A startup is an innovative company in its early stages with significant growth potential, typically in the technology sector. The term “startup” implies rapid progression and accelerated development during the early phases of a business enterprise.
Essentially, the concept of a startup entails creating and implementing an innovative business strategy that is repeatable and scalable. In other words, a startup seeks inventive and unusual solutions to a specific problem or need, with the ability to scale quickly without proportionally increasing its costs.
For example, opening a clothing store does not qualify as a startup because it is a classic and well-established business concept. However, developing an e-commerce platform focusing in fashion that uses personalized recommendation algorithms could be deemed a startup because it combines technology and innovation to provide a unique market solution.
Recognition of Startup and Scale Up Status
The Law no. 21/2023, of May 25th, has defined the legal concepts of startup and scale up and has established the regime of recognizing such status. This status has fiscal benefits associated with it, so it is of interest to be recognized with it.
Requirements for recognition of startup status:
- Be youger than 10 years old;
- Have fewer than 250 employees;
- Have an annual turnover not exceeding 50 million (in EUR);
- Not be the result of a transformation or division of a large company and do not have a majority shareholding in a large company;
- Have a registered office or permanent representation in Portugal, or at least 25 employees in Portugal.
Requirements for recognition of Scaleup status:
- Be older than 10 years old;
- Have more than 250 collaborators or have more than 50 million in annual turnover.
Start-ups and scale-ups must also comply with one of the following conditions:
- Be a company with high growth potential and have an innovative business model, products or services. The company must comply with the terms defined under Ministerial Implementing Order No 195/2018 of 5 July, or must have been recognised as suitable by the National Innovation Agency (ANI).
- Have completed at least one round of venture capital financing by an entity legally authorised to invest in venture capital, subject to the supervision of the Portuguese Securities Market Commission (CMVM) or an international authority affiliated with the CMVM, or through the settlement of equity or quasi-equity instruments by investors other than the company’s founding shareholders, in particular by business angels, certified by the Agency for Competitiveness and Innovation (IAPMEI);
- Have received investment from the Portuguese Development Bank (Banco Português de Fomento) or from funds managed by it or by its subsidiary companies, or from one of its equity or quasi-equity instruments.
Historic context of the term Startup
The term ‘startup’ was first used in the business industry in 1976, by the Forbes magazine, that stated in an article: “The … unfashionable business of investing in startups in the electronic data processing field.”
Followed by, in 1977, Business week article that stated: “An incubator for startup companies, especially in the fast-growth, high-technology fields”.
Interesting data related to startups
In Portugal, in 2020 the proportion of surviving enterprises 1 year after birth was 74.6%, down 1.5% compared to 2019, and survivors 3 years after birth corresponded to 44.2%, down 2% from the previous year (Source INE, National Instute of Statistics).
It is said that 90% of startups fail. One out of every ten fails in the first year, and the majority of them fail between years two and five, accounting for 70% of all instances.
You can find more interesting statistics like this in https://www.embroker.com/blog/startup-statistics/
References: https://www.quora.com/What-is-the-origin-of-the-term-startup-and-when-did-this-word-start-to-appear https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_publicacoes&PUBLICACOESrevista=00&PUBLICACOEStema=55579 https://startupportugal.com/startup-status/ https://eportugal.gov.pt/en-GB/inicio/espaco-empresa/balcao-do-empreendedor/pedido-de-certificacao-de-startup-e-scaleup