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India-startups-graduate
Reuters/Fred Thornhill
Graduating to the next level.
I WON'T GROW UP

When will Indian startups stop being startups and actually become companies?

By Shelly Walia & Itika Sharma Punit

Flipkart, the Indian e-commerce giant, has a valuation of $15.5 billion. It’s poaching executives from major brands such as Google, Yahoo, and Calvin Klein. And its founders, Sachin Bansal and Binny Bansal, debuted on the Forbes India Rich List this year, tying at number 86, with an estimated net worth of $1.3 billion each.

Is it time to stop calling Flipkart a startup?

The term “startup” is as loosely defined as it is ubiquitous—which makes it hard to know when a startup has graduated to the next level. Should the number of years a startup has been around be the deciding factor, or is it based more on growth, profitability, staffing levels, or valuation?

Quartz reached out to the experts to ask when a startup stops being a startup, and instead becomes a company.

Mostly it’s about size

“In startups, most of the decisions are known to most of the people. You’re small, in a room, in a floor,” says Vijay Shekhar Sharma, founder and CEO of the mobile payment company Paytm. ”A startup becomes a company when the founder doesn’t know what’s happening—so, when teams can take independent decisions without including the founding members.”

Sachin Bhatia, co-founder of the dating app TrulyMadly and of the travel platform MakeMyTrip, uses a similar rule of thumb.

“When I don’t know the name of all the employees in my workplace, it is no longer a startup. It’s a company then,” says Bhatia.

Writing in Founding Fuel about Flipkart, which has 33,000 employees, and Snapdeal—another Indian e-commerce giant—Haresh Chawla, a partner at India Value Fund, recently noted:

And why are these companies still called startups? These are enterprises. With thousands of employees, they are now large and unwieldy cruise-liners slow to maneuver. What we ought to ask is how much innovation have they ever really done? They just ran harder and faster than anyone else using the money they had.

It also could come down to funding

In a 2014 article, TechCrunch’s Alex Wilhelm proposed a “50, 100, 500” rule to determine what a startup is. If you have a revenue run rate greater than $50 million, 100 or more employees, or are worth more than $500 million, then it’s time to “hang up your startup uniform, and realize that you are just another technology company either hunting for or actively avoiding an IPO,” he writes.

Sanat Rao, partner for mergers and acquisitions at Indian software industry think tank iSPIRT and a former Intel director, believes that any company that has gone beyond raising series C funding should stop calling itself a startup.

“A startup is a company that hasn’t yet found a scalable business model and is experimenting with several ideas,” Rao told Quartz. ”A company that has raised angel or seed funding and done two rounds of large venture capital or private equity investment is not a startup anymore because it has found its business model and is just expanding that now. These are companies in a growth mode, not startups.”

Why be a startup

But even companies that have clearly graduated to the next level might feel motivated to hold on to their startup status for as long as possible. After all, the label can offer a certain halo effect.

“If you call yourself a startup, your honeymoon period is longer. People think you are still young and so they are more patient with you,” Yugal Joshi, head of the digital practice at the US-based consulting firm Everest Group, told Quartz. ”Sometime ago, there were reports of Tata Consultancy Services laying off employees, and that made front-page headlines. But recently, there have been reports of some startups sacking people, and that does not get so much attention. People forgive startups because they know it’s a young company and is experimenting.”

The startup label also can contribute to the perception that the company is young and innovative—even if it has been around for decades and has long been doing the same thing. (Just ask Dell, the Texas-based computer vendor founded in 1984, which billed itself as “the world’s largest startup” three decades later, after it was taken private.)

“An ugly part of being large companies is that they aren’t able to switch to new business models in a short span of time. They are known to have this moment of inertia,” Paytm’s Sharma said.

True startups, he added, can make bold moves with nimbleness. The difference can be “very easily seen when you calculate their reaction time to a market opportunity or crisis,” he said.

Another definition of a startup that several experts go by is a company that is experimenting with a business model. Under that definition, most internet companies in India—despite being valued in billions and employing thousands—will remain startups for some time, since they are first-generation companies and might need to tinker with several new ideas before deciding on the business model they want for the long term.

“They should be called change agents,” Sharma said. “They have figured out what needs to be changed and built, and they are constantly changing the way we live, work, or have a problem solved in a day.”