In the ever-evolving landscape of entrepreneurship, understanding the language of startups is crucial for navigating the journey from idea to success. Startup terminologies encompass a myriad of terms and phrases that encapsulate the unique challenges, strategies, and milestones encountered by emerging businesses. Whether you're a budding entrepreneur or an investor looking to decode the startup lexicon, here's a comprehensive guide to essential startup terminologies.
A/B Test - A marketing test in which users are bucketed into different groups that encounter different user experiences. The behavior of these groups is used to determine which user experience leads to the most desirable results. Despite the name, A/B tests are not always restricted to two groups.
Accelerator - An accelerator takes equity in startup companies in return for small amounts of capital and mentorship. They generally provide a three- or four-month program at the end of which the startups ‘graduate’
Accredited Investor - A rich individual potentially interested in investing in your company.
Alligator arms - A state in which someone is afraid or unable to reach outside of their comfort zone.
Angel investors - Individuals who provide startups with financial backing, often called ‘seed funding’, usually in exchange for convertible debt or ownership equity
Angel Financing - Seed capital raised from independently wealthy investors, for startup companies.
Angel Fund - A formal or informal assemblage of active angel investors who cooperate in some part of the investment process. Key characteristics of an angel group are: control by member angels (who manage the entity or have control over the entity’s managers), and collaboration by member angels in the investment process.
Acquisition - A process under which a company acquires the controlling interest of another company.
Add-on Service - Add-on Services are the services provided by a venture capitalist that are not monetary in nature, such as helping to assemble a management team and helping to prepare the company for an IPO.
Advisory Board - A group of external advisors to a private equity group or portfolio company. The advice provided varies from overall strategy to portfolio valuation. Less formal than a Board of Directors.
Allocation - The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process, depending on market demand for the securities.
Alpha Test - Internal testing, of a pre-production model, typically on a controlled basis, to identify functional deficiencies and design flaws.
Bootstrapping - Founding and building a company from personal finances or from the operating revenues of the new company
Bankruptcy - An inability to pay debts. Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt.
Business Model Canvas - Based on nine building blocks, the Business Model Canvas is an entrepreneurial tool that enables entrepreneurs to design, develop, articulate, challenge, invent, and pivot their strategic business model. The building blocks referenced above include customer segments, value propositions, channels, customer relations, revenue streams, key resources, key activities, key partnerships, and cost structures.
B2B - Business to Business. Your company sells things to other companies.
B2C - Business to Consumer. Your company sells stuff to the masses.
Burn rate - The amount of cash that a company consumes each month to continue operations. Occasionally refers to total expenses, but is more commonly used to refer to cash receipts minus cash expenses when the difference is negative.
Churn Rate - Customers lost after acquisition in a subscription-based business model. Because of the churn rate, your growth might not look like you think it will.
Cliff - Usually applies to vesting schedules (shares given to employees over time). Cliffs are a way for the CEO to fire employees or let them leave without giving them stock within a limited time (usually 1 year). Cliffs are also used on CEOs by investors to make sure the CEO sticks around after getting the cash.
Crowdfunding - “Crowdfunding” is the process of raising financial support for a venture via smaller amounts from many investors (“the crowd”), rather than the alternative pattern of larger amounts from a smaller number of supporters. Charities and philanthropies have traditionally employed fundraising strategies (soliciting both the general populace or crowd, as well as fewer wealthier donors), while businesses have usually taken the route involving fewer and larger supporters. Today’s internet has vastly increased the ability of fundraisers to communicate information and solicit and receive financial support from anyone online.
Demo Day - Where the graduating class of Incubators and Accelerators is given a chance to pitch to investors.
Digital - Relating to using or storing data or information in the form of digital signals (such as digital TV or a digital recording) or involving or relating to the use of computer technology.
Dilution - Issuing more shares of a company dilutes the value of holdings of existing shareholders. A reduction in the percentage ownership of a given shareholder in a company is caused by the issuance of new shares.
Disruptive Technology - Something that completely changes the way society does something (e.g. Uber/Lyft vs. Taxis or Amazon vs. in-store shopping).
Ecosystem - The global community of people founding, working in, supporting, and investing in tech startups refer to the sector as an ‘ecosystem’, where various entities connect with, link to, interact with, and help each other, thereby strengthening the ecosystem while increasing their own value.
Early Stage - A state of a company that typically has completed its seed stage and has a founding or core senior management team, has proven its concept or completed its beta test, has minimal revenues, and has no positive earnings or cash flows.
Equity - This designation is given to a stockholder’s ownership in a company. The amount of ownership is obtained when an individual or corporation purchases one or more shares of stock (equity shares). The more equity purchased, the greater the ownership.
Exit Strategy - A fund’s intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates, including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company’s shares after an initial public offering (IPO), a sale of the portfolio company, or a recapitalization.
Freemium - You give the basic product away for free and then try to upsell features to your customers. This marketing ploy is often used in directory businesses.
Growth Hacking - A term coined by Sean Ellis to describe a marketing technique that focuses on quickly finding scalable growth through non-traditional and inexpensive tactics such as the use of social media. (See Lean Start-Up below).
Incubators - An incubator has an internal team that offers capital, free office space, product development support, design support, mobile marketing, and mentoring to startups that are housed within the incubator, in return for payment or equity
Intellectual Property - This can be a patent or a secret sauce or formula like Coke. Not every startup has IP, but if your business depends on it, you better protect it.
Launch - To start a company or push a website live.
Lean Startup - Similar to Growth Hacking. The core mission of a lean start-up is to prove the business concept as quickly and cheaply as possible. Learn more about this “movement” at Theleanstartup.
Leverage - To gain technological advantage.
Market Penetration - How much of your potential market are you capturing and how quickly. VCs want to know. Do not say, “If we just capture 1% of the market we will…” – they want you to get a lot more than that.
Monetize - How you are making money or more often, how you plan to make money.
MVP - The minimum viable product is the product with the highest return on investment compared to the risk involved. An MVP has just the core features that allow it to be deployed, and no more. Creating an MVP avoids the hazard of building products that customers do not want, and seeks to maximize the information learned about the customer for every dollar spent on developing it.
Newco - The typical label for any newly organized company, particularly in the context of a leveraged buyout.
PageRank - An algorithm that provides a measure of the relative importance of internet web pages and returned search results.
Pivot - Change directions as a company. This is usually used to describe going after a different market segment or using an established technology for an entirely new purpose.
Pitch Deck - A presentation created by entrepreneurs that details the attributes of a startup opportunity to help the entrepreneurs communicate it with investors, in their efforts to raise money to fund their venture. The presentation, which typically includes approximately a dozen slides, provides a summary of the startup’s business plan and helps investors determine if they have a continued interest in evaluating the company.
Portfolio - The collection of all of the companies invested in by an angel or VC.
Pro Forma - A pro forma is a description of financial statements that have one or more assumptions or hypothetical conditions built into the data. A financial projection based on assumptions. Also, refers to a statement of income and balance sheets that exclude non-recurring items.
Recapitalization - A corporate reorganization of a company's capital structure, changing the mix of equity and debt. A company will usually recapitalize to prepare for an exit, lower taxes, or defend against a takeover.
Responsive Design - A site built for optimal viewing of a website across all devices. The other options are adaptive design and bad design.
SaaS - Software As A Service. You sell subscriptions to use your software.
Scaleable - Something that can grow to a huge size because the market and demand are big enough or because you will be able to move into different markets with your product via Pivoting or Iterating (see above).
Serial Entrepreneur - An entrepreneur who has previously founded and run one or more ventures.
Seed - The seed round is the first official round of financing for a startup. At this point, a company is usually raising funds for proof of concept and/or to build out a prototype and is referred to as a "seed stage" company.
Series Seed - Used generally to refer to the first equity round from serious seed or angel investors in a company, following its Friends & Family round but before a Series A.
Stage - The stage of development a startup company is in. There is no explicit rule for what defines each stage of a company, but startups tend to be categorized as seed stage, early stage, mid-stage, and late stage. Most VC firms only invest in companies in one or two stages. Some firms, however, manage multiple funds geared toward different-stage companies.
Stock Option Plan - A plan established by a company whereby a certain number of shares is reserved for purchase and issuance to key employees. Such shares usually vest over a certain period to serve as an incentive for employees to build long-term value for the company.
Term Sheet - The document that outlines what the Investors will get for what they put in including % ownership and voting rights. If you get a term sheet, you should get excited (and get a good lawyer).
Traction - Proof that people are actually buying and using your stuff.
Valuation - What your company is being valued at. “Pre-money valuation” is the value before you take investors’ cash. “Post-money valuation” is that amount plus the investment put in.
Value Prop - The feature(s) or elements that make your business or product uniquely attractive to consumers.
Venture capital - VC firms or funds provide financial capital to early-stage startup companies that have the potential for high growth. The VC fund earns money by owning equity in the companies it invests in. This is typically the first round of institutional capital to fund growth after seed funding.
Pivot: A strategic change in a startup's direction, product, or target market in response to customer feedback, market conditions, or other factors.
Seed Funding: The initial capital raised by a startup from investors, typically angel investors or venture capitalists, to develop the product and validate the business model.
Series A, B, C Funding: Different rounds of financing that a startup may go through as it grows, with each round representing a stage of growth and expansion, typically involving larger amounts of capital.
Runway: The length of time a startup can operate before running out of funds, calculated based on current cash reserves and monthly expenses.
Scalability: The ability of a startup to grow its business efficiently without incurring disproportionately higher costs, often achieved through technology, automation, or other scalable business models.
Exit Strategy: A plan outlining how founders and investors intend to monetize their investment in the startup, such as through acquisition, IPO, or other means.
Unicorn: A startup that reaches a valuation of $1 billion or more, often seen as rare and highly successful in the startup ecosystem.
Angel Investor: An individual who provides early-stage capital to startups in exchange for equity, often bringing not just funding but also expertise and connections to the startup.
Wireframe - A visual depiction in the form of a schematic or blueprint that represents the framework of a website and related web pages. Typically low-tech, it lacks "look and feel" characteristics, focusing more on the layout of the pages and arrangement of the content including potential navigational processes.
Co-Working Space - Co-working is a style of work that involves a shared working environment, often an office, and independent activity. Unlike in a typical office environment, those co-workers are usually not employed by the same organization.
Zombie Startup - A company that claims to have continuing operations but which demonstrates little or no growth in website visitations or use in recent quarters.
In conclusion, mastering startup terminologies is essential for anyone involved in the entrepreneurial ecosystem. Whether you're launching a new venture, investing in startups, or providing support services to entrepreneurs, a solid understanding of startup jargon will enable you to communicate effectively, make informed decisions, and navigate the exciting and unpredictable world of startups with confidence.
A/B Test - A marketing test in which users are bucketed into different groups that encounter different user experiences. The behavior of these groups is used to determine which user experience leads to the most desirable results. Despite the name, A/B tests are not always restricted to two groups.
Accelerator - An accelerator takes equity in startup companies in return for small amounts of capital and mentorship. They generally provide a three- or four-month program at the end of which the startups ‘graduate’
Accredited Investor - A rich individual potentially interested in investing in your company.
Alligator arms - A state in which someone is afraid or unable to reach outside of their comfort zone.
Angel investors - Individuals who provide startups with financial backing, often called ‘seed funding’, usually in exchange for convertible debt or ownership equity
Angel Financing - Seed capital raised from independently wealthy investors, for startup companies.
Angel Fund - A formal or informal assemblage of active angel investors who cooperate in some part of the investment process. Key characteristics of an angel group are: control by member angels (who manage the entity or have control over the entity’s managers), and collaboration by member angels in the investment process.
Acquisition - A process under which a company acquires the controlling interest of another company.
Add-on Service - Add-on Services are the services provided by a venture capitalist that are not monetary in nature, such as helping to assemble a management team and helping to prepare the company for an IPO.
Advisory Board - A group of external advisors to a private equity group or portfolio company. The advice provided varies from overall strategy to portfolio valuation. Less formal than a Board of Directors.
Allocation - The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process, depending on market demand for the securities.
Alpha Test - Internal testing, of a pre-production model, typically on a controlled basis, to identify functional deficiencies and design flaws.
Bootstrapping - Founding and building a company from personal finances or from the operating revenues of the new company
Bankruptcy - An inability to pay debts. Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt.
Business Model Canvas - Based on nine building blocks, the Business Model Canvas is an entrepreneurial tool that enables entrepreneurs to design, develop, articulate, challenge, invent, and pivot their strategic business model. The building blocks referenced above include customer segments, value propositions, channels, customer relations, revenue streams, key resources, key activities, key partnerships, and cost structures.
B2B - Business to Business. Your company sells things to other companies.
B2C - Business to Consumer. Your company sells stuff to the masses.
Burn rate - The amount of cash that a company consumes each month to continue operations. Occasionally refers to total expenses, but is more commonly used to refer to cash receipts minus cash expenses when the difference is negative.
Churn Rate - Customers lost after acquisition in a subscription-based business model. Because of the churn rate, your growth might not look like you think it will.
Cliff - Usually applies to vesting schedules (shares given to employees over time). Cliffs are a way for the CEO to fire employees or let them leave without giving them stock within a limited time (usually 1 year). Cliffs are also used on CEOs by investors to make sure the CEO sticks around after getting the cash.
Crowdfunding - “Crowdfunding” is the process of raising financial support for a venture via smaller amounts from many investors (“the crowd”), rather than the alternative pattern of larger amounts from a smaller number of supporters. Charities and philanthropies have traditionally employed fundraising strategies (soliciting both the general populace or crowd, as well as fewer wealthier donors), while businesses have usually taken the route involving fewer and larger supporters. Today’s internet has vastly increased the ability of fundraisers to communicate information and solicit and receive financial support from anyone online.
Demo Day - Where the graduating class of Incubators and Accelerators is given a chance to pitch to investors.
Digital - Relating to using or storing data or information in the form of digital signals (such as digital TV or a digital recording) or involving or relating to the use of computer technology.
Dilution - Issuing more shares of a company dilutes the value of holdings of existing shareholders. A reduction in the percentage ownership of a given shareholder in a company is caused by the issuance of new shares.
Disruptive Technology - Something that completely changes the way society does something (e.g. Uber/Lyft vs. Taxis or Amazon vs. in-store shopping).
Ecosystem - The global community of people founding, working in, supporting, and investing in tech startups refer to the sector as an ‘ecosystem’, where various entities connect with, link to, interact with, and help each other, thereby strengthening the ecosystem while increasing their own value.
Early Stage - A state of a company that typically has completed its seed stage and has a founding or core senior management team, has proven its concept or completed its beta test, has minimal revenues, and has no positive earnings or cash flows.
Equity - This designation is given to a stockholder’s ownership in a company. The amount of ownership is obtained when an individual or corporation purchases one or more shares of stock (equity shares). The more equity purchased, the greater the ownership.
Exit Strategy - A fund’s intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates, including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company’s shares after an initial public offering (IPO), a sale of the portfolio company, or a recapitalization.
Freemium - You give the basic product away for free and then try to upsell features to your customers. This marketing ploy is often used in directory businesses.
Growth Hacking - A term coined by Sean Ellis to describe a marketing technique that focuses on quickly finding scalable growth through non-traditional and inexpensive tactics such as the use of social media. (See Lean Start-Up below).
Incubators - An incubator has an internal team that offers capital, free office space, product development support, design support, mobile marketing, and mentoring to startups that are housed within the incubator, in return for payment or equity
Intellectual Property - This can be a patent or a secret sauce or formula like Coke. Not every startup has IP, but if your business depends on it, you better protect it.
Launch - To start a company or push a website live.
Lean Startup - Similar to Growth Hacking. The core mission of a lean start-up is to prove the business concept as quickly and cheaply as possible. Learn more about this “movement” at Theleanstartup.
Leverage - To gain technological advantage.
Market Penetration - How much of your potential market are you capturing and how quickly. VCs want to know. Do not say, “If we just capture 1% of the market we will…” – they want you to get a lot more than that.
Monetize - How you are making money or more often, how you plan to make money.
MVP - The minimum viable product is the product with the highest return on investment compared to the risk involved. An MVP has just the core features that allow it to be deployed, and no more. Creating an MVP avoids the hazard of building products that customers do not want, and seeks to maximize the information learned about the customer for every dollar spent on developing it.
Newco - The typical label for any newly organized company, particularly in the context of a leveraged buyout.
PageRank - An algorithm that provides a measure of the relative importance of internet web pages and returned search results.
Pivot - Change directions as a company. This is usually used to describe going after a different market segment or using an established technology for an entirely new purpose.
Pitch Deck - A presentation created by entrepreneurs that details the attributes of a startup opportunity to help the entrepreneurs communicate it with investors, in their efforts to raise money to fund their venture. The presentation, which typically includes approximately a dozen slides, provides a summary of the startup’s business plan and helps investors determine if they have a continued interest in evaluating the company.
Portfolio - The collection of all of the companies invested in by an angel or VC.
Pro Forma - A pro forma is a description of financial statements that have one or more assumptions or hypothetical conditions built into the data. A financial projection based on assumptions. Also, refers to a statement of income and balance sheets that exclude non-recurring items.
Recapitalization - A corporate reorganization of a company's capital structure, changing the mix of equity and debt. A company will usually recapitalize to prepare for an exit, lower taxes, or defend against a takeover.
Responsive Design - A site built for optimal viewing of a website across all devices. The other options are adaptive design and bad design.
SaaS - Software As A Service. You sell subscriptions to use your software.
Scaleable - Something that can grow to a huge size because the market and demand are big enough or because you will be able to move into different markets with your product via Pivoting or Iterating (see above).
Serial Entrepreneur - An entrepreneur who has previously founded and run one or more ventures.
Seed - The seed round is the first official round of financing for a startup. At this point, a company is usually raising funds for proof of concept and/or to build out a prototype and is referred to as a "seed stage" company.
Series Seed - Used generally to refer to the first equity round from serious seed or angel investors in a company, following its Friends & Family round but before a Series A.
Stage - The stage of development a startup company is in. There is no explicit rule for what defines each stage of a company, but startups tend to be categorized as seed stage, early stage, mid-stage, and late stage. Most VC firms only invest in companies in one or two stages. Some firms, however, manage multiple funds geared toward different-stage companies.
Stock Option Plan - A plan established by a company whereby a certain number of shares is reserved for purchase and issuance to key employees. Such shares usually vest over a certain period to serve as an incentive for employees to build long-term value for the company.
Term Sheet - The document that outlines what the Investors will get for what they put in including % ownership and voting rights. If you get a term sheet, you should get excited (and get a good lawyer).
Traction - Proof that people are actually buying and using your stuff.
Valuation - What your company is being valued at. “Pre-money valuation” is the value before you take investors’ cash. “Post-money valuation” is that amount plus the investment put in.
Value Prop - The feature(s) or elements that make your business or product uniquely attractive to consumers.
Venture capital - VC firms or funds provide financial capital to early-stage startup companies that have the potential for high growth. The VC fund earns money by owning equity in the companies it invests in. This is typically the first round of institutional capital to fund growth after seed funding.
Pivot: A strategic change in a startup's direction, product, or target market in response to customer feedback, market conditions, or other factors.
Seed Funding: The initial capital raised by a startup from investors, typically angel investors or venture capitalists, to develop the product and validate the business model.
Series A, B, C Funding: Different rounds of financing that a startup may go through as it grows, with each round representing a stage of growth and expansion, typically involving larger amounts of capital.
Runway: The length of time a startup can operate before running out of funds, calculated based on current cash reserves and monthly expenses.
Scalability: The ability of a startup to grow its business efficiently without incurring disproportionately higher costs, often achieved through technology, automation, or other scalable business models.
Exit Strategy: A plan outlining how founders and investors intend to monetize their investment in the startup, such as through acquisition, IPO, or other means.
Unicorn: A startup that reaches a valuation of $1 billion or more, often seen as rare and highly successful in the startup ecosystem.
Angel Investor: An individual who provides early-stage capital to startups in exchange for equity, often bringing not just funding but also expertise and connections to the startup.
Wireframe - A visual depiction in the form of a schematic or blueprint that represents the framework of a website and related web pages. Typically low-tech, it lacks "look and feel" characteristics, focusing more on the layout of the pages and arrangement of the content including potential navigational processes.
Co-Working Space - Co-working is a style of work that involves a shared working environment, often an office, and independent activity. Unlike in a typical office environment, those co-workers are usually not employed by the same organization.
Zombie Startup - A company that claims to have continuing operations but which demonstrates little or no growth in website visitations or use in recent quarters.
