Voice of the Industry

Defining the 'startup' of 2021: challenges and opportunities

Tuesday 10 August 2021 10:03 CET | Editor: Andra Constantinovici | Voice of the industry

Christine Chang, venture partner at Rally Cap, puts a magnifying lens on what it means to be a fintech startup in 2021 and what would be the best criteria to attempt to define it

Cross-border payments startup dLocal has raised USD 150 million at a USD 5 billion valuation, less than 7 months after securing USD 200 million at a USD 1.2 billion valuation. Welcome to 2021, where the tremendous boom in ecommerce means countries as small as Uruguay with its population of 3.5 million people are producing fintech unicorns. This from a region of 652 million people that as of 2017 had zero unicorns to now 18 and counting in Latin America. 

A unicorn is a privately held startup company that reaches a USD 1 billion valuation in less than ten years. This once-revered and elusive status seems to now be increasingly commonplace; there are now 635 unicorns worldwide with two new unicorns being minted per working day. In terms of speed records, ecommerce site Jet.com reached a USD 1 billion valuation in less than four months from founding in 2015. 

All said, what does it even mean these days to be a unicorn? Indeed, what does it mean to be a startup when Stripe, the mostly highly valued startup in America at USD 95 billion, if publicly traded, would easily fall within the world’s largest 100 companies by market cap

The definition of a startup has always been somewhat ambiguous. Alex Wilhem of TechCrunch’s efforts to simplify this to three guiding metrics in 2014 probably made some sense at the time. He suggested that a startup could be defined as a company below: USD 50 million revenue run rate, 100 employees and a USD 500 million valuation. Yet these days, a company is currently just as likely to surpass any or all of these three metrics within 10 months or 10 years. Indeed, while the world was experiencing the extreme challenges of COVID-19, VC-backed tech companies with their digital solutions thrived. VC deals in the US totaled USD 156.2 billion during 2020, beating every other year on record. In just the first three months of 2021, global VC investments topped USD 125 billion

Other interesting defining criteria revolve around the key focus of the business, based on its stage or maturity. Serial entrepreneur and business professor Steve Blank suggests that a startup is defined as a company in its first stages of operations, is tech-oriented to reach a big market demand, and still in the search phase for the right business model and overall product-market fit, while a company is focused on the execution of a proven model, customer creation, and company building. 

Meanwhile, entrepreneur Jared Hecht wrote in Forbes about differences between a startup and small business in terms of growth intent, funding sources, and end goals (i.e. exits). 

While we could pontificate all day long on what is and isn’t a startup, it is clear that one definition does not fit all. Thus, perhaps the more useful discussion is around the current outlook: what it means to be a startup in 2021, how this might impact the way a founder thinks about her product and her business, and what implications it may have for potential partners and clients. 

Let’s look at what it means to be a startup in 2021 in terms of two key components: capital and contracts


As mentioned above, in these frenzied times of free-flowing venture capital dollars, previously unthinkable round sizes have become somewhat de rigeur. Over the past year, mega rounds have become the trend, as investors moved toward less overall deals with bigger ticket sizes. 2020 saw more than USD 20 million in investment just in fintech, another record-breaking figure. The same Alex Wilhelm at TechCrunch observes that ‘there have never been more USD 100 million fintech (funding) rounds than right now’. While this was concentrated in later-stage deals, recent changes in SEC rules have unlocked new sources of capital for earlier-stage startups with higher maximums for crowdfunding and lower minimums to qualify as an accredited investor (angel). 

What does the rosy outlook for capital raising mean for tech startups? Generally speaking, a startup raises capital to fund the tech and/or talent required to reach the next set of key milestones.

In terms of tech expenses, more silver linings from 2020. Thanks to the pandemic, exponentially better products have become available for the same or lower cost, as COVID-19 created a boom in cloud-based services. Amazon Web Services, for example, grew 29% year-over-year in both the second and third quarter of 2020 while offering a plethora of new functionalities. This means lower costs and barriers to entry for a startup resulting in the possibility of earmarking more of the funds raised for the other important piece of the equation, talent. 

As a fintech founder recently mused to me, the talent he was looking for to fill a VP of Sales role was a unicorn (unrelated to the billion-dollar companies but rather a nod to rarity). The ideal candidate would need to be able to sell into both fintechs as well as Fortune 500 companies.

This seasoned executive would be able to work with C-levels in large corporations as well as possessing the grit and agility required to succeed in a high-growth tech startup environment. 

Returning to Steve Blank’s definition of a startup being an organisation in search of a repeatable, scalable, attractive business model, this person by nature would need to be comfortable managing customer relationships around a product or service that is still evolving. While an established company would hardly fathom changing up a bill of goods sold, the very nature of being a high-growth startup means that it needs the flexibility to adjust and iterate. 


This brings us to the topic of contracts (sales) and the potential implications for partners and clients in working with startups, whose very nature is a continual state of flux: 

  • The client is not always right. A successful relationship between a corporate buyer and startup must be much more symbiotic than a typical supplier relationship. Be exhaustive but empathetic in terms of what criteria are must-haves, should-haves, and nice-to-haves but also be honest with yourselves. A multi-year contract with set service level agreements makes little sense for a startup whose primary goal remains iterating toward product-market fit with massive demand. 
Takeaway: it’s highly likely this level of adaptability won’t always make sense for a corporate, in which case, better to look for the better-funded, more mature startups à la Stripe or perhaps an established company whose product offerings can be tailored to your company without risk of collapsing the team or the platform. 
  • MVP, MVP, MVP (minimum viable product). Nearly all of the B2B fintechs I’ve worked with cite their runway and roadmap as dependent on signing 1-2 large clients. Time and time again, these deals take 2x expected time to sign and only after jumping through Olympian hoops to get through a procurement process more suitable for an IBM than a fintech startup. 

Takeaway: consider a streamlined, sandboxed, or lite version of not only the procurement process but also for the structure of the pilot. Continually review your definition of success, how you will measure success and failure, and work with the startup to design the smallest possible experiment to prove or disprove hypotheses at every step of the way. 

  • Pay to play. The significance of contracts to a VC investor is proof not only that demand exists for a product but shows a willingness to pay. In that sense, unpaid pilots are not helpful and furthermore can be seen as a potential distraction. When investors evaluate startups, we like to see that the founding team has skin in the game, i.e. is heavily incentivised to move the company forward. In the same way, potential partners should put skin in the game.

Takeaways: pilots should always be paid in order to ensure a minimum of time, and financial and human resources committed from all parties. This joint investment sets everyone up for success. Be open and collaborative in negotiations on everything from tech requirements to pricing to potential internal blockers you may face along the way. This is invaluable feedback for startups on the key value proposition of its product, validated by a willingness to pay. 

Perhaps then, in the end, the way of working is where the small but important differences come out between what is or isn’t a startup. Partnering with a startup successfully likely requires the same or more investment of your time and resources versus working with more traditional companies or incumbents. It is a journey of a thousand miles, therefore, vitally important to get clear on the overarching goal for the end to justify the means, which is sure to be an iterative process. 

When startups and traditional players come together to collaborate towards a common goal, there are sure to be differences in opinions and approaches, however, what is also certain is that there is no challenge that cannot be overcome thanks to a wider variety of tools and winning strategies.

This article has been published in The Paypers' Who’s Who in Payments Report 2021. To learn more about the payments industry's high-rising trends, M&A activity and investments, startups to watch, along with detailed accounts of all the relevant capabilities and distinguishing portfolios of players activating in the B2B and B2C ecommerce space, download the full report here.

About Christine Chang

Christine Chang is a venture partner at Rally Cap. She has extensive work experience in Latin America, the US, and Europe. Previously, Christine led Industry & Investor Relations at IGNIA, a cross-border fund focused on solutions for the emerging middle-class in Latin America. Christine is also the founder of Santosha Advisors where she advises startups and collaborates with different agents in building the Latam venture ecosystem. Other roles include launching the Startupbootcamp Scale programme designed to help pre-series A fintechs and insurtechs in the Spanish-speaking Latin America reach exponential, scalable growth, and leading transformational projects at American Airlines, UBS, oneworld, Deloitte and Rappi.

About Rally Cap

Rally Cap is a global community of fintech angels investing in and alongside an exclusive portfolio of top-tier early stage venture funds in Latin America, sub-Saharan Africa and Southeast Asia. Founded in 2020, Rally Cap is an exclusive global venture collective, enabling operators and founders to collaboratively invest across early-stage emerging market fintech.

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Keywords: startup, fintech, ecommerce, ecommerce platform, funding, Venture Capital
Categories: Payments & Commerce
Countries: World
This article is part of category

Payments & Commerce