#19 Start-up Jargons you need in your arsenal before you hop on the start-up bandwagon
27th, November 2018 - Startup Event
Start-ups are way different than behemoths. In a large enterprise, you might find a place for yourself where you can hide (whether you desire it or not) and the top management has no clue of your existence. However, that’s not the case in a start-up. You are visible and an integral part of the foundation, and to understand it completely you should be aware of a few jargons.
So, if you have taken up a job, or are looking for a job in a Startup, or you are just keen to know about start-ups, you have landed in the right place. For a better explanation, I will use a fictional start-up, AssBook. So, let’s get the ball rolling.
A Startup is a company destined for extreme growth in a relatively small timeframe. Paul Graham suggested that I personally adore, “ not every newly founded company is a Startup. Millions of companies are started every year. Only tiny fractions are start-ups. Most are service businesses — restaurants, barbershops, plumbers, and so on. These are not start-ups, except in a few unusual cases. A barbershop isn’t designed to grow fast. Whereas a search engine, for example, is.”
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2. Stealth mode start-up
You might have guessed it right, a stealth mode Startup is one that is discreet about its product/s and existence. The primary reason for a Startup to operate in stealth mode is to beat competitors to market, or not alert the competitors. They use the element of surprise as their primary weapon. For example, if AssBook wanted to launch a new social media platform, it would operate in stealth mode, until they are ready.
When an entrepreneur or group of entrepreneurs have ideas and start the company with limited capital from personal funds or of friends and family, or even from the generated revenue. This is a great way to start a company as from the inception till serious funding the founder or founders are the sole decision-makers.
4. IP = Intellectual Property
All the substantial property (ideas/algorithms/strategies/theories/code) of AssBook is their IP, and if not protected well, it can be stolen and can cost the company. The way Hooli tried to steal Pied-Piper’s algorithm.
So, companies have copyrights, trademarks, and patents.
5. MVP = Minimum Viable Product
It’s a product at a stage with adequate features for end users to be able to use the product and derive some value. It’s the first stage of a Lean start-up.
For example- Buffer’s first minimum viable product was just a simple landing page.
6. Lean Startup
Lean Startup is a strategy in which a Startup builds an MVP, brings it to the market and then builds on the features in sprints. It’s an incremental increase of a product instead of taking years to build a product without the exact knowledge of market reaction.
Pied-piper was the exact opposite, that’s the reason “The platform” failed the first time.
I would strongly recommend the book of the same name by Eric Ries.
Runway is the timeframe a company has in order to run with constant revenue and expenses, till it dies or raises another round.
The formula for Runway: - c/(x-y) months
Where: - Expenses = x, Revenue = y
Monthly burn = x-y
Cash in the bank (as of today) = c
8. Sweat Equity
Sweat equity is the equity that is given out in exchange for the time and effort spent instead of money. So, a founder might give out sweat equity instead of hard cash to advisors, friends who help early contributors to the product, product developers, designers, or even lawyers.
9. Term Sheet
A term sheet is a document setting all the terms and conditions of an angel investor or a VC fund willing to make an investment. It’s not a legally binding document, so even after giving a term sheet; investors can still decide to withdraw their participation in the fundraising round.
10. VC = Venture Capital or Venture Capitalist
Venture capital is the fund that a Startup gets from a Venture Fund. This fund basically raises money from bigger funds or HNIs (high net-worth individuals) and then invests in start-ups of their liking.
For example- Peter Gregory was the Venture Capitalist of Raviga, the venture fund, who funded Pied Piper.
11. Angel Investor
An angel investor is an individual who invests, in his/her personal capacity, small amounts and in the early stages of a Startup.
As the very word suggests, an accelerator helps in accelerating the growth and success of a start-up. So, if a Startup is in a stage where they have a prototype, they would go to an accelerator like Y-Combinator to get their first round of funding.
Incubators, on the other hand, start with mostly single entrepreneurs or group of entrepreneurs very early in the process and take a certain percentage. These start-up founders may have other jobs. If that was the case, AssBook would prefer Bachmanity.
Beta is the first testable version of a product/application that is launched for the end users/customers to find and report bugs.
If you remember, the beta version of Pied Piper was sent out to the wrong set of users (engineers themselves), and so The Platform was such a failure.
15. Pre-series A, Series -A, series B….
Also known as the ABCD of funding, these are the funding rounds a Startup raises in order to keep up the runway.
16. ESOP=Employee Stock Options
When companies want their employees to be more vested in the future of the company, they are given shares aka ESOPs. ESOPs are great motivators for employees to stick to their jobs as they have some ownership of the company.
17. IPO= Initial public offering/Stock market launch
When a company goes public, i.e. the company offers its shares to the common public that is known as the Initial Public Offering. Companies like Alphabet (Google), Microsoft, Facebook, Amazon are all Public companies.
18. Pre-Money Valuation/Post-Money Valuation
First and foremost let us understand what Valuation is. A company’s monetary worth is its valuation.
So, when you hear someone ask an investor: - I am seeking for $300,000 in exchange of 5% equity. It means the valuation of the company is
(100%5)*300,000 = $6000000(6 million dollars). Easy enough?
Let’s get into pre- and post-money valuation.
When a Startup raises money whatever valuation the company has set before the round is the pre-money valuation. Furthermore, after raising money, the post-money valuation is pre-money+fund raised.
For example: - AssBook sets its pre-money valuation as $3 million.
AssBook goes to Raviga and raises $1 million. So, now the post-money valuation is $(3+1) = $4.
Now, the question here would be how much AssBook has diluted itself. Right?
It’s a simple math: - (¼)*100 = 25%. Hence, Raviga now owns 25% of the company and AssBook owns the rest.
19. Unicorn, Decacorn, Soonicorn
A Private company (not public) whose valuation is worth a billion dollars or more is known as a Unicorn. The name Unicorn just like the animal itself is mythical and non-existent and it implies that the existence of such companies must be rare. It’s ironical that now we have 266 unicorns in the world.
Just like the name suggests, a Decacorn is a Private company whose valuation is worth 10 billion dollars or more, and a Soonicorn is a Private company who expects to join the unicorn club “soon”.
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Yashodhara Satpathy, Marketing and Growth Manager at Skillenza