Revolut was founded a decade ago. It employs more than 8,000 people. It was valued last year at 75 billion US dollars. In March of this year, it was (finally) a full UK banking licence, allowing it to offer accounts for retail and business customers. From time to time, however, Revolut still gets called a start-up.

In this, it is far from being alone. Stripe, Klarna, even OpenAI, the creator of ChatGPT, are all routinely described by journalists, investors, and occasionally their own founders as start-ups. Few things in business, it appears, are harder to shed than the start-up label, especially if the firms themselves are reluctant to do so.

This is partly because there is no universal, official, agreed definition of what is, and what is not, a start-up. There are plenty of firms which have been around for more than a decade, which have a proven, profitable business model but still refer to themselves as start-ups. That’s fine. Others will switch to calling themselves scale-ups after just a year or two. That’s also fine. At the end of the day, whether a company considers itself a start-up or not is irrelevant. Or is it?

Paul Graham, the co-founder of Y Combinator, the American accelerator that backed Airbnb, Dropbox and Stripe, had a go at settling this many years ago. His answer was simple and concise, saying that a start-up is a company designed to grow fast. Nothing more, nothing less. It is a company with an explicit ambition to scale, usually with external capital in tow to do so. By that definition, a ten-year-old firm still burning through venture money in pursuit of market dominance qualifies as a start-up, but a two-year-old bakery already turning a nice profit does not.

Others have tried to be more precise about the definition. Alex Wilhelm, a senior editor at TechCrunch, devised in 2023 what became known as the 50-100-500 rule: a company ceases to be a start-up once it passes 50 million US dollars in annual revenue, has more than 100 employees, or carries a valuation over 500 million US dollars. He later revised these figures upward, to 100 million US dollars in revenue and 2.5 billion US dollars in valuation, which perhaps says rather more about inflation in the technology sector than about the underlying concept of what is, or what is not, a start-up.

The honest answer of course is that there is no clearly defined line. Product-market fit, profitability, acquiring other companies, and going public are all plausible milestones, but not one of them is universally accepted.

Name dropping

For start-ups (or not) themselves, the temptation to cling to the label is mostly understandable. ‘Start-up’ carries a specific cultural charge denoting youth, disruption, innovation, and momentum that ‘established company’ emphatically does not. Enterprise customers historically hesitated to sign contracts with firms that might run out of cash before the year was out. Today, somewhat paradoxically, many seek out start-ups precisely because they are assumed to move faster than incumbents. The word, as one investor puts it, has become a proxy for a firm’s culture.

But there is a harder argument that the label actually matters, not least that in a growing number of countries, it is attached to real money. In Italy, the Startup Act, passed in 2012 and since expanded, provides formally registered ‘innovative start-ups’ with subsidised credit guarantees covering up to 80 per cent of bank loans, plus a 30 per cent tax credit for investors. One study found the programme injected roughly 34 million euros in equity and debt into Italian start-ups between 2012 and 2015, and created more than 900 additional jobs. When firms outgrow the eligibility criteria (by becoming too old and/or too large) they are automatically removed from the register and the benefits vanish with them.

Spain has gone further with its Start-Up Law, enacted in 2022. Qualifying companies pay a corporate tax rate of 15 per cent for four years, against the standard 25 per cent. Employees can receive stock options worth up to 50,000 euros a year tax-free. 

The European Commission, meanwhile, is pushing what it calls Regime 28, or EU Inc. a pan-EU corporate framework designed specifically for start-ups and scale-ups. Admission requires meeting certain criteria, which means the definition of a start-up will, before long, carry legal force across 27 countries.

All of this means the semantics are not merely cosmetic labelling. Calling yourself a start-up in Rome or Madrid can mean a meaningfully lower tax bill. Dropping the label, or never claiming it in the first place, can mean leaving money on the table.

Growing up

There is one further wrinkle. Mikhail Taver, a venture investor who has written on this subject for Crunchbase News, argues that the promiscuous use of the start-up label distorts investment markets. When fund mandates specify ‘investments in start-ups’ and that term covers everything from a three-person seed-stage company to a pre-IPO giant sitting on hundreds of millions of US dollars in revenue, limited partners cannot easily know what they have signed up for. The looseness of the word, in other words, has real consequences for how capital flows to genuinely early-stage companies, and how little of it reaches the ones who need it most.

Revolut, for what it is worth, has largely stopped calling itself a start-up. Perhaps that 75 billion US dollars valuation was enough to prompt a rethink. For most companies, however, the definition remains deliberately clouded. The ‘start-up’ label is simultaneously a cultural asset, a fundraising tool and, in a growing number of jurisdictions, a gateway to tax breaks and subsidised credit that can make a genuine difference to survival prospects. Whether a firm chooses to wear it or shed it matters less than whether policymakers and investors are clear about what they mean when they use it. 

A label that can mean both a three-person team burning through seed capital in a kitchen, and a 5,000-person company preparing for an IPO is a label that has probably done too much work for too long. At some point, the language needs to grow up, even if some start-ups would rather it didn’t.

Photo: Dreamstime.