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Startup
Practical Law Glossary Item w-000-5016 (Approx. 3 pages)
Glossary
Startup
The usage of this term varies widely, making it difficult to pin down a precise definition. Perhaps most often, the term is used to describe a company that has the following traits:
- It is not, and has never been, an SEC reporting company (in other words, it is privately held).
- It uses invested capital (as opposed to reinvested profits), often from venture capital investors, to build an innovative growth-focused, scalable business.
- It has the eventual goal of selling the company or undertaking an initial public offering (IPO) to provide liquidity to its investors.
The following types of companies may sometimes also be referred to as startups:
- Privately held companies in any industry that were very recently formed and have not yet raised capital, or that have only raised modest amounts of capital from the founders’ friends and family or angel investors. These types of companies are often referred to as unfunded startups or seed-funded startups, respectively.
- Privately held companies that have received venture capital investment (often referred to as funded or venture-backed startups).
- Privately held companies that have been spun out of larger businesses to focus on products or services that may be competitive with the larger firms’ core businesses.
- Privately held growth-focused companies in any of the following industries:
- consumer internet or e-commerce;
- software;
- digital media;
- social media;
- telecommunications and mobile technology;
- biotechnology and life sciences;
- clean technology;
- pharmaceuticals;
- medical devices;
- information technology;
- advertising technology;
- financial services and payment technology;
- semiconductors;
- hardware;
- nanotechnology; or
- robotics.
- Any small innovative companies that have never been SEC reporting companies, regardless of industry.
Privately held startups that are in later stages of development but have not yet completed an IPO are also sometimes referred to as emerging growth companies. This terminology can be easily confused with the federal securities law status of emerging growth company (or EGC). EGCs are a category of SEC reporting company that are entitled to rely on certain accommodations under the federal securities laws designed to make it easier to complete an IPO and be a new reporting company. Thus, sometimes a privately held company may be casually referred to as an emerging growth company but not be classified as an EGC for federal securities law purposes.
For a list of resources related to startups, see our Startup Company Toolkit.