23 Aug 2016 13:00 IST

When is a start-up no longer a start-up?

Different takes: The number of years around, funding rounds done, order-book position...

For how long is a start-up considered a start-up? Does that description of a venture depend on its size, turnover or years in existence?

You pose this question to entrepreneurs, mentors, angel investors, seed and venture capitalists and each one has a different take on it.

 

Serial entrepreneur K Ganesh, Chairman of Portea Medical and co-founder of entrepreneurship platform Growth Story, says a start-up is not defined so by the number of years it has been in business. But when you counter that describing a venture as, say, a seven-year-old start-up doesn’t somehow sound right, he laughs and says: “Yes, that is like saying a 20-year-old child.”

He continues, saying that a start-up moves to the next stage after it has “cracked the code.” That is, when it has been able to validate the business model. “After that,” he adds, “it is replicating the same proven model.”

Ganesh should know. He has founded nearly half a dozen ventures and sold several of them, raised multiple rounds of funding, and encouraged and mentored other entrepreneurs.

Sabarinath Nair, Founder & CEO, Skillveri Training Solutions Pvt Ltd, a Chennai-based company that makes simulators for workmen to train on, more or less echoes Ganesh’s views about cracking the code. Skillveri is about four years old and “we are no longer calling ourselves a start-up. We stopped maybe six-eight months back,” he says. And, stopping referring to themselves as a start-up had nothing to do with funding, but more to do with market traction. “Around the time we crossed cumulative turnover of Rs. 1 crore, that is the time internally we thought we should no longer call ourselves a start-up,” says Sabarinath.

 

Zishaan Hayath, co-founder of edtech company Toppr, feels the best definition of a start-up is one that is growing fast. “When companies stop growing rapidly and become flat, they are no longer start-ups,” he declares.

Start-up founders wear many hats. Not only is the idea and the venture theirs, they most often combine many roles – CEO, CTO, CFO, CMO. This is the stage when everything is chaotic, the venture is yet to raise any substantial external funding. All this changes once a seed stage investor or a venture capitalist puts in money. Then, the management team is strengthened, which is a definite indication that the venture has moved from the start-up to an early-stage venture.

 

There is no specific timeframe when a start-up loses the tag, but as Parag Dhol, Managing Director, Inventus Advisors India, an early-stage venture capital firm, puts it: “many people use 1,000 days as a marker.” There are various milestones for that migration, according to him. For instance, the venture shifts office a second time, the CEO no longer knows every employee by name, and the venture has raised Series A funding.

One unanimous view is that a start-up can no longer be considered one if it has understood its business model. Says Bharati Jacob, Managing Partner, Seedfund, “a start-up remains a start-up till it is able to understand and define its business model. By business model, I mean who will buy the product or service, how will it be delivered, how does it fit into the consumer’s life, how will the company make money, how much will it cost to deliver – the legs and nuances of the business model.”

 

Whenever an entrepreneur starts a company, he or she does so with a hypothesis on the business model. Once the hypothesis becomes reality then the company ceases to be a start-up, says Bharati. “I wouldn’t measure a start-up in terms of years, rather in terms of evolution of its model,” she adds.

Nipun Goyal, 26-year-old co-founder of Curofy, an online platform for doctors, is quite candid when asked how long a start-up will be called one. “I don’t know,” he says, but goes on to add, “Flipkart is also called a start-up.” He then comes up with what he thinks best describes a start-up.

“My thesis is as long as you are growing exponentially, you are a start-up. Also, if you have achieved self-sustainability, that is also the point where you tend to be a mature company,” he says and adds that Curofy hopes to be self-sustainable in two-three years.

It all boils down to whether the ventures have figured out the business model, the path to scaling up and profitability and predictability in terms of revenue model, according to Karthik Reddy, Founder, Blume Ventures, an early-stage venture capital firm. He believes more than raising funds, it is the stability of the business model that determines whether a venture is still in the start-up phase or not.

“The other more subjective metric around that is whether the business model itself has been iterated enough that the proposition is clear to the customer,” says Karthik. For Google and Facebook, he adds, this would have been at a scale when the advertiser knew exactly what it was buying when it got the click-throughs and could measure the cost per click.

Another twist, according to Karthik, of a venture stopping to be a start-up is when the founding team moves away from product altogether on a day-to-day basis.

Ganesh says the metric that defines the end of start-up phase keeps changing. A decade back, when a site handled 100 orders a day, it was considered good and investors would look at funding the venture. The venture was still a start-up but there was proof of concept. That number has changed. Now, 10,000 orders are required for proof of concept.

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