Startups have become one of the most favored types of companies for millennials and Generation Z. The growth of startups has seen a significant rise since the Covid-19 pandemic, especially in Indonesia since 2020.
As of November 29, 2022, Indonesia has a total of 2,400 startups, ranking sixth globally in terms of the highest number of startups, according to Kompas.com.
The types of startups emerging during the pandemic have become more diverse. They now include not only e-commerce and transportation startups but also those in education, health, and various other sectors.
So, what exactly is a startup? What sets it apart from conventional companies, and what are some examples? Let’s dive into a comprehensive explanation below!
What is a Startup?
True to its name, a startup is a company that is newly established, often referred to as a fledgling company. Startups are still in the development phase across various aspects, including products, market share, and human resources.
Moreover, startups are typically technology and internet-based companies. Due to their early stages, most startups have a small team with a fast-paced work system, and task assignments are often overlapping.
Startups are considered more flexible, always evolving, and capable of adapting to changes in society. They are usually founded by 1-3 individuals with financing initially coming from personal funds before seeking funding from investors.
Read more: 7 Ways to Build a Successful Startup
Characteristics of Startups
Startups possess several characteristics that differentiate them from conventional companies, including:
1. Created to Solve Problems
While conventional companies are generally designed to meet market demands quickly for profit, startups create products based on existing societal problems. Their products are solutions that benefit many people. A prime example is the online motorcycle taxi (ojol) startup, which addressed the unclear pricing issue in traditional motorcycle taxis. Such problems are often resolved through internet or digital technology, making startups synonymous with tech companies.
2. Flexibility
Another factor that distinguishes startups from conventional companies is their flexibility. Compared to corporate structures, which can be convoluted, hierarchical, and bureaucratic, startups are highly flexible and dynamic in terms of organization, task distribution, and operations. Everything is adjusted based on needs, making it easier for startups to grow and innovate.
3. Internet-Based
The term “startup” primarily refers to online-based ventures. This means that internet technology is the primary foundation for solving societal problems, developing products, and marketing them. Often, the products themselves are digital.
4. Success is Not Guaranteed
Despite being seen as glamorous and lucrative, startups do not guarantee success. Research by Zippia indicates that, on average, startups can only survive between 2-5 years before facing bankruptcy. Success depends on the viability of the solutions provided to society or the target market.
5. Participation in Incubator and Accelerator Programs
Participation in incubator and accelerator programs connects startups with professional mentors, senior founders, businesspeople, and investors. These programs are valuable for founders to enhance their skills in managing and developing their startups, offering training, mentoring, and funding.
6. Funding from Investors
Many startups are initially founded with the founder’s personal funds. However, startups are always working towards expanding and gaining investor funding. Investment funds serve various purposes, from initial capital to expansion. There are three common types of investments made by investors: equity investment, shareholder loan investment, and convertible note loans.
Read more: 5 Benefits of Venture Capital in Developing Startups
History of Startups Worldwide
The startup trend did not emerge overnight. Its development has been ongoing since the 1990s and continues to evolve. What is the history of startups worldwide? Let’s explore the chronology:
- Dot-com Era: The dot-com era, or “The dot-com bubble,” occurred in the United States between the 1990s and the early 2000s. Many new companies were founded based on the internet. Notable startups from this period include Amazon and eBay. The era’s name originates from the .com domain used by many companies during this time.
- First Startups in the World: The precise beginning of the startup era is challenging to determine. The dot-com era is relatively modern compared to the emergence of the Silicon Valley business ecosystem, considered the precursor to the global startup boom. IBM, founded in 1911 in Silicon Valley, became one of the largest hardware, middleware, and software manufacturers globally. Other companies like Apple, Microsoft, and Google were also early startups that became market leaders.
- First Startups in Indonesia: A century after the first startups worldwide, Indonesia saw the rise of the digital startup investment ecosystem in 2010. East Ventures invested in Tokopedia, and PT Telekomunikasi Indonesia injected funds into Blanja.com. This marked the swift development of the digital startup ecosystem in Indonesia. In just four years, digital startup ecosystems became well-established, with more than 2,400 startups in Indonesia by now. Early Indonesian startups include Gojek, Tokopedia, Bukalapak, and Traveloka.
Read more: 11 Factors Causing Startup Failures to Avoid
Differences Between Startups and Regular Companies
Having briefly touched on the distinctions between startups and regular companies, let’s delve deeper into their differences:
1. Funding
Startup funding at its inception usually comes from the founder’s personal funds. As startups grow, they seek funding from investors to further their development. In contrast, regular companies receive funding primarily from the company’s owners. They manage operational and business development expenses from the profits generated by the business.
2. Operational Structure
In terms of operations, startups are often managed by founders and/or management, with investors participating in strategic decisions. This is in contrast to regular companies where almost all decisions are made according to the owner’s will. Owners or investors usually sit within the management structure.
3. Goals
Startups typically aim to create something new, innovate, and provide solutions to society. Often, startups have not identified a suitable target market, and their products may not be widely accepted. On the other hand, regular companies tend to mimic proven business models to quickly gain profits.
Read more: 8 Differences Between Startups and SMEs You Need to Know
Startup Valuation Levels
The terms unicorn and decacorn commonly heard in society are closely related to startup valuation levels. Valuation is the economic value of a company calculated using venture capital valuation methods. What are the startup valuation levels? Here’s the breakdown:
1. Cockroach
Referring to startups that are newly founded and have low valuations. The term “cockroach” signifies high survival capabilities. Startups at this level are actively seeking investors and are determined to develop the company.
2. Ponies
“Ponies” refers to startups with valuations up to USD 10 million or around IDR 140 billion. This indicates that the company has grown and continues to seek investors to increase its valuation.
3. Centaurs
“Centaurs” are companies with valuations reaching USD 100 million or approximately IDR 1.4 trillion.
4. Unicorn
The term “unicorn” is likely familiar, denoting startups with valuations up to USD 1 billion or around IDR 14.1 trillion. Notable Indonesian startups reaching unicorn status in 2023 include DANA, Ajaib, Kopi Kenangan, and Xendit.
5. Decacorn
The next level is the decacorn for startups with valuations up to USD 10 billion or approximately IDR 140 trillion. In 2020, Gojek became Indonesia’s first decacorn. In 2023, there are already two Decacorns in Indonesia, namely J&T Express and GoTo.
6. Hectocorn
Lastly, Hectocorn represents the highest valuation level, reaching up to USD 100 billion or approximately IDR 1,400 trillion. Globally, some companies that have achieved this level include Google, Microsoft, Apple, Oracle, Cisco, and Facebook.
Read more: Understanding Unicorn, Decacorn, and Hectocorn: The Differences
Examples of Startups Worldwide
While there are thousands of startups worldwide, here are a few examples that have become kings of the global startup scene:
1. SpaceX
Elon Musk’s company, SpaceX, has a valuation of USD 127 billion or around IDR 1.9 quadrillion. Investors include Rothenberg Ventures, Draper Fisher Jurvetson, and Founders Fund. SpaceX stands out as it produces and launches rockets and spacecraft. Additionally, the company is developing a low-latency broadband internet system known as Starlink.
2. Bytedance
Bytedance, a Chinese startup founded by Zhang Yimming, has reached a valuation of USD 140 billion or approximately IDR 2.2 quadrillion. Bytedance’s products include TikTok, Vigo, Toutiao, and Topbuzz. The company offers AI-supported content platforms and is backed by investors like Sequoia Capital China, SIG Asia Investments, Sina Weibo, and Softbank Group.
3. Klarna
Klarna, based in Stockholm, Sweden, offers payment solutions for e-stores and retailers. With a valuation of USD 45.6 billion or around IDR 685 billion, Klarna’s investors include Sequoia Capital, General Atlantic, and Institutional Venture Partners.
4. Stripe
Stripe is a US-based financial technology company offering a payment processing platform for online merchants. With a valuation of approximately USD 95 billion or around IDR 1.426 quadrillion, Stripe’s investors include Capital, Lowercase Capital, and Khosla Ventures.
5. Shein
Shein, a Chinese e-commerce B2C platform focused on women’s clothing, has reached a valuation of USD 100 billion or approximately IDR 1.5 quadrillion. Investors in Shein include Sequoia Capital China, Shunwei Capital Partners, and Tiger Global Management.
Read more: The Funding Stages of a Startup: Explained from Inception to IPO
That concludes the ins and outs of startups, from their definition and history to their types, valuation levels, and global examples. Keep visiting the Alpha JWC Ventures blog for information on startups and investments.
(Note: The values in USD and IDR are for illustrative purposes and may not represent the current market values.)
