# 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](https://ff.co/startup-statistics-guide/). 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:

| Feature | C corporation (C corp) | Limited liability company (LLC) |
| --- | --- | --- |
| Best for | Startups seeking VC funding | Businesses not seeking funding |
| Ownership | Owned by shareholders | Owned by members |
| Taxes | Double taxation | Pass-through taxation |

## 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.