We’ve teamed up with Emily Spaven, the editor at Tech City News, who will become a regular guest contributor to the Cisco Start-up Hub. Covering a variety of topics, she will share her knowledge of the UK technology sector.
Our nation has such an impressive list of homegrown tech success stories, which shows it’s obviously a great place for start-ups to set up base and grow. But it’s that transition point I’ve been pondering this week. When does a start-up stop being a start-up?
Is the graduation from start-up status connected to duration of existence? Level of funding received? Profitability? Number of employees?
Let’s see what the dictionary says:
Start-up /ˈstɑːtʌp/ n. A newly established business
[Oxford Dictionaries]
So, Oxford Dictionaries uses the duration of existence as the key factor in defining a start-up, which seems fair enough, but it does raise questions about what exactly constitutes ‘new’. Deciding where to draw the line between new and old is particularly difficult.
Personally, I think if a company has been able to stay in operation for more than three years, it’s no longer a start-up – it has learned the ropes, understands how to sustain itself and so becomes a fully-fledged company.
However, this cutoff point comes with some caveats. There are a number of companies that go from zero mph to lightspeed in the blink of an eye. Take Digital Asset Holdings, for example – the blockchain company was only founded in 2014, yet raised $60m last month.
I’m not convinced a company with $60m under its belt and a valuation of over $100m should remain in the same box as a month-old company being run out of someone’s bedroom. To me, a start-up conjures images of jeans-clad, coffee-swilling entrepreneurs with a strong will and a weak bank balance. Plonk $60m in their bank account and this changes overnight. Bootstrapping ends, hiring ramps up, office space expands and marketing efforts galvanise.
Perhaps, then, the number of years a company has been running isn’t the answer. Maybe it’s funding that ushers in the graduation from start-up to scale-up to downright impressive tech company.
Funding
If a start-up stops being a start-up once it raises a certain level of funding, what exactly is the magic number it needs to raise?
Start-ups operate on a shoestring, work long hours for low wages in the pursuit of their dream and the pot of gold at the end of the rainbow. If the amount of funding a company receives doesn’t change their operations significantly, I think it’s safe to say it can keep its start-up hat on.
One issue with this, though, is that what constitutes a lot of money to one company, is peanuts to another, it depends what exactly they do. $1m in funding would last some start-ups years, others would burn through it in no time.
If I had to put a figure on it, though, I think a company stops being a start-up once it raises $50m – no one can sniff at that.
Number of employees
The number of employees a company has could also indicate whether it is a start-up or not. Putting a number on this is a tricky one, too.
Some companies, by virtue of the very nature of their business, require more staff members than others – Uber and Deliveroo, for example (although you could argue the drivers and delivery men and women aren’t really employees).
Start-ups, to me, comprise a sprinkling of people, all with multiple roles, working from an ‘office’ that either doubles as a bedroom/garage/kitchen (delete as appropriate) or be shared with multiple other fledgling companies that meet the same criteria.
If you expand to the stage where you have to move into an office to fit everyone in the same room and not everyone knows everyone else’s last names, your company is definitely a start-up graduate.
Profit
To sustain a high number of employees, profitability needs to be achieved, so maybe a company ceases being a start-up as soon as it becomes profitable.
That simple definition doesn’t really work either, though. A company could be profitable for a month, that doesn’t make it self-sustainable. A company needs sustained profit of a certain level in order to be taken seriously outside of the start-up space.
It’s also difficult to put a number on this one, a company could turnover $3 million in the first two years, but that doesn’t mean it’s not a start-up, this could merely be down to the unit price of the product or service they provide.
For me, if your company ticks one or more of the following boxes, it’s out of its training pants and rolling with the big boys:
- Existed for more than three years
- Raised $50m or more
- 50 or more employees
The conclusion I’ve come to is … if I was to rewrite the definition for the word ‘start-up’, Oxford Dictionaries would need a bigger book.
I’d love to hear your thoughts. If you have an opinion on what factors or events trigger a start-up’s graduation, let me know in the comments below.
Emily Spaven is editor at Tech City News, which covers developments in the UK’s burgeoning technology scene. She was previously managing editor at FinTech publication CoinDesk. Emily has also worked for Google and a FinTech start-up, so has first-hand experience of both ends of the tech company spectrum. Follow Emily on Twitter.
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3 Comments
I think this is a really interesting article. I have been wondering the same thing myself for a while. The term “Start Up” in my eyes should be applied to any business that is not yet turning over a sustained profit or has received the full amount of funding required to achieve their potential and original start up goals. In my case (which I could be considered as quite a unique one), my business only received a fraction of the funding which was required to help me launch properly. This was difficult because I could only achieve so much with what I was given/loaned and I ended up hitting a bit of a brick wall. Other factors which lengthened my so called “Start Up” phase also came into play such as ill health (I was suffering from an undiagnosed autoimmune thyroid condition called Hashimoto’s Thyroiditis), and my studio premises turned out to be unfit for purpose (damp destroyed a lot of my stock and furniture). My health is now on the mend, I ditched the studio by 2013 and my business is now four years in and still not generating a sustained profit as a result of these challenges (although my brand is going from strength). So as you can see things are not always as black and white as they may seem. I think that the status of any business should be assessed individually on the challenges that they have overcome and their potential. I still class myself as a start up even though I’m four years in because I faced challenges which delayed my progression (and I still haven’t received the funding that I need to launch my brand properly). I am extremely proud to still have a business despite all the challenges I have overcome and I hope that investors will recognise my passion, resilience and dedication and help me to reach my potential (despite perhaps not fitting into the bracket for some “start up” or “growth” funding grants).