The different types of startups
Let’s start with the basics. A startup designates a recent innovative company -the beginning of the phenomenon is informally dated at the beginning of the 2010s-, in full growth, and evolving in the digital ecosystem. Unlike traditional companies, start-ups stand out because they bring to the market an innovation -product or service- with a very strong potential for economic growth.
Startups, therefore, are more focused on their rapid growth, or hypergrowth in jargon, than in its profitability. This is why many are financed through venture capital: they make fundraising (at first a few hundred thousand or a few million euros, later more) to finance its research and development and its commercialization. Profitability is a long-term goal for them, a consequence of their market penetration. Therefore, start-ups can lose money for a long time, if investors continue to support them, so that they continue to grow rapidly.
Two spellings of the word are commonly accepted: start-up or startup, the first is the exact resumption of the popularized English word, the second is its Frenchization.
This Anglo-Saxon term indicates a startup that has already managed to carve out a niche for itself in its market and is experiencing hypergrowth, especially internationally, but has not yet achieved unicorn status (see further). The scale-up stage corresponds to the moment when the startup must really structure itself to go through an additional stage of growth. Scale-ups generally have big financing needs: they must raise tens of millions of euros to hire massively, open new offices abroad, possibly make acquisitions to grow.
Unlike the word start-up, which was Frenchified by removing the hyphen, we write extension keeping the hyphen.
At each fundraiser, the startup sets a valuation with its investors. The more the company grows, the higher its valuation, which is calculated on the basis of a multiple of its turnover that varies according to sectors and growth potential.
After several increasingly important fundraisers, the startup thus becomes a unicorn: an unlisted startup valued at least a billion dollars. Today there are more than 1,000 unicorns in the world, including only 26 in France and more than 200 in Europe. The vast majority are American or Chinese. Half of the world’s unicorns have achieved this status since 2021. 75% of unicorns in Europe are software startups.
When a unicorn reaches a valuation of $10 billion, it becomes a decacorn. This level is difficult to reach: there are only about fifty decacorns in the world, of which 17 in Europe by the end of 2021, none in France. Finally, the pentacorns they are unlisted startups that reach a valuation of at least 50,000 million dollars. There are only four in the world: the American Stripe and SpaceX, as well as the Chinese Bytedance (the publisher of TikTok) and Didi Chuxing. There are none hectocorn (an unlisted startup valued at at least $100 billion), though Bytedance briefly achieved that status before losing it.
Not all startups are destined to become unicorns. Therefore, other animals were chosen for scoring. Thus a zebra is a startup that seeks a balance between growth and profitability, and does not sacrifice the latter for the benefit of the former. Zebras are usually startups that operate exclusively in BtoB or impact startups. They are closer to traditional companies in the way they operate. The term appeared in 2017.
For his part, the cockroach it is characterized above all by its resilience and its relevance in a niche market. Hypergrowth is not your goal at all. The term appeared in 2016.
It’s the new buzzword in French Tech. It appeared in 2022 under the pen of the investment fund Bessemer Venture Partnersdesignates startups that earn at least $100 million inARRWhere annual recurring revenuewhich is the dominant economic model in technology.
With the number of unicorns skyrocketing since 2021 due to the insane inflation of valuations in post-Covid tech, investors are now looking for more realistic financial metrics to gauge the success of a startup. A centaur is therefore an elite club of financially very successful startups: there are about 10 in France, for 26 unicorns. Some centaurs, because they’ve focused on revenue instead of hypergrowth, aren’t even unicorns, like Silaé, champion of HR software.
The vocabulary of the technological ecosystem
- French Technology, Mission French Technology
It should not be confused. the french technology refers to the French technological ecosystem as a whole. As a common banner that brings together entrepreneurs, investors and all the actors in the ecosystem: incubators, accelerators…
For his part, the French technology mission is the state body in charge of federating the ecosystem and developing public policies to help startups. This structure was created at the end of 2012 by Fleur Pellerin, then Delegate Minister for Digital Affairs, and chaired from 2013 to 2017 by David Monteau, from 2018 to 2021 by Kat Borlongan, and from 2021 by Clara Chappaz. Under the supervision of Bercy, and in particular of the Delegate Ministry for Digital Affairs, the French Tech Mission develops support programs such as Next40 and French Tech 120 -the index of the most successful French technology startups-, Green20, Agri20 or even Tremplin, intended open technology to the most remote economic and social circles.
- Deeptech, martech, fintech, cleantech, biotech…
These are the multiple subsectors of technology. As digital is transversal and transforms all sectors, startups in each sector are grouped under various names, sometimes with their own professional federation, such as France Biotech, which brings together all French biotechnologies, or France Fintech.
Therefore, the financial technology – contraction of finance and technology -, are the startups that bring digital solutions to the financial sector. the martech they are startups in marketing, advertising technology are those of the advertising sector, agricultural technology for agriculture, green technology for energy, clean technology in the environment, the space technology for space technologies. There are even the sextech -startups that develop innovations in the field of sexuality and intimate health- or the church Technology, or innovations aimed at digitizing the practice of faith.
Sometimes several words refer to startups in the same sector. Therefore, the health technology brings together health startups, but within this ecosystem, there are biotechnology -solutions based on biotechnologies-, medical technology – new medicines – and solutions for e-healthas well as everything related to improving the patient experience through digital technology, such as Doctolib.
Please note that the biotechnology They are deployed in various sectors. The OECD (Organization for Economic Co-operation and Development) defines biotechnology as all applications of science and technology to living organisms or their parts “Consequently, the fields of application are very broad: from health to the environment, through cosmetics, food or the chemical industry.
such as biotechnology, deep tech they refer to startups that can evolve in very different sectors. Their common point? These are state-of-the-art technologies, the result of long years of public research, developed in laboratories and then transferred to companies to find an industrial and commercial application. These start-ups face specific problems that require adequate public policies, such as Deeptech plan developed by the State with Bpifrance since 2018.
The vocabulary of investors
- Company, growth, initial stage
These words, all Anglo-Saxon, designate the maturity stages of a startup.
the adventure generally refers to fundraising of less than 50 million euros, while the increaseWhere equityrefers to financing rounds of more than 50 million euros.
the stage ofearly stage specifically corresponds to seed: this is the beginning of the startup, when it needs funds to develop its technology and find its first customers.
These are the names given to startup fundraisers.
the seed corresponds to seed fundraising (there may be several), often a few hundred thousand euros, or even a few million.
When the startup is ready to attack your market, it raises funds from institutional investors. Each new funding round is designated by a letter of the alphabet: Series A is the first post-seed institutional fundraiser, Series B is the second, Series C is the third, and so on. Some unicorns are in their F or G series or beyond. With each new round the amounts raised and the valuation of the company increase.
Since the goal of fundraising is to grow quickly to conquer your market, there comes a time when investors want to get their return on investment, preferably at a big profit. Startups, therefore, have a vocation, at one time or another, to “exit” their investors’ portfolios: this is the famous exit.
There can be several types of outputs. The first option, which most tech entrepreneurs dream of, is to become profitable and go it alone. The start-up thus becomes over time an ETI or a large group, like the American GAFAM (Google, Apple, Meta -Facebook-, Amazon and Microsoft), which were start-ups financed by venture capital before becoming in Giants. In France, the startup Veepee has also taken this path: from a small startup fed by its investors, it has become an e-commerce giant that employed 5,500 people worldwide at the end of 2021, reaching a turnover of 3.8 billion euros and was largely profitable.
The second form of exit, honorable for both entrepreneurs and investors, is the takeover or M&A (merger/acquisition). When a startup has reached a comfortable place in its market, it can be sold to a larger player, who picks up its technology/customers/brand. Investors encourage this type of exit.
The third honorable way to make a exit is to go public, which is called an IPO (initial public offering), which allows investors to recover their investment and, if the IPO is successful, hit the jackpot. OVHCloud and Deezer, which were among the first French unicorns, went public on Euronext in October 2021 and July 2022 respectively. They are no longer unicorns.