From Angel Investor to Zebra Company: Your Startup Dictionary
The nature of startups makes them ever-evolving. Whether you're a tech veteran or new to the industry, new terms pop up nearly every day. Stay in the know with our startup dictionary!
Funding
Angel investor: They don’t wear wings, but they do sprinkle financial fairy dust. An angel investor provides capital in exchange for ownership equity or convertible debt in an early stage company. Entrepreneurs who work with angel investors can count their lucky stars; they often provide contacts from past ventures and managerial advice, helping those they invest in to take flight.
Friends and family round: When a founder’s #1 fans tap into their piggy banks. This is when your grandma who has been worrying about whether or not you’ve been getting enough sleep and your best friend who supported you at your first pitch competition puts their money where their mouths are.
Crowdfunding: These are the Kickstarter and GoFundMe pages that may clog your newsfeed. By raising capital from a crowd of people, this method allows entrepreneurs to tap into a wide investor pool and use their social networks as leverage to collect funds through a streamlined process that doesn’t require the traditional steps of funding.
Seed round: Although it does not require a green thumb, a seed round does help with the other green that’s required for startup growth – money. This early stage in funding can include angel funding, friends and family or crowdfunding. It helps entrepreneurs get their feet on the ground and pay for preliminary operations.
Venture investor: Venture investors are highly-esteemed individuals and private equity firms that provide capital for emerging companies who have high growth potential. Sounds competitive, right? Scheduling a meeting with a venture investor is more cut throat than applying to be on the Bachelor. But just because an entrepreneur gets a swivel seat at an investor’s table doesn’t mean he or she will get the final rose.
Funding Stages:
- Series A: a company’s time to lay groundwork. Cash from this stage in funding is put towards developing a business model so that entrepreneurs move beyond an idea on a whiteboard or a Beta towards a monetized product/service.
- Series B: B is for Bulking. At this stage, capital is often spent on building a talented team to take the company to the next phase. This is when the big bucks start to come in.
- Series C: Pop the bubbly – this stage calls for champagne celebrations. In Series C rounds, investors put more capital into aspects of a company that have been proven profitable so that they can continue to scale aggressively.
Burn rate: How much money a company is losing, usually measured per month. This is not necessarily a bad sign, as burn rates are common among early stage startups who are unlikely to be turning profit yet.
ICO (Initial Coin Offering): Cryptocurrency is revolutionizing finance. An ICO is when an entrepreneur sells some units of a new cryptocurrency in exchange for existing cryptocurrency (such as Bitcoin or Ethereum). Warning: as this trend picks up and new currencies continue to develop, we may either have a gold rush, or see some new regulations come into play.
Company Growth
MVP (Minimum Viable Product): Not the Lebron James kind of MVP; we're talking product. This is when an entrepreneur develops a product sufficient enough for early adopters from which they will collect validated learning to develop the full product. A startup's MVP may not receive a trophy, but it gets the job done.
Elevator pitch: This brief pitch is meant to spark interest in your venture. Break your product down to its bare bones and use these 30 seconds (just enough time for an elevator ride) to persuade your audience to continue into a deeper dialogue. Ready, set, pitch!
Pivot: Pivoting refers to when an entrepreneur needs to re-evaluate their first (or second, or third) business model and shift to a different business plan, changing the direction of the company to meet market needs.
Lean startup: First proposed by Eric Ries in 2008, this methodology is the Jenny Craig of building a company. Implementing this businesses-driven experimentation helps entrepreneurs create and manage a product more efficiently and effectively, shortening the development cycle.
Bootstrapping: Bootstrapping refers to starting a company without external (i.e. monetary) support. While bootstrapped entrepreneurs still get moral support, this is all about the money, meaning starting to build with no significant funding. Without financial input, business owners develop their company by injecting internal cash flow back into the business.
Churn rate: Whether it’s for a subscription box service that delivers goodies to your door or a television streaming account, subscribers often, well, unsubscribe. To understand why and when customers cut ties with a brand, and to improve retention, businesses use measures like a churn rate. Churn rate is the percentage of customers who leave during a given period.
Alpha version: Think of an alpha version as the rough draft of an application or website. This is released with the intention to have users test for bugs and make functional changes.
Beta version: After workshopping the user feedback from the alpha version, the beta version resolves performance issues and integrates modifications to existing functionality. Although the beta version is a fully functioning demo, it is still a demo, AKA not ready for market just yet. Beta usually goes through more quality assurance processes.
Education
Accelerator: The greenhouses of startups, accelerators provide optimal conditions for a company to grow. In exchange for a small amount of equity, an accelerator adds Miracle-Gro (education programs, mentorship and seed
investment) to compress years worth of work into a fixed, short period of time — usually a matter of a few months — and quicken a company’s life cycle. Accelerators welcome cohorts batches that culminate their experience at demo day (the equivalent of graduation). Names you might know include Y Combinator, 500 Startups and Techstars.
Demo Day: After months of putting the pedal to the metal, demo day is the final hoorah when an accelerator cohort wraps up their program and presents their businesses to an audience of potential customers and investors.
Incubator: Not the neonatal unit. These collaborative programs provides baby businesses with the nutrients needed to grow at their own pace. Less concerned with how quickly a company will grow or how large it can scale than an accelerator, incubators support startups by providing working space, collaboration and mentorship.
Later stage
Business exit strategy: An entrepreneur’s strategic plan to peace out. Selling one’s investment allows an entrepreneur to reduce or eliminate stake in the business, either making a substantial profit (if the company is successful) or limiting losses (if it is not successful). This can be done through an IPO, mergers, private offerings, cash cows or venture capitalists.
Unicorn company: Not to be confused with Starbucks’ $4.95 Unicorn Frappuccino, a unicorn company is a private company valued at over $1 billion. Such successful ventures have such statistical rarity that they’re considered magical.
Zebra company: Zebra companies are leading the pack in a new movement towards profitable business models that improve society. Unlike their mythical cousin, the unicorn, zebra companies place value on cooperation, mutualism and shared resources – they protect and preserve one another in an effort to solve meaningful problems through sustainable prosperity.
Valuation: Show me the money — a business valuation is the process of determining the economic value of a company.
IPO (Initial Public Offering): There’s a first time for everything. An IPO is when a private company is offered to the public for the first time. This happens for one of two reasons; either a smaller company is seeking capital to expand or a larger company is ready to be traded on the market. Once a company IPOs, they are no longer “private” and have to take the do not disturb sign off their door.
Miscellaneous
SaaS (Software as a Service): SaaS is in the air: the forecast predicts cloudy with a chance of software. This cloud delivery makes software applications and data accessible anywhere, anytime (as long as you have Internet connection and a web browser). This enables companies to outsource information technology responsibilities and reduce costs associated with investing in hardware, maintenance and licensing.
B2B (Business to Business): Commerce that generates transactions between two businesses. A B2B enterprise offers services or materials to other companies. This traditional model is at the foundation of any typical supply chain.
B2C (Business to Consumer): The transaction between a business and its end user. This sales model allows businesses to communicate directly with consumers. B2C skyrocketed during the dotcom boom when customers were able to buy items directly from retailers.
B2B2C (Business to Business to Consumer): This sales model allows companies developing a service or product to partner with another business in order to reach new markets. This strategy combines B2B and B2C models into a complete transaction that provides mutual benefits. With B2B2C in the spotlight, enter e-commerce from stage left.
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