Startup terms you should know

In the startup world, there are several terms that are often thrown around which can become pretty confusing for the uninitiated. So to avoid any head-scratching moments, here is a list of the key few and what they mean:

Note: Some of these terms shall be used again in an upcoming post “Steps to building a successful startup”, so make sure to go through all of them!

1. USP – Unique selling proposition

That special factor that differentiates your company from others and provides benefit to consumers of your product/service. Could be a novel technology, a new approach to doing something already available that either makes it cheaper  or more attractive, a special business culture or a novel focus on a niche market.

2. Deep tech

This is a rather new one and is used to describe companies that use completely novel technology as opposed to currently available technology. Makes the company look more sexy to investors. Not to be confused with deep learning which is a fancy term thrown around by tech geeks to describe a better version of machine learning.

3. Runway

How much time you have before your investor money runs out.

4. B2B, B2C

Often used to describe the nature of your product/service, whether its being sold to businesses i.e. business to business; or directly to consumer i.e. business to consumer

5. Exit

How you want the company to end successfully and make everyone (i.e. investors and startup founders) rich. Either comes in the form of an IPO (initial public offering) where the company gets listed on a stock exchange which allows investors a chance to liquidate their shares, or a buyout, where another company buys the founded company and investors get their ROI (see next).

6. ROI – Return of investment

What the investor would receive when the company exits. Usually expressed as a ratio: (gain from investment – cost of investment)/cost of investment.

7. SaaS – Software as a service

A company model where licences/subscriptions are sold to users to obtain access to a cloud-based software.

8. Vesting

Where employees/co-founders get given shares but receive them over a period of time rather than at one go in order to get them to stay at the company for a longer time. It may follow a vesting schedule where one gets a small portion every year and may include a “cliff” where shares are given only after a fixed period.

9. Unicorns, centaurs and ponies

Derived from Silicon Valley and are used to describe companies with different scales of valuation. Unicorns are valued at over $1 billion, Centaurs at over $100 million and My little Ponies at greater than $10 million.

10. IP – intellectual property

Refers to a creation of the mind that you want to protect, usually by patenting it or keeping it extremely secret (e.g. the recipe for Coke).

11. Traction

Evidence that the company is growing or has potential for growth. This can be shown via customer response or actual revenue.

12. Valuation

This is how much your company is worth in the eyes of investors. Its pretty difficult to decide this in the early stages. Usually investors will come up with this by analyzing similar companies (i.e. your competitors) and seeing how much they are valued.  See here for an infographic on the calculation process. The valuation can be affected by factors such as founder reputation or prior success, traction, current distribution channels (e.g. if you already have an established channel like a blog with a million views by which you can reach many potential customers), and industry buzz like if you happen to be working on the hot topic of the month.

Valuation is also split into pre-money and post-money valuation. If your company was valued by an investor as being worth $1 million for example. That is the pre-money valuation. If the investor decides to invest half a million, the post-money valuation = $1 million + $0.5 million = $1.5 million and the investor now owns 33.3% of your company.

13. Funding rounds: Seed, Series A, B, C..

The seed funding round is the first investment round where a company gets money – usually from friends/family, angel investors, incubators/accelerators or via crowd-funding. Following which a company could approach VCs (Venture Capitalists) for funding rounds named Series A, the next funding round being Series B and so on. The number of rounds can apparently go on as long as the company wants to remain private and not do an IPO. Uber for example went up to Series G! Another nice infographic with more detailed info on startup funding sources here.

14. Venture Capital

Money from a fund run by venture capitalists which pools money from various investors and invests in a portfolio of companies.

15. Angel Investor

A rich individual that provides capital to a startup in return for a stake in the company.

16. Crowd-funding

Getting money from the public masses. Often done through online platforms , see here for a list.

17. Accelerator/Incubator

An organisation that supports startups either in terms of office space, funding, mentorship/guidance and access to professional networks. Most of them take some equity from the company in exchange. Accelerators are said to be for more mature startups while incubators for the newborns but they are often used interchangeably.

18. Due Diligence

A detailed investigation into a business done by investors/companies looking to acquire it. Often involves in-depth analysis of a business’ assets and liabilities to determine its commercial value.

19. Proof-of-concept

Demonstration that your idea is actually feasible and is often required to get VC funding.

20. MVP – Minimum viable product

The simplest version of your product that is required to achieve proof-of-concept.

21. Pivot

When you have to quickly alter the position of your company either by changing the target market, or the application of your product in order to survive in the market.

22. NDA – Non-disclosure agreement

What one signs when a company/individual doesn’t want you spilling their secrets.

23. CRM – Customer relationship management

A system or software used by companies to consolidate customer information so that staff can easily access, manage and record interactions with customer, with a goal to track business performance and drive sales.

24. Burn rate

The money a company is burning through every month before breaking even or making profit.

25. Bridge loans or Mezzanine financing

These are hybrid loans in the form of cash or equity/options given to more mature companies which are cash-positive usually in preparation for an IPO.

26. SOPs – Standard operating procedures

Step-by-step instructions of procedures important for running of the business that employees follow to improve efficiency and communication within organization and to maintain a high quality and uniformity of the product.


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