Have you ever been at an event or in a Zoom meeting and you realize the other folks are speaking a different language? I don’t mean Greek or Russian. I mean, they’re discussing scale and you’re wondering if they snuck into your bathroom. You may be a startup novice if you think seed round is a gardening term or an incubator is a place where baby chicks grow. If you don’t want to sound like a rube at the next networking event, check out this handy glossary for entrepreneurial newbies. If you’re an expert, but your non-founder friends have no idea what you’re on about, show them this funding glossary and watch the clouds lift.
A comprehensive funding glossary
- Accelerator: An accelerator offers startups mentorship, business advice, professional connections, a space to work and sometimes, funding.
- Angel investors: They probably don’t wear halos, but you may think they do when they dole out major ducats for your new startup. Angels are individual investors offering personal funds, often for equity in the company.
- B2B: Business to business. This implies the product is not for consumers. Think machine parts for a factory.
- B2C: Business to consumer. B2C companies sell products or services to consumers.
- Benchmark: A benchmark is a comparison between two reference points that shows progress.
- Bootstrapped: When a startup is bootstrapped it means the founder(s) used their own money to get started or were able to re-invest the money earned back into the business.
- Bubble: A bubble forms when a company or industry gets hot and often, overvalued. When the bubble bursts, investors can lose their shirts and companies will fold.
- Burn rate: How fast are you spending money on the business? You hear this a lot on Shark Tank.
- Donation-based: Describe your business idea on Kickstarter or Indiegogo and folks can donate if they’re interested. They will not own any of the company. Often they get products as rewards.
- Equity-based: In this scenario, people give you money and you give them a piece of the action.
- Disrupt: To disrupt an industry is to shake things up. Inject a new idea into an old industry and change the way we do business. Think Amazon or Uber.
- Due diligence: Research investors, attorneys, or anyone can do on a company or individual. Is the company solvent? Are they paying their debts? Will my investment be in good hands?
- Elevator pitch: Define your company and products in the time it takes for you to get to your floor. Practice and you’ll impress possible investors.
- Exit strategy: How do you plan to end your association with your startup? Will you sell to a larger company or your employees? How will you pay back your investors?
- Growth: Growth is when your company hires more people or buys a bigger office. It’s not the same as scaling.
- Incubator: These are like accelerators. New startups gain counsel, contacts and sometimes cash. How are they different from an accelerator? Sometimes the words are used almost interchangeably but often an incubator supports earlier stage companies or ideas “incubating” them into a company. An accelerator “accelerates” an existing company’s growth.
- IP (Intellectual property): Patents protect your product design. Trademarks protect your brand. Copyrights protect your content (music, speech, presentation, book, film, etc.).
- IPO: Initial public offerings are when a company “goes public”. The public can now buy shares in the company. Also, founders or early investors may profit on the sale of their shares and the company benefits from a new influx of cash. IPOs are possible exit strategies for founders.
- Launch: When a new company begins doing business. Sometimes, companies do soft launches to test products before an actual, public launch.
- Leveraged buyout: In a corporate acquisition, a leveraged buyout is when the buyer borrows most of the purchase price from another source, usually around 90%.
- LLC: A limited liability corporation protects business owners’ personal wealth and property from lawsuits or claims made against the business.
- Limited partner/LP: Someone who invests in a venture fund. LPs can be institutional investors, insurance companies, endowments or foundations, family offices and specific high net worth individuals. LPs are generally recruited by GPs (general partners) who manage the investments.
- Market penetration: The percentage of the target market you own.
- MVP: A minimum viable product is a simple and often incomplete version of your final product to show to investors.
- Pre-seed round: This is the funding round held before the company has investors or customers. It generally consists of a comparatively small amount of money and is often used to create an MVP.
- Proof of concept or POC: This happens when a company does an experiment or builds a prototype that proves the business concept is feasible. The company can also work with a prospective customer on a POC before deploying a larger or enterprise-wide solution.
- ROI: The return on investment is the amount an investor will get for the use of their money. The term can also be used inside a business. Will we get sufficient ROI on our marketing investment?
- Runway: How long until you run out of money? Example, “At our current burn rate, our runway is 6 months.”
- Scale: Grow in a smart way. Most companies grow as they sell more products and services, hire more employees and otherwise invest in growth. A company scales when it makes an order of magnitude more money with the same amount or similar amounts of inputs.
- Seed round: The seed round of funding keeps the company going after you’ve burned through the angel investor’s money.
- Series A-E: The alphabet soup of funding. Series A funding applies to companies doing solid business that want to expand into more markets or develop their product further.
- Series B funding: This involves more money than Series A and enables the company to grow.
- Series C funding: Series C is for successful companies that want to go public, buy another company, or expand into even more markets and product lines.
- Startup: A newly formed company with the potential to scale (become highly profitable). It’s different from a small business because of its reach and capacity for explosive growth.
- Target market: Who will buy your product? You’ll need to know this to make your marketing and sales efforts more successful.
- Term sheet: This is the contract between investor and founder. It describes the amount the investor will put in and how much of your company they will own for their investment.
- Traction: When you start seeing sales, you’re gaining traction. This is a good thing.
- Unicorn: A private company worth at least $1Billion.
- Unique selling point: This is what makes your company special. See value proposition.
- Valuation: How much is your company worth. Buyers want it to be low. You want it to be high.
- Value proposition: The value proposition is what makes your company so appealing. See unique selling point.
- Venture capitalist: VCs invest in companies for profit. They might be looking for a quick profit or they might truly believe in what you’re doing. As long as you know which, you’ll be fine.
- Vesting: Vesting is the promise of benefits, stock, or money in the future in exchange for a term of service with the company.
Phew! Now that you have the terminology down, you’ll be able to hold your own with VCs as they debate the ROI of a SaaS (Software as a service) company going into Series B. Ok, now say that five times fast.
Looking for another dive into startups? Check out our picks for startups to watch.