Startup Buzzwords to Keep You in the Loop
Are you a budding entrepreneur with a great pitch and a lot of enthusiasm? Do you often find yourself getting confused by startup jargon when you talk to existing or potential investors? One of the prerequisites of any endeavour is knowing the language of the world you’re in or about to enter. and as you’ll see as you go forward, conversations can get hard to keep track of if you’re not familiar with technical terminologies. Here are twelve buzzwords to keep you in the loop.
1. Angel Investor: an angel investor is a wealthy individual who supplies funding to a startup, usually in exchange for an ownership stake in the company, or a form of convertible debt. Angels are a great option for those companies that don’t qualify for bank financing. They usually invest beginning from the amount of about $25,000.
2. Venture Capitalist: They are investors who provide capital to early-stage startups with high growth potential that wish to expand but do not have access to equities markets. Venture capitalists usually earn a huge return on investments if the company takes off.
3. Valuation: It is the estimation of the worth of a company or an asset.
4. Dilution: It is the result of a reduction in the stake or ownership percentage in a business. It occurs when a company issues new equity shares, or when holders of optional securities exercise other options.
5. ESOP: An employee stock ownership plan is a type of benefit plan designed to encourage employees to invest in the sponsoring employer’s stock. Both the employer and employee are eligible for tax benefits in this situation, and ESOPs are often used to attract or retain superior employees. Sometimes, it is also given in lieu of salary.
6. Vesting: This legal term is used to refer to the waiting period after which an investor can fully, unconditionally own a financial instrument or stock, and exercise his or her options with it, usually to sell it. This occurs to give the employee an incentive to perform well and stay with the company after buying shares.
7. Burn Rate: This refers to the rate at which a company uses or ‘burns’ through its capital. It is a crucial term for understanding the sustainability of a company.
8. Runway: This is linked to the burn rate, and is a measure of how long a business can function without running out of money or obtaining additional financing.
9. Bootstrapping: This is the process of starting a company with personal finances; without seeking external capital or investors. Though this gives the entrepreneur more freedom to make decisions, it also places a large financial risk on his or her head.
10. Exit: It is the point or price at which an investor sells the percent ownership of his company to others. This happens through a buyout or bringing on a bigger investor. Investors usually have an exit point strategy in mind when pouring in a large amount of capital into a business.
11. Elevator Pitch: This is a popular slang term for a short, crisp description of your startup, usually delivered to a potential investor. An entrepreneur typically outlines reasons why their business is worth investing in and includes points like advantages, market need gap etc.
12. Accelerator: These are timed programmes that give startups advice, information and resources to help them prosper. They usually include a public pitch or a demo day for the startup.
Knowing these terms isn’t just an advantage, but a necessity for your startup to climb the rungs in the business world. Raising funds for your company is unavoidable, and it’s best to be prepared when you do. Entrepreneurs must acquaint themselves with the startup jargon as soon as possible to ensure a smoother journey to success.