When does a startup stop being a startup?
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Should the number of years a startup has been around being the deciding factor, or is it based on growth and profitability?
The past few years have been eventful for the startup sector — from tech to biotech — as a sharp rise has been witnessed in new companies making a mark each year. India has gone on to become the third-largest startup hub in the world, with the city of Bengaluru in Karnataka playing the role of the country’s Silicon Valley.
But there’s one question that may have not crossed your mind! When does a startup, stop being a startup? Well, this depends on various factors. To understand it better, it’s important to know what constitutes a startup.
When is a company called a startup?
According to the Ministry of Commerce and Industry, an entity that is registered as a private limited company as defined in the Companies Act, 2013 or registered as a partnership firm under section 59 of the partnership act, 1932 of a limited liability company under the LLP Act of 2008 in India is called a startup if:
- Its period of existence from the date of incorporation is less than 10 years,
- Its annual turnover does not exceed Rs 100 crore in a financial year.
- It is working towards innovation, development, improvement of products or processes or services.
- Or, if it is a scalable business model with a high potential for employment generation or wealth creation.
When are you not a startup?
Two questions that stand out are: Should the number of years a startup has been around be a deciding factor, or should it based on growth and profitability?
Some quantitative and qualitative factors decide when a startup has leaped.
Growth and Development:Â According to Dr Bhavya Soni, Assistant Professor, Entrepreneurship & Marketing, FMS, University of Rajasthan, and startup mentor, “In technical terms, a startup stops being a startup as soon at it crosses 100 crores turnover or ten years of incorporation. But I believe it happens when a startup stops learning and innovating.”
Size of the team: You enter in the corporate culture when your team grows to 50-100 people.
Vijay Shekhar Sharma, founder and CEO of Paytm, told Quartz, “A startup becomes a company when the founder doesn’t know what’s happening – so when teams can make independent decisions without including the founding members.”
Sachin Bhatia, co-founder of the dating app TrulyMadly, said, “When I don’t know the name of all the employees in my workplace, it is no longer a startup. It’s a company then.”
Business Model: An entity struggling with its business model continues to remain a startup until it decides on a business model they want for the long term.
Funding:Â According to Sanat Rao, partner for mergers and acquisitions at Indian software industry think tank iSpirt and a former Intel Director believes a startup is a company that hasn’t found a scalable business model. So once a company has raised angel or seed funding and done two rounds of large venture capital or private equity investment, it is not a startup anymore because it has found its business model and is just expanding. These companies are in growth mode, not startups.
However, having met all of these factors, some entities still like to call themselves startups and not companies. The label of being a startup, comes with a halo effect. It is widely believed that the audience or market is patient with startups and they excuse their mistakes, while a company loses this advantage.
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