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What is a startup?

Innovation, technology, and talent

A startup is a newly created company that relies on information and communication technologies (ICT) to market its products or services. It features a scalable business model in which its priority is to grow quickly and smoothly.

In recent years, we have become familiarized with the concept of startups or emerging businesses, an idea which goes beyond entrepreneurship as it represents a profound transformation of the business world.

With a lower startup capital requirement than traditional businesses, a clear vision, and a technological approach, startups rely on different types of innovation to grow quickly and revolutionize the way of doing business.

A startup is not always an SME that relies on the Internet or social media to market its products or services and grow. There are big differences between these two types of entrepreneurship.

Differences between startups and SMEs

People working together

  • Orientation: Generally, SMEs are focused on a local or national market (although there are exceptions), while startups usually show more global ambitions from the start.
  • Innovation: It is the hallmark of startups, not only regarding the way of marketing its products or services, but also the creative solutions that make up the basis of its activity.
  • Investment: For startups, external investments are fundamental for its development, while external capital is not usually a determining factor for SMEs.
  • Talent: SMEs usually rely on the local market to find employees, while startups look for talent globally.
  • Employment: Technology-oriented profiles are highly valued in startups, something that isn't as common in SMEs.
  • Growth and risks: The mentality of startups is usually "all or nothing." If the idea isn't successful, it's much more difficult to redirect them. However, if they manage to pull it off, the growth can be exponential. SMEs tend to have slower, more lineal growth, but it's normal for them to see short-term results and profits as the start of their activity is usually aimed at earning money as soon as possible.

Characteristics of a startup

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Innovative idea

The seed of a startup is always a novel idea that tries to offer different and often disruptive solutions to daily problems or even explore new possibilities with concepts that set it apart from any other business proposal.

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Technology

Startups rely a lot on ICT to maximize their reach and presence, as well as for self-management of their business operations.

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Scalability

Its growth potential is enormous, so one of its characteristics is its speed to expand production and sales without overly affecting the level of expenditure.

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Young talent

The startup environment is usually young and modern. This is fostered by the evident importance and prevalence of technology in its operations.

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High risk level

Everything depends on the success of the idea. If the target audience doesn't embrace it as expected, the startup will fail.

Evolution of a startup: Growth stages

  1. Pre-seed stage or idea: It's the time to develop a minimum viable product (MVP) and lay the foundations that will turn the concept into something real.
  2. Seed stage: In this stage, the product takes shape and the development of a minimum viable product that can be tested by real customers is sought. If the data backs up the feasibility of the idea, it's time to present it to investors through techniques such as the pitch desk, which summarizes the company's vision and mission, who makes up the team, what the product or service to be sold is, or what the business model is, among other aspects.
  3. Early stage: In the early stage, the aim is to improve the product based on the comments of those who test it, as well as to detect what its most important characteristics are and build business relationships with a forward-looking approach.
  4. Growth stage: In the growth stage, the product is now considered validated, and it's a time of fast progression in which more staff is hired and significant investments are made. Moreover, a positive cash flow is essential to build trust among investors and back up the success of the startup.
  5. Expansion stage: The product is now consolidated in the market and the aim is to expand borders, whether geographical or with regard to market niches. Here, it's fundamental to get more investments and reach agreements with large companies that offer financial backing and in terms of infrastructures.
  6. Exit stage: This stage refers to the sale of the startup, either by transferring the founders' shares to other companies, going public, or being taken over by a larger company. Nonetheless, not all startups aspire to reach this stage, but rather to consolidate themselves as companies.

Types of funding for startups

For a startup to forge ahead with its proposals, they must receive external funding, and there are different types.

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  • FFF (family, friends, and fools): This involves friends, relatives, and close people to the founders who contribute capital at the beginning of the business venture.
  • Business angels: These are people that decide to back a project and invest an amount under €50,000. Their involvement in the company tends to go beyond financial backing.
  • Seed capital: This is capital that's invested in a company even when it's not bringing in profit. This investment relies on the potential of the idea and the team developing it.
  • Venture capital: The startup is usually more established but not fully consolidated, so the investment still involves a high risk. Specialized investment funds provide fairly high amounts in different financing rounds.
  • Private equity: The investment capital only tends to reach startups when they're already practically consolidated, but they require significant investment to continue their expansion.

Types of startups

As it pertains to startups themselves, we can talk about different types depending on their growth. The following are some of the most common ones:

Young people in a meeting room working together

  • Scaleups: These are startups with a consolidated track record and growth trend. They have raised at least $1 million in funding, have experienced a 20% growth over the last 3 years, and the goal is to scale the business, expand markets, and reach more customers.
  • Centaur startups: These are valued at more than $100 million and are not publicly traded.
  • Unicorn startups: They have a $1 billion plus valuation and are not listed on the stock exchange.
  • Decacorn startups: These are privately-held startups with a valuation exceeding $10 billion.

Startup success stories

Robot in a Repsol lab

Today, it would be hard to understand the world without Google, Facebook (now called Meta), and Twitter, but these three companies have one thing in common: they were all once startups. There are countless success stories of this sort that can be found in a wide variety of fields.

In the energy sector, many startups are committed to initiatives aimed at improving sustainability. Therefore, Repsol, through its strategic investment fund endowed with €50 million known as Repsol Corporate Venturing, is committed to startups that develop innovative technologies in three areas: decarbonization and circular economy, advanced mobility and renewables, and digital technology and asset optimization.

Façade of the Repsol Technology Lab

Moreover, Repsol's business accelerator, the Entrepreneurs Fund, has so far promoted the development of 70 startups dedicated to low-carbon technologies, circular economy, sustainable mobility, or digitalization for the optimization and control of processes in the energy industry. In the last call for proposals, five startups were selected to receive funding.

In most cases, investment funds offer startups capital. However, in the case of Repsol, both Corporate Venturing and the Entrepreneurs Fund also provide expert advice, both from its industrial areas and from the scientists and technologists at the Repsol Technology Lab. This also involves the possibility of carrying out pilot or concept tests at Repsol's facilities and plants or at its innovation center, the Repsol Technology Lab.