What Is a Startup, Really?
What the New Startup Era Means for Emerging Ecosystems
The word startup gets thrown around constantly. Defining one, however, is not as straightforward as it seems. This may sound like a weird statement coming from someone who has been involved in venture capital and entrepreneurship for quite some time, but that’s a good part of where I’m trying to get. Most people don’t fit this mold, and finding the difference between a startup and a small and medium business (SMB) is not as intuitive as my own bias makes it seem.
Every new business seems to carry the label, and somewhere along the way it lost part of its meaning. A local restaurant opening a second location is not a startup. A consulting firm launched by two former partners is not a startup. And increasingly, some of the most celebrated “startups” in the world don’t quite fit the definition either. So let’s go back to basics, and then question them.
A Startup Is Not Just a Small Business
The most important distinction in early stage entrepreneurship is the one between an SMB and a startup, and they are fundamentally different animals.
A small business is built to be sustainable. It serves a local or defined market, grows organically, and its ambition is profitability and stability. There is nothing wrong with that. Most of the world’s businesses and employment fall into this category, and building a good small business is genuinely hard.
A startup is built to scale. Not to grow steadily, but to grow exponentially. It is a temporary organization designed to search for a repeatable and scalable business model, a definition popularized by Steve Blank that still holds up. The underlying assumption is that the startup doesn’t yet know exactly what it is building or for whom, and the early years are spent finding that answer as fast as possible, usually with outside capital fueling the search.
The other key difference is risk and return. A small business operates within known parameters. A startup bets on an uncertain future, which is why venture capital exists in the first place. Investors accept high failure rates because the potential upside of the ones that work is large enough to justify it.
That model worked remarkably well for decades. And then something started shifting.
The New Playbook Nobody Officially Announced
A recent megaround in Latin America got me thinking about something I touched on in my last monthly download. We are no longer just talking about startups raising tens of millions. We are talking about companies raising hundreds of millions at valuations in the billions, sometimes before they have fully proven their model in the traditional sense. This is a different game entirely.
What separates these companies from the classic startup story is what I would call structural unfair advantages, and they come in a few distinct forms.
The first is access to capital. Some founding teams arrive with relationships and track records that open doors most entrepreneurs will never reach. The fundraising process that takes others two years gets compressed into months. The starting line is simply not the same.
The second is a unique and rare skill set. We are seeing founders who have operated at the highest levels of their industries, who have built and scaled similar products before, and who bring a level of execution certainty that dramatically reduces the perceived risk for investors. These are not people searching for a business model. They arrive knowing what they are building and how to build it.
The third, and perhaps most consequential right now, is timing and the emergence of a transformational technology. AI has created a new category of companies that can reach scale at a speed and capital efficiency that was simply not possible five years ago. The technology itself becomes an unfair advantage, and the founders closest to it start with a head start that compounds quickly.
But none of this happens in isolation. On the other side of the table, the venture capital industry has its own structural shift underway. Mega funds have emerged with hundreds of billions of dollars in assets under management, and those funds have a fundamental problem: they need to deploy large amounts of capital. A $10 billion fund cannot afford to make only small bets. It needs to write big checks into companies that can absorb them and deliver returns at scale. This creates a natural pull toward exactly the kind of companies described above, founders with unfair advantages, operating in large markets, raising massive rounds at ambitious valuations.
The result is a flywheel. Large funds need large rounds. Large rounds go to founders with structural advantages. Those founders can deliver the kind of outcomes large funds need. And the cycle reinforces itself.
This is not a criticism. Capital flowing to high conviction bets with strong founding teams is not a bad thing. But it does reshape what we mean when we say startup. The scrappy team searching for product market fit from scratch is still out there, and still worth celebrating. It is just increasingly one path among several, and arguably no longer the dominant one at the top end of the market.
Understanding this shift matters, especially for ecosystems like Latin America that are still building the conditions for these kinds of companies to emerge locally. The question is not whether this new playbook is good or bad. The question is how we build ecosystems that can produce founders with those unfair advantages, and how we make sure we don’t leave behind the ones who are still figuring it out from scratch.
What This Means for Latin America
Let’s be honest about where the region stands. On all three unfair advantages, access to capital, deep operator talent and proximity to transformational technology, Latin America is structurally behind. That is not a pessimistic take, it is the starting point for an honest conversation.
Access to capital remains concentrated. The local fund ecosystem is thin, dry powder is running low and the mega funds that are writing the largest checks globally are selective about where they deploy in the region. When they do show up, it tends to be for category winners in proven verticals. First time founders building in nascent categories rarely make that list.
The operator talent gap is real but closing. A first generation of founders has now built, scaled and in some cases exited meaningful companies across the region. That experience doesn’t disappear, it recirculates. We are starting to see former operators from Nu, Rappi, Mercado Libre and others launch new ventures, and they arrive with exactly the kind of unfair advantages the new playbook rewards. This is one of the most underappreciated dynamics in Latam tech right now.
On technology, the region faces a proximity problem. The founders closest to AI are concentrated in San Francisco for the most part. Latin America has strong engineering talent but is not yet producing the density of AI native founders that would allow the region to compete at the frontier. That gap will take time and deliberate investment to close.
That said, there are reasons to be optimistic. The emergence of repeat founders is the most encouraging signal. Regional funds are beginning to back operators with track records rather than just ideas. And a small but growing number of Latam founders are spending time embedded in global tech hubs before returning to build locally, bringing back networks and perspectives that didn’t exist a decade ago.
What the ecosystem needs to prioritize is not complicated, even if it is hard. Funds need to close and deploy, because without local capital the region will always be dependent on global players who treat Latam as an afterthought. Corporates and universities need to invest in producing technical talent that is AI literate from day one. And the founders who have already won need to reinvest their time, capital and networks into the next generation, because that recirculation of experience is how ecosystems compound over time.
The new startup playbook is being written whether Latin America participates or not. The encouraging sign is that the region has enough momentum, enough talent and enough hard won experience to write some of those pages itself. But it will require the ecosystem to operate with the same sense of urgency that the best founders in it already do.