How to start a startup: A clear path for founders

Author: The Carta Team
Read time: 23 minutes
Published date: January 5, 2026

Learn the foundational steps to start your startup, from finding a problem and building a team to setting up your legal structure and raising your first funds.

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.

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. Your goal is to confirm that the problem is significant enough that people would pay for a solution.

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. Here are a few steps to conduct effective market research:

• Identify your target customer: Start with a specific group who experiences the problem most acutely.
• Prepare open-ended questions: Learn about their problems by encouraging them to share their frustrations.
• Listen for patterns: Pay attention to recurring themes and pain points.
• Look for buyer intent: Early signals indicating people are looking for a solution

What to include in your business plan

Your business plan should serve as a storytelling tool to organize your thoughts and communicate your vision. Key sections include:

• The problem: Clearly define the pain point your startup is solving.
• Your product: Describe how it addresses the problem in a unique way.
• Target market: Identify your customers and research the market size.
• The competition: Acknowledge competitors and what makes you different.
• Your team: Highlight the experience and skills of your founding team.
• Marketing strategy: Outline how you will reach your customers.
• Financial projections: Provide a forecast of expected revenue and expenses.

Who should be on your founding team?

Starting a company is difficult; surrounding yourself with a team of trusted experts is critical:

Co-founders

Having co-founders means sharing responsibility. Choose partners with complementary skills who share your vision.

Lawyers

Selecting a competent legal team is essential when accepting investments. They assist with forming and financing your company.

Advisors

Advisors can offer valuable guidance. Offering advisory shares is a way to compensate them without cash.

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. This helps protect personal assets and allows you to secure funding.

• Know when to incorporate and file paperwork.
• Apply for a tax ID number (EIN).
• Open a separate business bank account.

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

Choosing between a C corp and LLC affects taxes and fundraising potential:

Ownership and equity management

Holding equity means you have an ownership stake in the business. A capital table (cap table) lists every person and entity with an ownership stake. Proper cap table management is crucial for attracting investors.

How do you fund your startup?

There are various funding sources available:

• Bootstrapping: Using your savings gives you control.
• Friends and family: A quick funding method, treat it as a formal transaction.
• Angel investors: Wealthy individuals investing in exchange for equity.
• Venture capital: Institutional firms investing in high-growth startups.

Fundraising options

Common fundraising options include:

• Seed fundraising: Initial capital needed to launch a business.
• Priced round: Financing at a specific valuation.
• Convertible securities: Delaying valuation discussions until later.

Valuing your company

To manage equity, you must know your company's valuation:

• 409A valuations: Appraisal of fair market value for tax purposes.
• Pre-money and post-money valuation: Value before and after funding rounds.
• Internal rate of return (IRR): Performance tracking of investments.

Hiring a team

Effective compensation is critical for employee retention. Create a compensation plan that includes:

• Company philosophy
• Job architecture
• Performance management guidelines

Startup taxes

Starting a business involves understanding tax implications:

• Federal and state-level taxes apply.
• LLC taxes can be passed through; corporations may face double taxation.

Deductions and credits

Startups can benefit from various tax deductions and credits. Consult a tax professional to maximize benefits.

How to build your minimum viable product (MVP)

An MVP helps test assumptions and gather feedback from early users.

How to get your first users and listen to their feedback

Find early adopters who resonate with the problem you're solving. Use their feedback to iterate on the product.

Exit strategies

An exit event allows shareholders to access liquidity and realize gains:

• IPO: Trading shares publicly for the first time.
• M&A: Mergers or acquisitions provide liquidity for existing shareholders.

Your journey is just beginning

Starting a company is challenging yet rewarding. Learn more about ensuring your success as you venture into entrepreneurship.

Frequently asked questions about starting a startup

• What is a startup? A startup is a new business in its early operational stage.
• What is an entrepreneur? An innovator who brings new ideas to market.
• Can you start a startup with no experience? Yes, leverage free resources and a strong network to support your idea.