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What is a Stealth Startup?

A stealth startup, as the name suggests, isn’t something that gets discussed very frequently. Yet, for venture capitalists and investors, startups in stealth mode are a part of today’s reality – one that everyone should be aware of.

We could say they’re simply startups with a sense of privacy, but that isn’t doing the concept justice. So, let’s explore the stealth mode startup meaning, and it’s wider importance, in more detail.

What does stealth mode mean for startups?

A stealth mode startup refers to startups that keep their true agenda as private as possible through various legal means. While other startups seek the public limelight, startups in stealth mode do the very opposite.

Such companies don’t make public statements, disclose their products or services, or openly seek endorsement of any kind. For startups, this means acquiring investors and funding as discreetly as possible. This also means, similarly, that a stealth startup founder also follows a similar process; afterall, the owners connected to these companies can’t draw attention to themselves.

How to recognize a stealth mode company

By their very nature, startups in stealth mode are not easy to identify, but there are always clues. If the website and public material is sparse in detail, yet there is plenty of funding and even some successful investors attached, that’s usually a strong indicator.

Since stealth mode startups rarely seek funding publicly, approaching investors privately, they’re often found when looking at the latter’s portfolios. Venture Capitalists are often necessitated to disclose their investments. Here, you may find companies with few details but a long, blank history, or perhaps companies with obscure names and details that sound more like a decoy than anything else… these are all clear signs.

This also means, however, you likely won’t find such startups in incubators or other groups where public activity is highly encouraged. A stealth mode company positions itself as far away from the limelight as possible.

Stealth startup

Benefits of startups in stealth mode

The biggest benefit to a stealth mode startup is to avoid early attention. This is the most common in technology startups that have a “disruptive” service. The uniqueness behind this USP is often the most valuable for investors, so startups often hide this to avoid a number of issues.

By going public as late as possible, the competition has the least available time to react. During this time, the startup can gain a foothold with the audience and the stealth startup founder can then secure even more funding.

This is also vital for companies that haven’t secured their intellectual property from a legal point of view, or that the product is far from ready.

Drawbacks of startups in stealth mode

Of course, there are some disadvantages to stealth mode startups, otherwise it would be an established normal procedure.

The biggest disadvantage is the challenge in securing funding. When you can’t disclose your services or products publicly, you’re immediately losing a key part of the investors’ market. This puts a lot of pressure on the stealth startup founder to seek private meetings, make excellent impressions and ultimately secure funding the manual, old fashioned way.

Secondly, you’re also highly limited in feedback. When your business can’t interact with the public, how can you measure public responses or even secure the right market fit? This is a key challenge and one reason why such startups typically seek highly seasoned VCs with the experience to see past such hurdles.

Finally, you also don’t gain from any “free” publicity. When a stealth mode company wants to go public, it needs to invest money into a big reveal or another equally large campaign. Public companies, however, can gather journalist’s attention and build a reputation throughout the years of development.

So, are stealth startups good?

Stealth startups are not without risk, but they can ultimately hold a lot of appeal. For investors that find those valuable diamonds, stealth startups represent unique opportunities to secure disruptive companies before they make waves, teasing more lucrative success as a result.

That being said, operating such a business requires a founder with keen business acumen, as well as investors with enough independent experience and insight to make the right calls. However, the end result of making a noteworthy impact on a competitive market is, in many VCs eyes, very much worth the additional risk.

Stealth startup

This article was created by MIT Enterprise Forum CEE. Want to know more about the MIT EF CEE Startup Accelerator? Check out how our program can help your startup grow!