Morning Markets: Let’s talk about nailing down what a “startup” is in the unicorn era.
If you had to write down a definition of the word “startup,” how long would it take you with a pencil until you were content with the description? A minute or two, I’d reckon.
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But if we completed the same exercise with, say, a half-dozen people and then compared answers, I doubt that we’d have many agreements. The definition of a startup is not really agreed upon by the market.
Are private companies worth $1 billion or more, better known as unicorns, startups? If not, when do they shed that title?
I’ve worked on the matter here back in the day, and again more recently for Crunchbase News. But nothing I have come up with really feels correct in hindsight. Reading those pieces makes me feel like I was trying to split the wrong hair.
However, an article from the weekend caught my eye which can add a good deal to the conversation. Inc. is a magazine that I’ve read for ages thanks to its yearly ranking of the fastest-growing companies it can find. It’s a fun list to read, trying to spy companies you’ve already heard of. Recently, the publication broke out a slice of its 2019 Inc. 5000 dataset focused on San Francisco-based entities.
The private companies growing the most quickly in San Francisco include some names that you will recognize:
- Algolia, a search tool for companies, has raised $74.3 million to-date with backing from Storm Ventures, Accel, and others.
- Carta, a cap-table tool for companies, has raised $447.8 million to-date, with backing from Union Square Ventures, Spark Capital, Menlo Ventures, Social Capital, Meritech Capital, Tribe Capital, and a16z.
The same list includes companies that you have not heard of, including an events firm and a company that sells “ecofriendly household supplies.”
Name recognition aside, what matters is that the companies listed each sport growth rates of over 1,000 percent measured over the last three years. That torrid pace of top-line expansion brought them to different revenue results, including a $31.4 million 2018 tab for Algolia and $35.3 million for Carta, but I’d happily call every company on the list a startup because they are still growing like hell.
And companies that are growing hundreds of thousands of percent every few years are constantly breaking down and rebuilding their operations, culture, office layout, playbook, and product. You know, startup stuff.
You’ll note that we haven’t discussed the series at which Inc’s list of quickly-growing startups have most recently raised, and that’s because I don’t think that it matters. Yes, we’ve fallen down that particular well, but I’d happily wipe the chalkboard clean and change my definition of startup to simply “private company growing like hell” and leave it at that.
So we don’t really need to care if a company’s Series A really looks like a Series C and whether Seed-extension rounds are cheating. It doesn’t matter if the company in question is stacking growth to itself. And, sure, growth can be a usage metric, provided that there is a reasonable conduit from product use to revenue.
Do you care whether Algoia’s valuation has ticked across one artificial threshold or not? Nope. Anything that grows over 1,000 in a trio of years is a startup.
If you don’t agree with my idea, Josh Inglis has a series of proposed startup stage definitions that also deals with the Series question. It’s worth a read.
Illustration: Li-Anne Dias.
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