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September 01, 2016

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

What exactly is a startup?

According to Y Combinator founder Paul GrahamA team of good people making something customers actually want and spending as little money as possible to do so.  

According to Stanford Prof Steve Blank: A startup is an organization formed to search for a repeatable and scalable business model.

According to #StartupIndia (ie, DIPP) an entity will be identified as a startup.
1. Till up to five years from the date of incorporation.
2. If its turnover does not exceed 25 crores in the last five financial years.
3. It is working towards innovation, development, deployment, and commercialisation of new products, processes, or services driven by technology or intellectual property.
4. Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a 'startup';
Now, Business Line has interviewed entrepreneurs and VCs to get their personal definitions.

Entrepreneurs:

K Ganesh, Portea Medical

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 it is replicating the same proven model.” A seven-year-old company a start-up is like saying "a 20-year-old child".

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.

Sabarinath Nair, Skillveri

Skillveri is about four years old and “we are no longer calling ourselves a start-up” 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 INR 1 crore, that is the time internally we thought we should no longer call ourselves a start-up.”

Zishaan Hayath, Toppr 

A start-up is one that is growing fast. “When companies stop growing rapidly and become flat, they are no longer start-ups.”

Nipun Goyal, Curofy

“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.”

Investors:

Parag Dhol, Inventus Advisors India has an interesting take:

“Many people use 1,000 days as a marker.” There are various milestones for that migration. 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. 

Bharati Jacob, 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.

Karthik Reddy, Founder, Blume Ventures

It is the stability of the business model that determines whether a venture is still in the start-up phase or not. Its no more a startup - when the founding team moves away from product altogether on a day-to-day basis.

“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.” 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.

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.