons baulk at the value of a startup company? It happens all the time. And not just on TV, but in day-to-day business life, too. It’s not unusual for the startup’s valuation and the potential investor’s valuation to vary considerably. 

If a startup begins to gain traction, it can be easy for the team behind it to start making wild valuations. In some cases, if the potential investor believes the hype as much as the startup’s owner, they may agree with this valuation. It could be that the investor has a heavy dose of FOMO (fear of missing out) and wants to be the first on board. 

This kind of scenario sends valuations skyrocketing – but these situations often end in disappointment. 

After all, being a paper millionaire doesn’t count for much.

To clear things up, this article will explain what investors look for in a startup, how a startup valuation works, and average startup valuations for different stages.

What do investors value?

Before making an offer, a would-be investor looks at the following:

A strong business idea 

Is the product or service something the investor believes in, and does it interest them? It’s hard for angel investors to get excited about products that don’t stir their passions. For VC funds, it has to fit their investment thesis. 

The team

To an investor, the team behind the product is every bit as important as the product itself. Before making a decision, an investor is going to ask critical questions around the teams:

  • Expertise (domain, startup, growth and technical)
  • Personality
  • Mission and backstory

The stage

Is the startup pre-product, pre-revenue, or post-revenue? Does the company have a minimal viable product? An MVP shows just enough to make an investor want to part with their money, even if it’s not quite ready for market. 

UK and European investors are more concerned with seeing revenue than their US counterparts. Just 8% of VC investors in the UK know what it’s like to work at a startup. For comparison, in the USA it’s 60%. Because the UK VC industry was schooled in banks and consultancies they have been wired to rely on data to make decisions. Therefore, securing a pre-revenue investment in the UK is notoriously difficult.

Intellectual property and technology

One of the most common questions investors ask themselves is how easy the product is to copy. If the startup can’t guard their product or some part of the process with intellectual property (IP) protection, this will reduce its attractiveness to the investor. 

If a product is simple to copy, the market could easily become swamped with similar (and cheaper) versions.

Market size

When VCs assess a startup they are considering whether it can generate $100M+ in revenue and $1B+ in enterprise value reasonably quickly. VCs need investments to meet these levels in order to generate fund level returns.

To support this, a market size at a minimum of $1bn and preferably greater than $3bn is required. 


What’s the competition like from other products or services? Intense competition and a difficult-to-break-into market will give an investor pause for thought. They don’t want to invest vast amounts of money into something only to see it fail to make a dent in the market. 

But on the other hand, intense competition can be the sign of a growing market.


The product or service may well have high demand, but that doesn’t mean it’s profitable. In which case, even with significant financial investments, it could fail long term if profit margins are tight.

How much money does the startup need initially, and will it need further cash injections along the way?

The business model

Are there similar models the investor can compare the startup to, and how well have they performed over the years? What’s the market value of similar startups? And what was their value at exit, or when the company filed an initial public offering (IPO)?

Market forces

While these are all important considerations, there is one factor that is more essential than any other: market forces. That means analysing factors such as:

  • Whether there is a demand and supply
  • Recent market exits
  • Current market conditions.

How a startup’s equity is valued

Investors use several different methods to calculate valuation. The main being:

  • Scorecard method
  • Discounted cash flow with long-term growth
  • Venture capital method
  • Checklist method.

Scorecard valuation method

This is sometimes referred to as the Bill Payne valuation method, after the developer who published it in 2011. However, it was used by angel investors long before that.

This is one of the most popular methods used by investors to value early startup and seed investments. Investors with niche expertise favour this approach because of their industry knowledge. 

Investors divide this method into two steps:

  1. Calculation of average pre-money valuation for pre-revenue startups. There are many sources for this data, including AngelList and Crunchbase.
  2. Comparison of the startup to similar companies. This step is complicated and time-consuming, and includes consideration of:
  • Competition
  • Management teams
  • Market size
  • Whether the investment needs future financing
  • Marketing capabilities
  • Additional assets.

Discounted cash flow analysis

This method uses future cash flow forecasts to estimate potential returns (very hard to do in an early stage startup). The calculation provides a measure to decide whether investing now would give a worthwhile return in the future. 

To estimate future cash flows, an investor will analyse the balance sheet from previous years, in order to arrive at a projected growth rate. In a startup there is often little historical data, and even if there is it bears little relevance to the future. Therefore valuations need to be based on forecasts that are hard to predict.

Investors then apply a discount rate (weighted average cost of capital, or WACC) to reflect the time value of money, and risk factors.

Of course, there are no guarantees with this method, as numerous factors outside of an investor’s control could impact the company’s long-term growth rate.


Venture capital method

Investors use the venture capital method primarily to value pre-revenue early-stage companies. To make the calculation, it dismisses any immediate cash flow and instead estimates the exit value. 

As Equidam explains, an investor will estimate the exit value using the earnings before interest, taxes, depreciation, and amortisation (EBITDA) of the last projected years and applying the multiple.

Though the venture capital approach is efficient, it makes multiple assumptions, meaning that provides no certainty (but no valuations at this stage really provide much certainty).


Checklist or Berkus method

Used for pre-revenue startups, the checklist method is more widely known as the Berkus method. It takes its name from well-known angel investor Dave Berkus, who’s been using this model since the mid-nineties.

The checklist method values intangible assets. It begins by placing a fixed maximum price on the startup, based on its location, then applies a score for each of the five criteria set out in the method.

It uses the most significant risk factors that each startup faces:

  • Technology
  • Market
  • Execution
  • Production.

The startup can then award itself $500,000 for reducing those risks, plus the startup automatically gets $500,000 for the idea itself. If it earns a perfect score, its valuation tops out at $2.5 million.

Typical valuations by stage

Naturally, a company’s value will vary depending on its stage. So, as a startup, what can you expect typical valuations to be? This will depend on region, competition, and long-term potential, as well as other factors.

Angel round

  • Funding range: from £50k to £150k in the UK/EU, and up to $0.5m in the US
  • Valuation: from £0.5m to £1m (UK/EU), and $1m to $2m (US)
  • Equity and runway: Expect to sell 10% to 20% of your startup to fund 9-12 months of runway


  • Funding range: from £250k to £500k in the UK/EU, and up to $1m in the US
  • Valuation: from £1m to £2m (UK/EU), and $3m to $5m (US)
  • Equity and runway: Expect to sell 20% to 30% of your startup to fund 12 months of runway


  • Funding range: from £750k to £1.5m in the UK/EU, and $2m-$3m in the US. 
  • Valuation: from £4m to £6m (UK/EU) and $6m to $10m (US)
  • Equity and runway: Expect to sell 15% to 25% of your startup to fund 18 months of runway

Series A

  • Funding range: from £3m to £10m (usually in the £4m to £6m range) in the UK/EU, and $5m-$10m in the US. 
  • Valuation: from £10m to £15m (UK/EU) and $20m to $25m (US)
  • Equity and runway: Expect to sell 15% to 20% of your startup to fund 18-24 months of runway

Ultimately though, any startup valuation depends on how much an investor is willing to pay for it. Investors are not always the most logical of people and therefore a little FOMO and a sense of urgency and you can see valuation swinging wildly from the averages.

Pre-money and post-money valuation

Pre-money valuation is the value of a startup before it receives cash from a round of financing. 

Post-money is the market valuation of a startup immediately after a round of financing.

Post-money valuation includes all the recent cash injections and outside financing from venture capitalists and angel investors.

Here are two simple equations to help you understand:

Post-Money Valuation = Pre-Money Valuation + Investment Amount 

Equity sold = Investment Amount / Post-Money Valuation



With so many factors to consider, valuing a startup takes skill and understanding. Both investors and startups will look at their startup from entirely different angles, making it easy to see why a startup and potential investors may disagree along the way.

There are many factors that influence how an investor will value a startup, including the market size, profitability, and the team behind the investment. Beyond this, an investor will often turn to one of the many tried and tested methods of valuing a startup.

However, ultimately, at the end of the day, it’s the amount an investor is willing to invest that is important and the potential they see in an investment