Startup lingo decoded
October 7, 2019
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So, you’ve decided to start your own business. Congrats!
With that initial decision, you’ve already checked off two of the biggest factors for building any business: a great idea and the determination to make your dream business a reality. Sure, there will be some challenges along the way, but if you’re ready to face them, the effort can be well worth it in the end.
To successfully maneuver those challenges you have to know the lingo. The startup world has a vocabulary all its own, which can be a bit daunting for new entrepreneurs.
Don’t worry, we’re here to help. We’ve gathered some of the key startup terms to help you talk the talk. The walk comes later.
Also known as a private investor or seed investor, angel investors, well, invest their own money into a startup at its early stage, often in exchange for a share of the business. An angel investor can be anyone interested in helping a startup get off the ground, including friends or family members. Funds from an angel investor can be a one-time investment or ongoing financial support.
B2B, or business-to-business, relationships involve one business as the supplier and other businesses as their customer. These relationships are generally identified by their transactional nature, both in the exchange of goods and payment, depending on the needs of either party.
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Business-to-consumer, referring to a business that sells its products and services directly to consumers. As a business model, B2C differs significantly from B2B. Generally, consumer sales are smaller incrementally, but may work out to generally the same volume. This means a different supply chain, and definitely some different marketing messaging.
The process of measuring a startup’s performance and successes. An investor measures a company’s growth by looking at whether specific “benchmarks” have been met. Identifying and setting benchmark indexes is an important aspect of investing for some investors. Sidenote, some companies may call these KPIs, or “key performance indicators” as a barometer for success.
If you’re building a company using only personal savings, your great business idea, and, hopefully, revenue from sales, then you’re bootstrapping. In fact, more than 80% of startup operations are funded by an entrepreneur’s own money. A bootstrap is a business that’s launched without any external financial support.
This refers to how fast a startup users its available cash. It’s the rate of a business’ negative cash flow, which is usually a monthly measurement. The speed of cash consumption indicates to investors whether a company is self-sustaining.
A joint effort by many individuals to finance a project or company. Think of it as an alternative means for financing your startup. There are four different types of crowdfunding: donation-based (supporters have no expectation of anything in return); reward-based (contributors are promised returns like the ability to purchase a specific product); equity-based (contributors can purchase equity interests in a company); and debt-based (raising funds from people in return for interest, also known as “crowdlending”). Kickstarter and Indiegogo are examples of popular crowdfunding websites.
An innovation or technology that will change – “disrupt” – an existing market by displacing old technology or altering a market’s audience. It often forces companies to change their business approach for fear of losing market share or becoming irrelevant. For example, fintech companies like Veem are disrupting legacy financial systems.
Ecommerce (electronic commerce)
In a nutshell, ecommerce involves any commercial transactions (buying and selling) conducted online. For example, Amazon and Alibaba are two of the world’s largest ecommerce platforms.
A business ecosystem is a network of parties – including suppliers, distributors, competitors, government agencies, customers, and others – that work cooperatively and competitively. Organizations that are part of a business ecosystem are linked together and affect one another. Like in nature, survival in a business ecosystem depends on the ability to adapt. They live, and work, in symbiosis. That’s some biology lingo for you. You’re welcome.
Pitching the case for your startup is an essential part of growing a successful business. You never know when you may cross paths with a potential client or investor, so it’s crucial to be prepared with a quick pitch. An elevator pitch is a condensed speech outlining what your startup is, what it offers, and any facts that help tell the story of how awesome your business is. The idea is that the speech shouldn’t take longer than the time it takes to ride an elevator
The method for investors and business owners to “exit” their investment in a company, usually with the intent of getting a monetary return on their investment. An exit strategy can also be used to limit losses by closing an unprofitable business. Exit strategies are often developed in a company’s early stages.
This is an important step for companies and means you start offering shares of your company for purchase to the public. Also known as an initial public offering (IPO), it’s often used as a way to raise capital to expand. Once a company goes public, it becomes a publicly-traded and owned entity. Think (most recently) Uber, Zoom, and Lyft.
An organization that helps with the development of early-stage startups until they can sustain themselves, usually in exchange for equity in the company. Incubator firms often assist startups with accessing capital, acquiring office space and equipment, mentoring, and training.
Non-disclosure agreement (NDA)
A legally binding agreement between two or more parties that prohibits confidential information from being shared with other parties. NDAs can be one-sided, where the party that signs the agreement receives sensitive information from the other, such as when new employees sign a confidentiality agreement. There are also mutual NDAs that benefit both parties, like between two businesses working together.
When it comes to getting financing or landing new clients, a good pitch deck can make all the difference. A pitch deck is a presentation that entrepreneurs put together for meeting with partners and prospective investors or clients. A pitch deck should cover all aspects of your business concisely and, most importantly, with excitement.
When a startup changes direction for its business strategy. Pivoting is often a make-it or break-it moment for businesses, especially if the reason for pivoting is because of lackluster sales. Think of it as coming up with a plan B when plan A doesn’t work out. An example of a company successfully pivoting is Starbucks, which started off selling coffee beans and equipment but no coffee beverages.
Yes, I am passing up on a Friends joke. We’re professionals here.
ROI (return on investment)
When an investor agrees to put capital towards a company, they want to know what’s in it for them, which is the return on investment. It refers to the monetary gains generated by an investment. It also applies to decisions you make as a startup owner when outsourcing jobs or paying for advertising. After all, you want to see a return on what you’ve invested in.
This term is also used more broadly to describe what a project or initiative will “get” the business in return. For example, if a marketing campaign costs however much money, you’ll want to include whether or not the project is projected to pay for itself and, if not, what factors contribute to an ROI useful for the company.
Scaling a business means expanding operations while maintaining or increasing efficiency. A company successfully scales when it increases revenue without having to increase operating costs at the same rate. If your business model has the capacity and capability to function well while taking on a larger workload, then it’s scalable.
The first official round of funding for a startup. At this point, funds are raised for things like market research, product development, and other things to help your business get off the ground. Think of this funding in the same way as planting a seed to grow a plant – this capital is the “seed” that will start a business. Of course, that initial seed can’t do all the work on its own and will need some additional support (aka more funding) along the way.
An entrepreneur who continuously starts new businesses. The term applies regardless of whether those ventures are successes or failures. But, this term has received a bad rep, being used to identify business people that have a knack for starting businesses doomed to fail. However, this is definitely not always the case.
When your business is ready to expand and needs capital beyond what the seed round provides, Series A funding is the next step. At this point, a startup company should have hit revenue goals and established a consistent consumer base. Companies that want to raise Series A funding should also have a business plan that outlines long-term projections for growth and revenue. Series A funding can bring in capital upwards of $15 million, meaning the requirements from investors are much higher compared to the seed round. Subsequent investment rounds that follow Series A are, you guessed it, Series B, C, and D.
When an investor is preparing to invest in your startup, this document outlines the basic terms of what they will get in return. A term sheet is a non-binding agreement that establishes the basis for developing detailed legal documents.
Fun fact: did you know that the unicorn is the national animal of Scotland? In the business world, the mono-horned creatures are startups company that receives a $1 billion valuation. Not quite as rare as the fabled horse, but definitely elusive in its own right.
The short answer: the process of determining how much your company is worth. An analyst will look at a company’s capital structure, management, market value of assets, and potential earnings, among other factors to determine the valuation. This will generally also affect the price of stocks (whether public or privately held).
Venture capitalist (VC)
An investor who provides capital to a company that has the potential for high growth in exchange for an equity share. VCs typically focus on established businesses and are less likely to fund early-stage startups. Depending on their level of investment, a VC may sit on a company’s board of directors.
A schedule that outlines when an employee acquires their full share of company equity. With vesting, the recipient earns the stock or options over time, which is intended to give employees incentive to perform well and remain with a company.
There are definitely more words, phrases and terms that are thrown around the startup environment. But if you’re an entrepreneur just getting started, or a new employee to the growth-stage environment, we hope this glossary helps you get through. But, we haven’t even gotten to the real gems yet. Stay tuned for more, like “sync,” “silver bullet,” and “bleeding edge.”
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