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When are you no longer a startup?

If you are a 15 year old software company and you still have not IPO'ed, been acquired, gotten investment, can you still be called a startup?

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

My read of a startup would be within the first 3-5 years and/or when the company has brought a mature [group] of products to market/gained an appreciable market share/has made steady profits.

There are tons of companies that succeed, and succeed rather handsomely without ever going the IPO or VC/PE route. In addition, most companies are not listed, so that wouldn't be a criteria. Investments (VC/PE) only means that you can't grow your company organically or with traditional avenues of finance (banks, friends/family).

After 15 years, you are either a hobby or a business, but not a startup

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I just wrote a blog on this topic, i.e. The Company Lifecycle (06.20.2014), which I additionally posted on this site. "…companies go through different phases, i.e. Introduction, Growth, Redesign, Maturity, and Merger & Acquisition.” I agree with Wayne. After 5 years, you are an established entity. Not needing an investment from a VC or conducting an IPO is a good thing, as you are not sharing your returns with anyone else.

Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

Good guidance above from Regis and Wayne. I consider a business no longer a "start up" when it has a proven business model that works (i.e. the dog is actually eating the dog food), has a stable and growing set of customers / clients and is focused on growth and profitability. There are multi-billion dollar companies that have never taken outside investment, been acquired or chosen to file for an IPO.

Anonymous
(CFO/Board Advisor) |

I believe this is a great question.

What is the meaning of “start-up” and “pre-IPO”, versus a “privately held” company?

I too, have seen the “start-up” label on companies which have been in business for 10+ years. Heck. I have worked for some. If your business is ten years old, it isn't a “start-up” any longer. If your business has grown at 10% per year, for the last 10 years, has $10 million in revenue, and less than $1.0 million in EBITDA, it isn’t “pre-IPO”. Your company is “privately held”.

With the exception of certain industries, e.g. Pharma developing a new drug and then applying for FDA approval, which in fact can take a decade or more, companies that have been around 5+ years are: "privately held", "venture funded", "investor owned" etc. They aren't "start-ups.

So why the label game? From my perspective, the real reason for this label game is that it is shorthand for wanting to pay below market compensation. So let's be honest, these companies are typically trying to trade current cash compensation for upside equity compensation. The carrot being dangled by these companies is to say: "We're a start-up.", which implies some form of large upside in the future. Well, Employees and potential Employees are not stupid. They know the drill. The "start-up" label is being used as a method to limit cash compensation.

My experience with true “start-up” and “pre-IPO” companies has been almost the exact opposite of the above. That is, real “start-up” and “pre-IPO” companies, pay at least market rate, if not above, compensation in order to attract and retain the very best talent. There is a reason why they raised $50 million from investors, and have the bankers climbing all over themselves to represent them in an IPO or other strategic transaction. They have gone out and paid for the horses to get them to the finish line first. And, if they haven’t, investors will insist they do. In fact, in many cases the new investors “help” the company “upgrade” their talent. These other companies need to learn this.

So, enough with the “start-up” / “pre-IPO” shell game. If your company is privately held company, the Founders/Owners should be proud of that, and just say so.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I like and share your point of view.

As you say, it allows ownership to feel "more" important; like they are going after the brass ring (which most often than not is the "talc ring" which just falls apart).

Don't forget the new (or is it "non") selection criteria "CFO's who have done IPO's".

Sharon Desser
Title: Director of Finance
Company: sharondesser
(Director of Finance, sharondesser) |

Thank you. excellent reply to my question.

Sharon Desser
Title: Director of Finance
Company: sharondesser
(Director of Finance, sharondesser) |

Thank you! Excellent answer to my question.

Topic Expert
Jaime Campbell
Title: Chief Financial Officer
Company: Tier One Services, LLC
(Chief Financial Officer, Tier One Services, LLC) |

I'm curious about why this distinction is important in your situation.

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