When does a startup stop being a startup and what does it become? Is it a matter of time or financial maturity?
John Moor from the U.K. National Microelectronics Institute has raised some interesting points on the subject of startups over in the comments below the latest Silicon 60 list of emerging startups.
Most importantly he asks the question: "When is a startup no longer a startup?"
John argues that progressing from being a startup is more about financial maturity than it is about how many years have elapsed. He also states there is an argument that while a company is being funded and on the journey to profitability it could be classed as a startup.
One consequence of such a definition is that a ten-year old – or even a twenty-year old company – could still be a startup.
John and I agree on one thing, that there are no hard and fast rules. I also agree that time taken by venture-capital backed startups, particularly fabless chip companies, to achieve success has become longer in the last decade or so and because of that the venture capital has become more scarce.
However, I think there has to be a temporal element in this. We shouldn't just use startup as a synonym for privately-held or as a euphemism for not-yet-profitable.
Here are a couple of counter arguments. What do we call a startup that is profitable almost immediately? Also what do you call a newly-formed company that has taken no funding and intends to grow organically? I would want to call both startups, at least for the first few years of their existence.
Realistically I would argue that if a VC-backed company hasn't achieved financial success and rewarded its investors after about five or six years, those investors will have written down their investment and probably everybody is looking at ways to get some value out of the business that are alternatives to the original proposition.
Certainly not many venture capitalists put money into a startup with more than a three to five year time horizon.