Evolution Of Startups and Gazelle Companies

Since the pandemic, gazelle companies have become an endangered species within the business ecosystem. There are barely more than 4,000 companies considered as such after the Covid crisis has reduced their number by 30%. However, if we believe the data between 2017 and 2020, the impact of these companies on the labor and product market is truly remarkable. During that period, they created 300,000 jobs and only destroyed 75,000 jobs.

A positive balance shows the importance of this type of company, which is often confused with startups. Nothing further: gazelle companies do not have to be technological projects undertaken by a few people. On the contrary, these companies double in size in a short period. And they are starting from a minimum initial size of ten employees. For this reason, a recent study by the Cotec Foundation indicates that only 0.53% of these types of organizations come from a startup. The rest are innovative SMEs.

Be that as it may, despite the slowdown caused by the pandemic, there are still about 40% more gazelle companies than during the 2008 financial crisis.

What are Gazelle Companies?

In addition to the size of the workforce, the other requirement for gazelle companies is that they experience annual growth of more than 20% for at least three consecutive years. That is, they grow at a fast but also constant speed. Hence its name is about the races of gazelles when they flee from their predators in the natural world: the further they travel, the better chance of survival they have.

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In the business ecosystem, this translates into a long-distance race in which companies must manage the initial advantage -for example, having ten employees or more-but without stopping at any time to avoid being left behind. How do they get it? Taking into account their nature, they could be defined as those operating in traditional sectors seeking the differential element to compete with other companies.

In this sense, there are a series of characteristics that define gazelle companies :

They are young: a good part of them (38%) have been in the market for less than ten years. In other words, most have been created in the post-crisis context of 2008. At the same time, one in five begins to grow strongly three years after its foundation at the latest.

Capital Intensive: Second, successful gazelles often have a strong initial capital infusion. Moreover, they use almost four times more risk capital than the rest of the companies in the productive fabric.

External Opening: in this sense, approximately 33% of these companies have foreign capital, somewhat more than the total number of companies, around 25%.

More Profitable: given their nature, gazelle companies are more beneficial than other companies on the market. It is what differentiates them from them, even after those first three years of very high growth.

Reduced Workforce: unlike other companies -even startups-their goal is not to grow their workforce to unaffordable levels from the beginning. Instead, develop an innovative idea with controllable human capital.

Job Creators: between 2017 and 2020, the balance of jobs created compared to those destroyed is 225,000, making gazelle companies one of the significant engines of the labor market in our country in recent years.

By sector, the vast majority of gazelle companies are related to innovation. And although almost all of them are based on new technologies, the ICT sector is not the one with the most significant presence. 

According to the Cotec report, R&D represents the fastest growing sector, going from 14% to 22% in a pandemic. Other fertile sectors for this type of company are telecommunications, supplies, and financial services.

Before the coronavirus crisis, gazelle companies accounted for just over 6% of all SMEs. After the pandemic, they only represent 4.4%. By autonomous communities, Madrid is in the lead with 944 gazelle companies. 

Behind are Andalusia, Catalonia (613 each), and the Valencian Community (475). 70% of this type of company is concentrated in these four regions.

Gazelle Companies and Startups: What is their Relationship?

At the beginning of the article, we said that the proportion of gazelle companies that come from a startup is practically residual. However, when this fact occurs, much higher growth is observed than in other companies of this type. In fact, before the pandemic, startups converted into gazelle companies multiplied their turnover by seven and their number of employees by six.

And the ecosystem is of paramount importance: 85% of the startups converted into gazelle companies are located in Madrid, Barcelona, or Valencia. A figure that is consistent with that of the traditional epicenters of startups. And that shows another logical consequence: the startups that develop their activity in these epicenters are much more likely to become gazelle companies than the rest.
All this leads us to ask ourselves: could gazelle companies be considered the natural evolution of startups? For one thing, not all gazelle companies are startups. However, there is a direct relationship between the capacity for innovation in a sector such as ICT and a greater probability of presenting an annual growth of over 20% in the first three years.

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