Scale-Up –
the key facts at a glance

What Is a Scale-Up?

There are various definitions for the term "scale-up" that differ in the details. At its core, however, it refers to a company that has left its start-up phase behind and is on its way to becoming an established business: the business model has already been placed on the market; an initial customer base has developed. In the scale-up phase, the goal is to further consolidate the market position and set the company up for long-term success.

A characteristic feature of a scale-up is often rapid growth. The figures vary here too, but from around 15 to 25 employees and annual growth in headcount and revenue of approximately 25 percent, a company is usually referred to as a scale-up.

That is not the limit of what is possible, however — there are scale-ups, particularly in the digital economy, that grow several times their size per year. The challenge for many of these young companies is to actually realise the growth that is possible in principle and to channel it in the right direction for further development.

Special Challenges for Scale-Ups

Successful scale-ups do not only grow quantitatively. They also adapt their structures and processes to the requirements of their company stage. Where start-ups still develop ad hoc solutions in small teams, usually under the direction of the founders, scale-ups require different approaches. They typically need to:

• Build new hierarchies and a second or third management level

• Further develop or establish tasks, departments, and divisions

• Increasingly rely on collaboration with external service providers and specialists

• Expand marketing and communications

• Increase customer focus

• Meet growing stakeholder expectations

• Establish standards in organisation, corporate culture, and quality management

• Step up employer branding and human resources efforts

• Find a larger location

Scale-Up Financing as a Foundation

Due to the complex challenges and specific structure of scale-ups, the topic of financing holds particular importance. Where start-ups are often still self-funded or can draw on public grants or venture capital, scale-ups must rely on other sources. There is an increased need for debt capital, as with each funding round, the company otherwise becomes increasingly dependent on equity providers who have a say in decision-making.

The portfolios of traditional banks rarely cater to scale-up financing — young, rapidly growing companies may have innovative and promising business models, but they often do not yet operate profitably. Due to regulatory requirements, creditworthiness expectations, and internal risk guidelines, banks usually have to decline such engagements.

Solutions are instead offered by approaches such as online platforms or venture debt. In the latter, venture capital from companies and private investors is pooled in funds, from which loans are then granted to scale-ups. On specialised online platforms such as Teylor, lending to growing companies is arranged through a credit fund, for example.