Stealth Startups: What You Need to Know

Last updated: September 5, 2022

Stealth startups are companies that operate in secret and limit outsider interference. When stealth startups limit outsider interactions, it gives the company time to develop before the public sees them for the first time. Companies operate in stealth Mode for a few years but eventually become more public as the company grows.

There are several reasons that companies begin their life as stealth mode startups. Ultimately, it depends on the goal of the company and how the founders feel about the technology. We’re going to take you through what you need to know about stealth startups.

We’ll cover what they are, how they operate, and why some founders choose to go stealth mode.

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    What is a Stealth Startup?

    A stealth startup, or stealth mode startup, is a company that operates in private. While many startups seek investments from venture capital firms and network in the early stages, stealth startups do the opposite. While there are several types of stealth startups, the most common are complete stealth mode startups and in-company stealth mode startups.

    Complete Stealth Mode Startup

    Complete stealth mode startups operate in complete silence. Instead of networking and showing what the startup is, these startups will mislead consumers and even lie about the industry they’re working in. In fact, many complete stealth mode startups have websites that don’t tell people a lot about the company.

    Startups choose to enter complete stealth mode to grow curiosity in the brand and to keep the competition guessing. Sometimes, stealth mode startups will use false names and products to keep people off their trail.

    In-Company Stealth Mode Startup

    In-company stealth mode startups are different from complete stealth mode startups. In-company startups are different because they’re projects that companies are working on or new companies that operate as a subsidiary of the existing company. The goal of these in-company stealth mode startups is to keep information about new projects and technology a secret.

    A great example of an in-company stealth startup is when Microsoft acquires or funds new gaming studios. Microsoft will actively keep these projects a secret to garner interest from the market before releasing the games.

    Is a Stealth Startup a Real Company?

    Yes, stealth startups are real companies. While these companies operate in stealth Mode, that doesn’t mean they’re not real. Many stealth-mode startups even have employees, raise money, and develop products. The only difference between a startup and a stealth startup is that stealth startups operate in secret.

    How Much Capital Do Stealth Mode Startups Raise?

    Stealth startups commonly raise less than startups that operate in the open. This is because stealth startups don’t have access to as many investors. Typically, a stealth mode startup will raise between $10 thousand and $1 million. For stealth startups, funding comes during the pre-seed and seed rounds of funding.

    Why do Startups go Stealth Mode?

    Startups go stealth mode for a few reasons. Stealth mode provides some unique benefits that many types of entrepreneurs and founders benefit from. Still, the reason companies become stealth-mode startups depends on the founders and their goals.

    We list the primary reasons companies go stealth mode below.

    • Hiding new technology
    • Preparation for launches
    • Avoiding distractions
    • Securing funding without drawing attention
    • Managing public image

    Hiding New Technology

    One of the most common reasons for startups to go stealth mode is to hide new technology. Innovation moves at a rapid pace and many founders don’t want their ideas reaching the competition before they’re ready. For this reason, many founders choose to hide their new technology until they secure a patent or until it’s perfected.

    In most cases, companies that hide their ideas exist in the pharmaceutical and software spaces. Companies in the industrial industry will also become stealth mode startups to prevent competitors from replicating their ideas.

    Preparation for Launches

    Startups prepare for launches in many ways. This is because there are many factors to consider. Founders need to think about marketing, social media presence, media attention, and consumer interest. To ensure that everything is in order before a product launch, startups enter stealth mode.

    When a startup enters stealth mode to prepare for a launch, it gives the founders time to prepare their product. Ultimately, it gives founders leeway to control the public’s reaction and influence the public image. Plus, it prevents things from getting out of hand and ensures that expectations from consumers are met.

    Managing expectations is important because it helps prevent a product from falling flat on promises. With a stealth mode startup, founders don’t need to worry about what people think of a product before it launches. Hype often gets out of control, so it’s a great way to manage and control the hype positively.

    While it’s common to think that any press is good press, founders have discovered that creating their own press is even better. The last thing a startup need is rumors on Facebook, Twitter, or LinkedIn – especially if expectations can’t be met.

    Avoiding Distractions

    Distractions are another key reason that startups enter stealth mode. Many founders believe that marketing, public relations, and sales are distracting. These aspects of a startup are often distracting because it draws a founder’s attention away from the product.

    However, stealth mode startups give founders time to perfect their products before hitting the market. Then, they will worry about the marketing and public relations parts of startups later. Many entrepreneurs who have a background in engineering or software development enter stealth mode to avoid these distractions.

    Securing Funding without Drawing Attention

    Funding is also a key component of a stealth mode startup. While stealth startups don’t have access to as much funding as traditional startups, there are still methods to gain financial assistance. Instead of networking for pre-seed round funding and seed round funding, stealth mode startups avoid seeking out traditional funding methods.

    Instead, stealth mode startups get creative for the pre-seed round of funding and even the seed round of funding. They do so by raising money from private angel investors . In some cases, stealth mode startups also raise money through bootstrapping . By keeping the funding during the pre-seed round of funding more exclusive, the goal is to bring in more funds from fewer investors.

    What are the Advantages and Disadvantages of Stealth Startups?

    Stealth startups have several advantages and disadvantages. The biggest advantage is that it’s easier to hide no technology and innovations. On the other hand, the most notable drawback is limited funding options.

    Advantages of Stealth Startups

    The advantages of stealth startups pertain to hiding technology and managing public perception. We list the primary advantages of stealth mode startups below.

    • Less pressure from the public
    • Protecting intellectual property
    • Managing public perception by generating unique, company-focused press
    • Avoiding bad press
    • More time to prepare for launches
    • Fewer distractions for founders
    • More time for market research before launching a product
    • Fewer expectations from the public to meet

    These are only some of the advantages of stealth startups. Depending on the company, the benefits vary.

    Disadvantages of Stealth Startups

    Stealth startups also have several disadvantages. These disadvantages are derived from a lack of public interaction, networking, and funding.

    We list the disadvantages of stealth mode startups below.

    • Difficult to build trust with investors
    • It’s more difficult to find employees
    • Challenging to test the public’s opinion of a product
    • Limited access to funding outside of a founder’s small circle
    • Less market research and sales data

    When founding a startup and keeping it in stealth mode, you need to weigh the advantages and disadvantages. While stealth mode works for some companies, it’s not always the best route to take.

    Final Thoughts

    Overall, stealth startups are unique new businesses that focus on being private. Many of these startups enter stealth mode to prevent distractions, alter the public image, and hide technology.

    Stealth startups are great for some founders but not the right choice for everyone. Founders with limited capital should avoid stealth startups or seek investment help from angel investors. Luckily, AngelMatch helps people connect with thousands of angel investors with its exclusive database.

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