What are scaleups? Startups that go like a rocket

The word and model startup is familiar to everyone. It is a small emerging, innovative business, with a disruptive approach and with the intention of becoming a large company. But what happens when a startup already has a successful business model and continues to grow? The answer can be found in the word scaleup. It is a less common term but perhaps more interesting from the investor point of view. Those companies that have established themselves in the market and that demonstrate this by fulfilling a series of requirements that make them worthy of this interesting definition are known as scaleups.

According to the Scale-Up Institute in the United Kingdom, scaleups are firms growing their employment numbers and/or turnover by more than 20% a year over a period of three years, or those startups that already exceed one million dollars in financing. Fulfilling these requirements means that young companies can be considered more robust, long-lasting and, above all, to have a proven business model.

To better understand what we mean when talking about startup and scaleup, we need to take a look at their differences. We must understand firstly that a startup is a company in its very initial phase. A phase in which it often does not have any customers or even a strong presence in the market. It is also characterized by proposing a disruptive business and needing significant financing. However, a scaleup must have a track record of at least three years in which it has grown at rates of 20% in each of them or a financing of over one million euros. These requirements make this type of companies a natural and healthy evolution of a startup having left behind the uncertain initial phase. In fact, they are normally the previous step to becoming the famous unicorns: companies valued at over 1 billion dollars.

The scaleups market is bigger and better known than we might think. According to the Startup Genome Scaleup Report, presented at the Global Entrepreneurship Congress, USA, China and the United Kingdom lead the way regarding the number of this type of companies. In the USA, 7,100 scaleups are operating, 4.8 times more than in China and 11.5 times more than in the United Kingdom. India, Canada, Germany, Israel, France, South Korea and Singapore complete, in that order, the 10 leading countries in number of scaleups.

With these data on the table, we can say that the main area of concentration globally is Silicon Valley (California). In fact, not only does it lead in number, but also in capital invested. These more than 7,100 American scaleups have raised around 501.3 billion dollars, 2.6 times more than the amount their European counterparts receive and 1.1 times more than their Chinese ones.

Investment in this type of business has not stopped growing in recent years, as confirmed in the European ScaleUp Monitor Report. The total value of investment in young, fast-growing companies has increased considerably over the past decade, going from 7 billion euros in 2011 to 56.9 billion euros in 2021. Over the last five years, European scaleups have received more than 158 billion euros in financing. Although the pandemic put a halt to these investments, with a decline of 20% in 2020, there was a solid recovery in 2021. 

The reason for growth is because most of these companies have a clear technological component: it is estimated that in 2023 digitalized companies will make up 50% of the GDP of developed economies.

In fact, investment demand and opportunities in this market are such that the company BME has launched this year a new market in the Spanish Stock Exchange, called BME Scaleup. It should be noted that Spain is now the sixth-leading country in Europe in which companies that meet the aforementioned requirements receive the most money. In 2022, a new record investment was received, exceeding 3.4 billion euros.

The concept of scaleup may sound abstract to us, but if we mention companies such as Glovo and Cabify, in Spain; BackMarket, Virtuo and Vestiarie Collective, in France; SendCloud, in the Netherlands; Pleo and Airtame, in Denmark; or Bitpanda, in Austria, it may no longer seem quite so much. All these companies –many of which have already expanded internationally– have in common the technology base. It is true that they come from very different sectors, such as vehicle rental, clothing retailing or parcel deliveries, but they share great usability and rapid and simple access through a mobile application. In other words, scaleups that are leading the way forward for businesses have a common origin, the application of technology to business to make it more accessible, managing to engage millennials and generation Z with their new consumption models.