How to tell when your startup is a scaleup
Mon 3 July 2017 - 11:20 amFeatured | Noticeboard | Startup
When can a startup rightly call itself scaleup and what value do scaleups and corporates derive from partnering with one another? Trent Bagnall, the co-founder of corporate accelerator Slingshot, provided Dynamic Business with answers.
Bagnall said Slingshot doesn’t rely on the official OECD definition of scaleup, which is essentially a company with year-on-year growth of at least 20%. For its own purposes, he explained, the corporate accelerator defines a scaleup as a company that not only has “a proven team and product-market fit” but is “operating successfully with strong market traction” and achieving “fast growth, often 10% month-on-month in revenue, ideally $100K per month”.
“The reason why we’ve adopted this definition is because we’re really looking for large startups that are in an exponential phase of growth,” he said. “This is why we look for strong month-on-month growth, rather than annual revenue growth. A small business could be growing at 20% per year, and the operators might be happy… but they might also be unhappy with that result.
“We’re interested in a strong, stable team that has a great product (not just an MVP) in the market, which is generating sales and has proven they can execute, so that if a corporate seeks to partner with them, say for white-label distribution, that scaleup has the resources to do so. The beauty of scaleups that meet our definition is that they’re ready to work with corporates straight away and get a solution into market within even a few months.”
Compared with startups, Bagnall said scaleups tend to have greater customer knowledge, including a better understanding of how to sell to them. Consequently, when they engage with a corporate, they are “able to really articulate the types of customers they’re looking for, so that the corporate can supply those customers”.
He added, “While the corporate brings domain experience and an existing distribution channel, the scaleup, being much more agile, can market to customers, quickly, cheaply and sometimes for easily. The benefit is mutual. We are one of the very few accelerators that run a scaleup program, so our job involves educating scaleups that our corporates are extremely interested in working with more mature business because scale and growth can be instant and the impact is high.
Asked to distinguish scaleups from startups, Bagnall said many startups identify themselves as scaleup whereas scaleups often don’t; instead, they consider themselves ‘established’. Admitting there isn’t an ‘exact moment’ of transition from startup to scaleup, he noted, “it’s more about proven growth and market traction over a consistent period of time”. He added, “Startups pivot a lot because they are close to the customer and change to find that product-market fit. Good businesses keep doing that through their journey”.
In terms of the government support available to scaleups versus the support available to startups, Bagnall said R&D tax credits are a ‘big value add’ for scaleups.
“By the time they’ve reached the scale-up phase, they’re spending large amounts on R&D, including wages which directed towards R&D, and a significant percentage of that can come back in the form of R&D tax credits,” he said. “It’s hard for a startup to get the same value out of the R&D tax incentive that a scaleups gets because often, in the early stages, the founders are paying themselves salaries. Startups have better access to early-stage grants that get their MVPs off the ground.
Bagnall identified esports media platform Gamurs as company that had entered one of Slingshot’s accelerator programs as a startup with a great idea and graduated as a scaleup.
“They came through our NRMA Jumpstart program,” he said. “They have grown from 4,000 users in May 2015 to close to 3 million. The growth lead by founder Riad Chikhani was driven by a change in direction for the gaming network into eSports, as well as a series of acquisitions. Toward the end of last year, they raised $1 million, which will enable them to expand into the US and open an office”.