Master Startup Jargon: A Comprehensive Guide to Essential Startup Terms and Terminologies

Starting a business can be an intimidating and challenging task, especially for first-time entrepreneurs. In addition to coming up with a viable business idea and sourcing funding, there are several startup terms and terminologies that every founder must know to succeed in the competitive startup ecosystem. In this blog, we will go over some of the most essential startup terms and terminologies that you need to know as a startup founder.

What is a Startup? 💡

Startup refers to a business that is just getting started. Startups are created by one or more founders who desire to provide a goods or service they feel there is a big market for. These startups typically have expenses and less income, which is why they seek funding from a number of sources, including venture capitalists.

It's a new corporation that's just getting started. Startups are often funded by the founders, who may also make attempts to secure outside funding before they take off. Family and friends, Venture Capitalists, crowd funding, and loans are some examples of financial sources. Startups have a significant risk because failure is highly likely, but they may also be very special workplaces with fantastic benefits, a focus on innovation, and excellent learning opportunities.

Understanding Startups 📚

Startups are businesses or endeavors that are concentrated on a certain good or service that the founders seek to market. These businesses often lack a fully formed business plan and, more importantly, sufficient funding to advance to the next stage of development.

Startups invest in research and create their company concepts with seed money. While at thorough business plan details the company's mission statement, vision, and goals, as well as management and marketing strategies, market research assists in determining the demand for a good or service.

‍Common Startup Terms 💸

Many of these terms or startup lingo were invented or weren't used in the same context as they are today. Only with the increase in startups around the world has a completely new lexicon emerged.

So much so that words like "pivot" and "unicorn" are increasingly being used even by those outside the startup community.

Here is a helpful resource to refer because you will undoubtedly encounter these terms at some point in the future or during your startup journey.

Startup Funding Terms or Glossary

1. Seed Funding

It refers to investments made before the company has begun operations. It is usually between Series A and your family and friends. In rare cases, it may include your family or friends.

2. Series A Funding

The first venture capital (VC) funding round of a startup is referred to as Series A. It usually involves a startup that has progressed beyond the preliminary stage and is looking for funding to scale its marketing, operations, and sales. Series A funding typically ranges from $2 million to $15 million, though this can vary.

3. Series B,C,D etc.Funding

The second and subsequent rounds of venture capital (VC) investment are referred to in this series. Each round is typically for a larger amount of capital than the previous one. As a result, these fundraising terms are associated with company expansion, scaling, and preparation for an IPO (Initial Public Offering).

4. Bridge Financing

Bridge financing is a type of short-term financing. It is frequently in the form of a bridge loan. Businesses use it to secure their position until they can arrange longer-term financing.

Bridge financing is typically provided by an investment bank or a venture capital firm. It will take the form of either an equity investment or a loan. It could also include an exchange of equity for capital instead of the standard loan option.

5. Mezzanine Financing

Mezzanine financing is a hybrid financing system that combines elements of both equity and debt. In the event of a default, it gives the lender the right to convert their debt into equity shares.

Mezzanine debt is subordinated debt that is close to being paid off. It is only senior to equity shares. Hence, it is high-risk debt and carries a very high rate of interest, as compared to any other debt.

6. Valuation

Your company's valuation, which can be calculated in two different methods (pre and post money valuation), relates to how much it is worth.

Pre-money valuation : This is an assessment of the worth of your business prior to receiving any funding. Investors may use it to decide whether your business is worthwhile.
Post-money valuation : The value of your firm following a round of fundraising plus the pre-money valuation is known as the post-money valuation.

7. Bootstrap ‍

A bootstrapped startup is dependent on the founder's personal ability to validate a concept, build a product largely on his or her own or with the help of a co-founder, and then gain traction. Because no outside funding is available, the founders must rely on personal savings, work elsewhere, and other creative means to fund the company.

Business Model Terms

1. Subscription

Customers are charged a recurring fee that is processed at regular intervals under the subscription revenue model. Subscription revenue is based on long-term relationships with customers who will pay on a regular basis for access to the product or service, also known as recurring revenue.

2. Freemium  

For entrepreneurs, a freemium business model is a common option. It refers to providing customers with a limited version of a good or service for free while charging them extra for more sophisticated options.

For instance, even if you join up for Canva, a well-known design platform, for free, you won't have access to premium stock pictures, extra storage, or some templates unless you pay for a Pro subscription.

3. Pay-Per-Use

Pay-per-use is a payment model in which the customer pays for the product's use rather than purchasing it. In other words, as a customer uses the product more, they pay more, and vice versa.

4. Customer Acquisition Channels

Customer acquisition refers to the activities and actions that a company undertakes in order to acquire new customers. A successful customer acquisition strategy assists you in gaining new customers, retaining loyal customers, and increasing profits.

5. Customer Lifetime Value

The total amount of money a customer is expected to spend with your company or on your products over the course of an average business relationship is referred to as customer lifetime value. This is an important figure to understand because it helps you decide how much money to invest in acquiring new customers and retaining current ones.

6. Key Performance Indicators (KPIs)

Analytical tools that track the performance of specific metrics are known as key performance indicators. KPIs, in essence, measure the success of a company or a specific activity. Startups use KPIs and metrics to demonstrate traction and growth, both of which are critical when trying to persuade investors!

Terms for Startup Phases

1. Idea Stage

The concept stage, also known as the idea stage, is when you, as an entrepreneur, investigate the viability of a product or service based on that idea.

2. Seed Stage

During the seed phase, the primary goal is to validate the business model. Important decisions will be made, such as deciding on the methodology that a startup will use. This phase seeks the initial manifestations of a startup. This can be accomplished by creating prototypes, which are small experiments conducted to validate the initial idea upon which a startup is founded.

3. Early Stage

The early stage denotes the start of a phase in which the idea is allowed to evolve until it becomes a marketable product or service. It is now time to conduct a test. It will not be the final version; instead, it will be tested to determine if it is a Minimum Viable Product (MVP).

4. Growth Stage

If a startup's product or service reaches this stage, it will meet strong market demand. This means that new customers, recurring customers, and billing will all be on the rise. Profitability is everything in this business. This is the point at which the team begins to expand and recruitment begins.

5. Expansion Stage

When compared to a more general definition of the term startup, a scaleup demonstrates a proven business model that allows it to consider more ambitious goals, such as internationalisation, expansion into other industries, or hiring new professionals.

6. Exit Stage

This phase is optional and is not always followed by startups. There are business models with the goal of becoming a high-value, long-term company. However, it is very common for the final step to be to exit the startup by selling it. Even so, not many people reach this stage, and those who do are distinguished by their strength, high potential, and opportunities for further development.

Terms for Exit Strategy

1. Initial Public Offering (IPO)

An initial public offering occurs when a private company sells its first shares of stock to the general public (IPO). In essence, an IPO indicates that a company's ownership is changing from private to public. As a result, the IPO process is also known as "going public."

2. Merger, Acquisition  

Mergers and acquisitions, or M&A for short, are the processes of merging two businesses into one. The goal of combining two or more businesses is to achieve synergy—the state in which the whole (new company) is greater than the sum of its parts (the former two separate entities).

3. Liquidation

Liquidation is the process by which a company is wound down. In addition, the company's assets and property are redistributed to creditors and owners. Winding-up and dissolution are other terms for liquidation, though dissolution technically refers to the final stage of liquidation.

Liquidation can be either mandatory or voluntary. The term liquidation can also refer to a company that is ready to sell some of its assets. For example, a retail chain may wish to close some of its locations.

4. Exit

Entrepreneurial founders occasionally plan their exit either before or during the venture. An exit is a way to give another company control of your business while also repaying your investors.

Other Frequently Used Startup Terms

Acqui-hired

Acqui-hiring is the practise of purchasing a company or organisation primarily for the skills and expertise of its employees rather than for its products or services.

Acquihiring, also known as talent acquisition, is a combination of the words "acquisition" and "hiring." When one company buys another, this is referred to as acquisition, and hiring is when a company hires new employees. Acqui-hiring is simply a strategy that uses the expertise of recruited employees to help the company grow.‍‍

Burn rate

The burn rate is the amount of money required by your company in a given time period (usually a month) to cover all expenses. In other words, the burn rate indicates how quickly your company "burns through" capital.
Burn rate is typically used to calculate how quickly a company will deplete its startup capital before becoming cash flow positive. However, regardless of their stage in the business life cycle, all businesses can benefit from knowing their burn rates.

Vesting Cliff

The vesting cliff is the amount of time before employees can collect a portion of their shares. The cliff, which is normally one year long, is designed to keep workers around during the early stages rather than having them take the benefits and resign from the business.

Co-Working Space

An office that is shared by staff members from various businesses is known as a co-working space. Due to the lower cost of using the shared facilities compared to renting or purchasing a whole office space for a small staff, this model is especially beneficial for startups.

Dragon

Rare startups called "dragons" raise $1 billion in a single round of funding. An illustration of a dragon startup is Uber.

Early Adopters

An influential customer who uses your product or service long before the wider public does is referred to as an early adopter. These customers may typically provide you with insightful and frank criticism to assist you in improving the good or service before introducing it to a bigger target market.

Growth Hacking

This marketing slang phrase describes a targeted approach employing low-cost techniques to expand a business swiftly. Nowadays, a lot of businesses use social media for growth hacking in the hopes of making their goods or services popular without spending a lot of money on advertising.

Hockey Stick Growth

Investors prefer startups with growth curves that resemble hockey sticks and could potentially double key performance indicators (KPIs) like sales or the number of active users per year.

‍Incubators

In contrast to an accelerator, an incubator helps startups throughout their first stages of development. In essence, it's a company that supports startup businesses throughout their initial months or years, typically in exchange for shares.

Launch

The official release of a startup's product or service is known as a launch. A soft launch, which functions more like a test run with less media attention and beta versions of products and services, can also be used to measure consumer interest in businesses.

‍Lean Startup ‍

The Lean Startup method takes a scientific approach to creating and managing startups in order to get a desired product into the hands of customers faster. The Lean Startup method teaches you how to steer a startup—when to turn and when to persevere—and grow a business as quickly as possible. It's a straightforward approach to new product development.

Minimum Viable Product (MVP)‍

A strategy that entails creating a basic version of a new product with the intention of appeasing its early users. Additional features are only added to the product after taking early users' input into accounts.

‍Pitch deck ‍

If you've ever had to present an idea to your manager, you likely made every effort to persuade them. In a similar vein, a pitch deck is a condensed version of a business plan that highlights crucial data in an effort to attract investors.‍

Pivot ‍

The phrase "pivot" in the startup business refers to when a company swiftly shifts paths after initially focusing on a distinct market segment, which is similar to its meaning when used to describe a mechanism pivoting on a central point.‍

‍Scale up

When your business has expanded in terms of size, reach, market, etc., you can say you've scaled up. Scale up is a word that describes a business that has successfully tested its product in a market and is profitable.‍

Scrum

The term "Scrum" refers to an agile project management technique that was initially created for decision-making within development teams, while it can be used in other parts of a corporation.

The three groups that make up the scrum framework focus on learning, creativity, and cooperation -

• The product owner - A single individual who maintains and prioritises products and has considerable user expertise.
• The scrum master - The scrum master assists in clearing obstacles so that the entire scrum team can finish its work
• The scrum team - As the scrum team's primary member, developers collaborate and make decisions about how to complete their task as well as what resources and methods the startup should employ.

Solopreneur

Typically, an founder has ideas for how to launch and expand a business. On the other side, a solopreneur launches and perhaps even grows a firm by themselves. With the increase in independent writers, designers, and developers, this business model is spreading more widely.

Sweat Equity

Sweat Equity share is one such method by which a company makes a share-based payment to its employees at a discount or for consideration other than cash. It is a reward given to employees for their contributions to the company's growth.

‍Term Sheet / Letter Of Intent (LOI)

The agreement, which is typically non-binding and contains the fundamental terms and conditions for financing, between an investor and a startup. A binding contract based on the term sheet is created once an agreement has been reached between the parties.

Unicorn Startups

A company with a $1 billion valuation is referred to as a unicorn startup. These companies are uncommon, but not as uncommon as dragons, firms that receive $1 billion in a single round of fundraising.

Venture Capital /Venture Capitalist (VC)

Venture capital is funding offered by businesses in exchange for shares to start-up small, high-risk businesses with significant development potential. VCs are the term used to refer to investors who choose to fund particular businesses through venture capital firms.‍

Vesting‍

A procedure that entails granting or gaining the right to a present or future benefit, payment, or asset.

Conclusion

As a startup founder, understanding key startup terms and terminologies can help you communicate more effectively with investors, customers, and industry experts. We hope this overview has given you a better understanding of some of the most essential startup terms and terminologies. Remember to keep your burn rate low, develop a strong MVP, and have a solid exit strategy in mind.

About Jordensky

At Jordensky, we specialize in accounting, taxes, MIS, and CFO services for Startups and growing business and are focused on delivering an experience of unparalleled quality.

When you work with Jordensky, you get a team of finance experts who take the finance work off your plate – ”so you can focus on your business.”