Most companies are considered startups for their first two to five years. There is no legal definition, but the common test is the 50-100-500 rule: a company stops being a startup once it passes $50 million in revenue run rate, 100 employees, or a $500 million valuation.
Given that, the answer depends on context and age is only one of several signals. Here is what actually separates a startup from an established business.
How Long Is A Company Considered A Startup
Well, there is no definitive answer to this question, as it depends on the context. The average startup stage, however, typically lasts between two and five years.
During this period, the business is in its infancy and working to develop a product or service that can be sold to customers. Generally, a company is considered a startup when it has fewer than 100 employees and hasn't generated much revenue.
The 50-100-500 rule, developed by Alex Wilhelm, one of the most well-known writers at TechCrunch, is a helpful way of understanding what constitutes a business as a startup.
According to this rule, a company stops being a startup once it passes any of three thresholds: a revenue run rate above $50 million, more than 100 employees, or a valuation above $500 million.
Although this rule does not apply to all startups, it still provides a good guideline.
There are a few other factors that might be taken into account as well, such as the amount of capital invested in the business and how far along it is through the stages of startup growth.
How Do You Tell If A Company Is A Startup?
Startups are known for being innovative, agile, and adaptable and often have a strong culture that fosters collaboration and creativity. A common question among entrepreneurs is, how do you tell if a company is a startup?
Here are a few key characteristics to look for:
High Growth Potential
The defining characteristic of a startup is that it has the potential to grow rapidly. Startups are well-positioned to capitalize on emerging trends and to scale quickly, which is why venture capitalists are often drawn to them.
Size and age
One of the most obvious ways to identify a startup is by size and age. Startups are typically small, with fewer than 100 employees, and have been in business for less than five years.
Stage of development
Startups are usually in the early stages of development, which means they are still working on defining their product or service and building a customer base. They may not yet be profitable and may still be raising capital to fund their growth. Most early-stage startups sit here.
Funding
Most startups are still raising. Rather than funding growth out of revenue, they rely on outside capital such as venture capitalists, angel investors or crowdfunding platforms. This funding allows them to invest in research and development, marketing, and other activities that will help them scale. If you are weighing which route to take, the difference between a venture capitalist and an angel investor is worth understanding before you start pitching.
Products or services
Startups often work on innovative products or services that are not yet widely available.
They may be developing new technologies or trying to disrupt traditional industries with their offerings.
So, if you see a company that checks off these five characteristics, then it's likely to be a startup.
When Is A Company No Longer A Startup?
There is no single moment when a company stops being a startup, but there are reliable signals. It crosses one of the 50-100-500 thresholds. It reaches consistent profitability. It raises a Series C or later and enters late-stage territory. Or it simply stops behaving like one, trading rapid experimentation for predictable process.
Most companies cross several of these at once, over a year or two, rather than all at once on a single day.
The Benefits Of Passing The Startup Stage
Time and again, entrepreneurs have been able to turn their startups into major successes.
Once a startup passes the two-to-five-year mark, there are a lot of benefits.
Acquisition of more capital
The most obvious benefit is that the company can access more capital from investors and lenders. This will enable them to expand operations, hire more staff, develop new products or services, and launch new marketing initiatives. It also means giving up less ownership per round, since how much equity you offer tends to fall as the company de-risks.
Increased visibility
As the startup grows, it starts to get more attention from investors and customers. This can translate into better brand recognition and bring in more business.
Increased reliability
As the startup matures, it becomes less risky for potential investors. This can create a more reliable reputation and allows the business to scale faster.
Improved Morale
The growth of your startup can have a positive effect on employee morale. As the business grows, it can offer more attractive benefits and job security, which can help to retain the best talent.
Having the top talent
Employees are the backbone of any business. As a business grows, it can attract the best and brightest talent. This can be an important factor in helping to drive innovation and success for the company.
Stable cash flow
As a business matures, it can become more profitable and generate stable cash flow. This allows the company to invest in more growth opportunities and become more competitive in the market. It also removes the pressure of managing startup runway month to month.
Although there are uncountable benefits of passing the startup stage, these were some of the most common and important ones.
Wrapping Up
So, there you have it. Being a startup is an exciting time for any business, but there can also be some advantages to graduating from that stage. Any startup can grow into a major success with the right approach and the proper resources.
After all, the best time to plant a tree was twenty years ago, but the second-best time is now. So, don't wait too long to get started. Who knows, your startup could be the next success story.
If you are still in the startup window and raising, you can search 125,000+ angel investors and VC firms by stage, market, and location.
Frequently Asked Questions
Is it possible for a startup to survive five years?
It certainly is, though the odds are tough. According to the U.S. Bureau of Labor Statistics, about 20% of new businesses close in their first year, and roughly half don't make it to year five. Startups face even more risk on top of that, since most aren't profitable yet and depend on outside funding.
But if you have a great idea, the right team, and enough runway to reach it, there's no reason your startup can't survive five years and beyond.
How long does a startup survive?
There isn't really an average, because most failures happen early. BLS data on new businesses shows around 80% make it through year one, about half are still going at year five, and roughly a third are around after a decade. Once a business clears that five-year mark, its chances improve considerably.
Of course, survival depends a lot on the industry too. Some sectors are simply harder to last in than others.
What is considered a startup company?
A startup is a young company, usually under five years old, that is still building its product and searching for a repeatable business model. It typically has fewer than 100 employees, hasn't reached consistent profitability, and is funded by founders, angel investors, or venture capital rather than by its own revenue.
Do 9 out of 10 startups fail?
Not in the first five years, no. You'll hear the 90% figure everywhere, but the data doesn't back it up. The Bureau of Labor Statistics finds that about 20% of new businesses fail within a year, roughly 50% within five years, and about 65% within ten.
Two things worth keeping in mind. That data covers all new businesses, not just venture-backed startups, which are riskier by design. And "failure" here just means the business stopped operating, which includes acquisitions and owners who simply chose to close up. So the 90% claim overstates the early risk, even if the ten-year picture is still a sobering one.
