Must Know Key Terms For Startups And Entrepreneurs
In the startup community, we often hear new terms everyday. If you haven’t been involved in the startup community for a while, some of these terms might be new for you. For the ones that already know these terms, use it as a refreshment.
Acquisition: When a company buys out another company. In the startup world, an acquisition is usually considered an exit when a bigger company purchases a startup.
Agile: You could think of Agile as a type of modern software development. “Agile software development is a group of software development methods based on iterative and incremental development, where requirements and solutions evolve through collaboration between self-organizing, cross-functional teams. It promotes adaptive planning, evolutionary development and delivery, a time-boxed iterative approach, and encourages rapid and flexible response to change. It is a conceptual framework that promotes foreseen interactions throughout the development cycle. The Agile Manifesto introduced the term in 2001.” – Wikipedia
B2B: B2B refers to a business model where your startup or company sells to another establish business. The other version of this is B2C where you choose to sell to customers instead of other businesses.
Board Of Directors: This is usually the board of all the executives, investors, advisors, and “board members”. Think of this group as the powerhouse group that represents the startup. All major decisions are made through the boards.
Bootstrap: Bootstrapping is also referred to as eating cup noddles. Bootstrapping is the act of living on a shoe string budget while you are working on a self funded project.
Capped notes: Refers to a “cap” placed on investor notes in a round of financing. Entrepreneurs and investors agree to place a cap on the valuation of the company where notes turn to equity. This means investors will own a certain percentage of a company relative to that cap when the company raises another round of funding. Uncapped rounds are generally more favorable to an entrepreneur/startup. – techrepublic
Convertible Debt: This is usually when a startup takes in money or debt from an investor or bank that will eventually convert to stocks or equity in the company.
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Equity “In finance, equity is ownership in any asset after all debts associated with that asset are paid off.” (Source: Investopedia) In terms of startup, it is commonly used to describe a business giving up a percentage of ownership in exchange for cash. An equity investor is then entitled to share in any future profits and/or sale of business assets (after debts are paid off). -startupnlaunch
Exit: We hear this one everyday. It is when a startup finds it’s way out after a long journey of hard work. This is usually referred to a startup being acquired or going IPO (stock market).
Incubator: An incubator is a bootcamp style accelerator. Usually an incubator will provide a startup with early money in exchange for equity. Incubators usually last about 3 months and provides top notch mentorships. The best part of an incubator is usually the last day also known as the pitch day, where the startup can pitch to potential investors.
IPO: Initial public offering. The first time shares of stock in a company are offered on a securities exchange or to the general public. At this point, a private company turns into a public company. This is the biggest exit startups usually want to hit. This may take forever to happen or never happen for a startup. The alternative as mentioned above is an acquisition.
MVP: Minimum Viable Product, pretty much a basic version of your product or a demo of your product that you can use for pitching to VCs and potential investors.
NDA: Another key term that you often hear in the startup world. It stands for non disclosure agreement which is a signed agreement held by both parties that certain information will not be leaked or spoke about outside the contract. This is contract usually appears when an early stage startup is searching for early stage employees.
Pivoting: Most startups pivot often because they are uncertain about their business model or product yet. Pivoting is the act of changing from one model to another mostly due to the first model not working correctly.
Preferred stock: A stock that carries a fixed dividend that is to be paid out before dividends carried by common stock.
ROI: This term is extremely important because it is used everywhere. ROI stands for return on investment. It is essentially how much you gain back on your invested money. This term is used mainly by investors, but can be used for anything that involves investing money in. This can be on marketing such as social media and more.
Seed Round: This is the very first round of startup funding. Other people consider this as the angel round as well. The first batch of money before Series A is this round.
Term Sheet: A non-binding agreement that outlines the major aspects of an investment to be made in a company. A term sheet sets the groundwork for building out detailed legal documents. Usually includes everything from equity percentage to any negotiation.
Venture Capital: This is generally referred to the money obtained by a venture capitalist firm.
Venture capitalist: An individual investor, working for a venture capital firm, that chooses to invest in specific companies. Venture capitalists typically have a focused market or sector that they know well and invest in. These are also the big guys that do the next rounds after the initial seed round.
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