Startup Genome’s Guide to Becoming a Scaleup 

On September 20, 2023,  Startup Genome released “The Scaleup Report,” a unique longitudinal study aggregating 11 years of primary research with close to 100,000 startup founders globally. The report zeros in on the unique characteristics of early-stage startups that succeed in becoming scaleups — scaling to a valuation of $50 million or more within four to eight years — and provides a roadmap to entrepreneurs, investors, and ecosystem builders alike.

A Snapshot of the Global Scaleup Landscape

• 12.4k startups qualified for the scaleup status in 2023. 

• More than half of those (3.7k ) were founded between 2006 and 2016, with the 2013–2016 cohort the largest. 

• 33% (4.1k) were founded by serial founders.

• Industries: 9% (1.1k) are impact-focused, 2.2k are Deep Tech scaleups, 1.8k are in BioPharma, and 1.7k are in Fintech.

• Geographies: the top countries by combined scaleup valuation are the U.S., China, India, the U.K., and Canada. The UAE - the only Arab nation in the top 25 listing - ranks 22nd, with 38 scaleups that have raised a total VC investment of $8 billion.It’s striking that 60% of all scaleups are still based in North America. This may be due to the fact that, since 2020, the U.S. has received more VC investment than the rest of the world combined.

• Global VC investment into scaleups, which had surged to $576 billion in 2021, dropped by 41% to $338 billion in 2022 and seems to keep slowing down in 2023 with around $114 billion raised so far. 

Scaleups globally are now worth $17 trillion, 53% of the value of all tech companies. 19% (2.4k) have been acquired and 13% (1.6k) have IPO’d.

What Turns a Startup into a Scaleup

Only 4.6% of startups become scaleups globally, according to The Scaleup Report which details the different factors determining the ability of a startup to scale to $50 million and higher valuations, some within a founder’s control and others not. 

1. Startup ecosystem

Startup Genome identified four phases in startup ecosystems’ lifecycle that heavily influence a startup’s chances of scaling: Activation, Globalisation, Attraction, and Integration. 

“The scaleup rate dramatically increases based on where a startup is formed. Only 2.5% of startups formed in Activation-phase ecosystems successfully scale to $50 million or more in valuation, while 8.7% of those formed in an Integration-phase ecosystem successfully scale — 3.5x more,” says the report. “This means that for governments and innovation agencies, it is of primary importance to carefully enact the right policies at the right time and with large budgets to grow and mature their local startup ecosystem.” 

The results are exponential: for example, when an ecosystem moves from the Activation to Globalization phase by doubling its total number of startups, the impact is a quadrupling of the number of scaleups.

2. Networks

• Local connectedness, relating to the size, density, and quality of local networks, has a major impact on ecosystem value and startups’ success rates, increasing with the number of quality founder-to-founder and founder-to-investor relationships.

• Global connectedness, the degree of international connections between ecosystem stakeholders, provides founders with access to global knowledge and personal connections that can support them in going global.

• Foreign customers: When startups target customers beyond their borders from an early stage, they start to develop their products and services for global markets, instead of their national market only. This expands their potential customer base, multiplies their growth potential and, as they gain traction, increases their ability to raise growth capital.

• Global market reach, whereby 50% or more of startups’ customers come from outside of their continent, translates into the highest scaleup rate. “This can be attributed mostly to startups that tailor their products and services to truly global markets — not just beyond their country, but beyond their continent — dramatically increasing their potential customer base,” explains the report. Some target a global market from day one, which is much more effective for startups based in later-phase startup ecosystems.

3. Team

The team behind a startup is vital to its success or failure, and this includes the experience of the team members, their physical location, and their compensation model.

• Startups with growth leaders who had business experience in U.S. or U.K. markets prior to hiring have significantly higher scaleup rates (more than 2x).

• Securing the advice of more successful founders and senior executives by offering them equity greatly increases a startup’s chance of successfully scaling, “doubling it when going from no advisors to one or two, and increasing again by more than 50% by securing three or four advisors,” the report shows. Unfortunately,  only 20% of startups globally secure the support of three or more advisers by offering them equity. 

• Founders that give employee stock options (ESOP) to all of their employees dramatically increase their chance of scaling. It increases the motivation of employees and retention, and builds team spirit and commitment.

4. Founder DNA

As Marc Penzel, Founder and President of Startup Genome, said, “Massively successful entrepreneurs oftentimes pursue undergraduate degrees, move on to gain hypergrowth experience, and launch their own company at the age of 30 to 40 years. A common path to develop big ambition, knowledge, and networks before taking the leap of faith.” 

• Serial entrepreneurs, having greater local connectedness than first-time ones, succeed in building scaleups at a more than 10% higher rate.

• Similarly, founders who have previous hypergrowth experience (experience in a startup that scaled rapidly to a very large size) have an 85% higher scaleup rate. They can “plug their invaluable experience into ecosystems with stronger networks, more knowledge and talent, and more funding — increasing their scaleup chances significantly.”

• Getting rich is the strongest corollary to scaleup success among motivation options. In fact, founders with greater wealth are less likely to create a scaleup than those who can rely on well-off friends for friends for not only financial support, but also motivation, advice, inspiration, or relationships to investors, customers, or partners.

• Scaleup success is most common among founders in the 26-40 age bracket, both in terms of scaleup rate and absolute number of scaleups.

• Scaleup success also tracks as the number of founders increases until four, then falls (in part because not many instances of startups with five or more founders).

• A higher level of education does not have a discernible effect on founders beyond the undergraduate level. However, a founder having an undergraduate degree is much more correlated with scaleup success (more than 30%) than founders without one.

5. Target market

B2B-only startups have higher scaleup rates than those that are B2C-only or mixed. 

In conclusion, The Scaleup Report shows that “founders looking to improve their chances of scaling should ensure that they offer stock options for all employees, have more than five global connections to top ecosystems, and have at least three advisors for their startup. Global connectedness, having qualified advisors, and offering strong employee incentives in the form of stock options are crucial to scaling success.”