Whether you are new to the world of entrepreneurship or a regular in it, you have undoubtedly noticed the continuous rise of companies called «startups» and the advantages offered by recent legislation to promote their growth.
But do you really know what is meant by a startup? Could it be the starting point for your project?
To understand the foundational basis of startups, we must delve into their recent history. The term «startup,» coined during the technological revolution of the 1970s, basically encompassed any company that relied on technological elements as primary tools in the development of their activities. These were initially very small companies with innovative technological foundations that were capable of achieving extraordinary growth and results in a short period of time, leveraging e-commerce.
While the 1990s and 2000s were the peak years for these so-called startups, the arrival of the dot-com bubble caused many of them to perish, while a small number of them, overcoming the adversities of the crisis, rose to the top as multibillion-dollar technology companies.
Currently, a startup, despite retaining its technological-electronic touch, operates under a more inclusive concept. It is understood as any company or society that is in the early stages of its activity. Its main characteristic is that entrepreneurs start with an idea or product that they believe can be in demand by consumers. Up to this point, one could say that they do not differ much from small and medium-sized enterprises (SMEs), but we must highlight a series of phases that startups go through, which demonstrate their uniqueness:
1. Initial Phase and Financing: Startups, in terms of their initial capital, opt for less traditional financing methods, resorting to systems such as «Crowdfunding» and «angel investors» that aim to attract external investors specialized in the creation and growth of these companies. During this initial phase, the attracted capital is allocated to the preparation of the product or service to be offered and, in general, to the establishment of the company.
Due to this external investment, the profits obtained during the initial stages of the activity are used to pay off the investment. This makes this period the most risky for the survival of the startup, in case the initial revenues are not sufficient to cover the costs of the company.
2. Establishment Phase
The constant innovations in technology and the different operating software in the current market have made it increasingly accessible to all types of entrepreneurs, even those whose purpose has nothing to do with technology. This has led to the creation of a more inclusive concept, no longer focused solely on the initially required technological connotations. This is also reflected in Article 3 of Law 28/2022, of December 21st, on the promotion of the startup ecosystem (also known as the startup law), which states that it is applicable to emerging companies (startups). An emerging company is understood as any legal entity, including technology-based companies created under Law 14/2011, of June 1st, on science, technology, and innovation, that simultaneously meets the following requirements:
- Newly created or a maximum of five years since its establishment, and seven years in the case of the biotechnology, energy, industrial, or other sectors as the state of technology progresses.
- Independent.
- Registered office or permanent establishment in Spain, as well as a majority percentage of the workforce under contract in Spain.
- Innovative character.
- Not listed or distributed dividends, and not reaching a turnover of more than ten million euros.
3. Startup as a Team: While a sole proprietor may not require additional workers, a startup must have the right team to materialize the project. Therefore, hiring highly qualified personnel is the cornerstone of the success model for startups. In fact, one of the main causes of failure is the lack of proper hiring.
Growth Phase: Once the initial crisis is overcome, startups generally seek additional methods to maximize their growth, often resorting to strategic alliances, acquisitions, mergers, or financing through venture capital or crowd-sourcing.
Main Advantages:
- Reduction of the corporate tax rate to 15%.
- Deferral of tax debts.
- Exemption from making corporate tax installments.
- Elimination of certain registry fees for the establishment of a new company.
- Exemption from the obligation to obtain a foreign investor identification number (NIE) for non-resident foreign investors.
- Three-year Social Security contribution discount for self-employed entrepreneurs who also work as employees.
- Increase in the exemption amount, up to 50,000 euros per year, for the delivery of stock options to employees.
- Increase in the deduction for investment in new companies, raising the rate to 50% and the maximum base to 100,000 euros.
- Promotion of the creation and development of controlled testing environments to validate the viability and impact of new models in regulated activities.
- Facilities for providing guarantees or advance payments in the case of grant awards.
Conclusion:
As you may have already observed, the final product offered by startups is not necessarily the creation of technology but the offering of a product/service through the use of technology. Therefore, the only essential requirement for the creation of a startup, along with the aforementioned formal requirements, is innovation, that is, the creation of scale-up solutions to existing problems, whether through the creation of a new product, a new delivery method, or different monetization strategies.
At KPlex, we believe that the constant dynamism of the market demands providing our entrepreneurial clients with new forms of survival and growth tailored to the needs of their business. Thanks to our extensive network of strategic partners, we offer a wide range of essential legal services, including attracting foreign investors, relocation of highly qualified personnel, and the valuation, sale, merger, or acquisition of your business.
Our mission is to grow your business and maximize your profits.
Additional Services:
- Drafting and negotiation of international agreements.
- Personalized advice on public and private financing.
- Negotiation in the purchase and sale of a company.