Every industry niche has its jargon. Startups are not a niche, but there is “lingo” surrounding them. If you are contemplating life as an entrepreneur with your own startup, then here is a dictionary that will help you understand what others like yourself are talking about.
Agile: A type of software development characterized by incremental steps (iterations), team collaboration, and ongoing formative testing and evaluation.
Angel Investor: An individual who invests in a startup, usually in exchange for an equity stake in the company. Angels usually come in in the beginning.
B2C and B2B: These are two types of business concepts. Business-to-Community refers to any business that sells products or services to consumers; Business-to-Business refers to any company marketing products and services to other businesses.
Bootstrap: Sometimes founders fund their own startup costs. It’s called bootstrapping.
Bridge Loan: This is a temporary loan to help a startup in between other financing. It must be paid back, usually with interest.
Buyout: Often, founders’ goals are to launch and grow a business to the point where they can sell it to a larger enterprise.
Convertible Debt: This is a debt owed to an investor that is paid back by giving that investor a stake in the company later on.
Disruption: This refers to any innovation that changes an existing industry or market place in a significant way. It may be a new technology, a new product, etc.
Due Diligence: This refers to investigation of all of the information available regarding a startup – information an investor should research before committing any money.
Enterprise: This usually refers to a large established company, as opposed to a startup or a small business that is in the early stages of growth.
Entrepreneur: Anyone who starts his/her own business from the ground up.
Equity Financing: Startups will often raise money by giving investors shares in the company in exchange for the monetary investment. The investors then have equity in the company.
Incubator: Large organizations provide help with startups as they go through the early stages of development. Often, the organizations receive equity positions in the startup.
IPO: Initial Public Offering. Once a startup has launched and is successful, it may go “public,” by offering shares of stock to anyone.
Exit: This is the point at which either investors or the entrepreneur himself decide to liquidate their assets. This can happen when a startup is fiscally sound and can pay back its investors or when the company itself is sold to another company.
Liquidation: A company dissolves itself by selling off its assets, paying off its debt, and principals and investor divide up what is Ieft.
Non-Disclosure Agreement (NDA): This is an agreement between two or more parties stating that they will not disclose any confidential or proprietary information to any outside party.
Preferred vs. Common Stock: Preferred stock carries with it a dividend that is paid to stockholders at regular intervals. Common stock does not have a set dividend but profits are earned as the price of the stock increases.
Proof of Concept: Investors will require that a startup founder “prove” to them that the idea they have for a startup is both feasible and will provide enough value to appeal to a target demographic.
ROI: This means “return on investment.” Startups will try to project an ROI as they pitch to investors. Actual ROI is the amount of profit a company makes over a given period of time.
Pro Rata Rights: This is an agreement that allows investors to increase their investment and/or equity in a startup as rounds of funding occur.
Round of Investment: Often, during the course of a company’s growth, it may have additional “rounds” of funding, usually three, but sometimes more.
Seed: Seed money is usually the name given to the first round of funding. It is the money used to actually get a startup off the ground.
Sector: This refers to the niche into which a startup may fit. Examples include technology, consumer products, financial services, etc.
Stage of Development: this refers to the stages a startup goes through from concept to full-fledged profitable company. Usually, they are termed seed, early, mid, and late stages.
Startup: This refers to a company that is in its very early stages of development and operation. It ceases to become a startup when it is “up and operating,” earning a solid profit and continuing to grow well.
Term Sheet: This is an informal agreement between a startup founder and potential investor, setting the general terms of a legal, formal investment agreement that is to follow.
Venture Capital and Capitalist: Capital is money that is an investor (aka, venture capitalist) puts into a startup. Often the capital investor is connected to an investment firm and focuses on a sector he knows well.
Vesting: This occurs when employees of a company are given the right to be given shares of stock in the company. If they hold onto the stock for a period of time, then they “vest” or become redeemable for money at the current market rate.
While there are obviously many more terms used in organization and development of a startup as it moves from concept to full status as a profitable and stable company, these are the major ones. They will provide budding entrepreneurs contemplating their own startups with an understanding of what others are talking about, especially investors as they prepare their strategies for funding.