Startup company: definition, characteristics, funding, and impact

Not every newly founded company is called a startup. For example, craft businesses such as carpenters and hairdressers or freelancers such as architects and lawyers usually do not start with an innovative business idea nor do they have the primary goal of growing quickly. They serve an existing and proven market and are often considered as start-ups. In franchising, the franchisee is also not a startup, but the franchisor may well be. Copycat companies in the tech sector are sometimes referred to as startups, but usually only meet the criterion of innovation to a limited extent; rather, they often introduce it to a different market than the copied company.

Although, in principle, companies from all industries that meet the criteria of innovation and scalability can be described as startups, in practice most startups are active in the technology and internet sector. Typical industries are e-commerce, application software, financial technology, biotechnology, nanotechnology, new manufacturing processes, Industry 4.0 or aerospace technology. Sometimes startups change entire business sectors and models, which is also referred to as disruption.

According to Lean Startup founder and author Eric Ries, "A startup [...] is a human institution that develops a new product or service in an environment of extreme uncertainty."

The founders and investors of a start-up often intend to offer the company on the open market after a few years, either to an established company through equity investment or company purchase or to many shareholders through an IPO. Often, this is to demonstrate the viability or potential of the company or to realize new ideas. As a result, a fertile start-up scene is often created by the dynamics of talent and finance stimulated by sales and regional networks of growing expertise. The agglomeration of certain industries or of many startups in total is called a startup cluster. Thus, following the example of Silicon Valley, different politically supported clusters formed in Germany, for example the BioCon Valley in the Greifswald region, the Solar Valley in Central Germany and the BioValley in Southwest Germany. For startup founders, political stability and legal certainty are important factors when choosing a location. In addition to the decisive register and contract security or competent jurisdiction and international legal certainty, speed in register entry is important.

The startup scene in Silicon Valley also attaches particular importance to personal encounters and communication when it comes to founding companies, also in order to gain the trust of investors. Virtual communication or long distances to business partners and peers are considered to inhibit innovation.

Worldwide

Silicon Valley in California (USA) is regarded worldwide as an exemplary startup location that is successful due to its cutting-edge research at Stanford University, for example, numerous incubators, many investors, and innovative, courageous and well-connected entrepreneurship. Among the world's most renowned examples of companies founded as startups are online-based services from Silicon Valley such as Google, Facebook, Twitter, eBay, PayPal, Airbnb, GitHub, Salesforce and Uber, the online university Udacity, the mail-order company Amazon and technology companies such as Tesla Motors and SpaceX.

Following closely behind Silicon Valley is now the startup nation of Israel. According to IVC Research, 8300 start-ups have now been founded there (as of July 2019). The sale of innovation products abroad generated 152 billion US dollars so far. In 2017, Uber won the ranking of the most valuable digital startups according to venture capital firm valuations, with an estimated enterprise value of $68 billion. In the 2010s, the term "unicorn" was established for startups with a market valuation of more than one billion US dollars. In June 2016, Fortune magazine listed a total of 174 unicorn startups, including some European and German companies.

In India, Delhi and Bangalore are in the process of becoming an "Indian Silicon Valley". In China, Shenzhen is considered one of the startup centers for hardware startups.

Europe

Well-known European startups with a high market value are Skype, Spotify, Yandex, Asos, SimilarWeb, Adyen, Markit and Criteo.

Germany

In 2020, according to the German Startup Monitor (DSM), most startups were founded in the information and communication technology sector with 31.8 %, followed by the food and food/consumer goods sector with 10.7 %. Examples of startups in Germany include the social networks Researchgate and StepStone, the internet retailers Zalando, Home24 and Westwing, the mobile payment provider payleven, the biotech company CureVac, and the web service providers Eventim, GetYourGuide, Trivago, tape.tv, Here, TeamViewer, Jimdo, Lieferheld, HelloFresh, Statista, Babbel, Wunderlist and SoundCloud. Especially in the niche of online games, German providers with innovative business models became global leaders, including Wooga, Bigpoint, Gameforge and Goodgame. German startups in the area of individual manufacturing, such as Spreadshirt and Mymuesli, in the area of online dating and in the area of the shared economy the rental marketplace Erento and the personal loan marketplaces auxmoney and smava are considered global pioneers. In the dynamic growth market of mobility, the Munich-based start-up FlixMobility (FlixBus, Flixtrain), which is currently expanding into the USA as a pioneer after Germany and Europe, has established itself alongside spin-offs from German car manufacturers such as the recently merged car-sharing providers Car2go and DriveNow and the ride-sharing service flinc. In the FinTech sector, the German start-up N26 is one of the most valuable companies in Europe. A large number of startups are connected in regional networks or organizations such as the Bundesverband Deutsche Startups or Bitkom.