Must Know Terms For Startup Founders
If you’re an aspiring entrepreneur, at one point, you may need funding. You will need an amazing pitch to obtain seed through series B investments. To do this you must know the language every venture capitalist uses. Below are the most common terms every startup founder should understand. Who knows, maybe knowing this words going into your next pitch will get you the funding to launch the next big thing!
Accelerator (“Incubator”) — A center where startups are mentored by other successful entrepreneurs who guide the founders through development of an idea to launch, and sometimes beyond!
Burn Rate (Runway) — A term to describe how quickly you are spending money in comparison to how soon you believe the startup will break even, or more importantly, generate a profit. Normally the burn rate is a financial projection based on current spending and applied probability decision making.
Early Adopters — A savvy person in your marketplace who will use the newest and greatest product or service available. Read the highly recommended “1,000 True Fans” blog post for a clear meaning of early adopters.
Exit Strategy — A term EVERY startup founder needs to know. This is an explanation of how, and when, you plan to sell the company. Who is going to buy your company, and why? Your investors are in the game to make money, and you will increase your odds of funding by having the exit strategy thought through.
FMA (First Mover Advantage) — First mover advantage means you have a product which will create a new market or industry. It takes incredible innovation to get the first mover advantage, but if you have this then point it out immediately.
Freemium Business Model — This is a business model pioneered by applications and software. The business releases most of their product for free to the public in order to gain market traction. They then upsell the customers who want the updated or more advanced version.
IP (Intellectual Property) — This is anything from a patent to a trade secret — like the formula for Coca-Cola — and can be a vital asset to your startup. For instance, Google has IP in the form of their search algorithm.
Loss Leader Pricing — Selling a product at a loss with the expectation of getting repeat business from the initial customers. Normally this would be recorded as a marketing expense when doing the financials.
Market Penetration — This answers the question: “How much of the market can you acquire in _____ (period of time)?” Every venture capitalist require startup founders to understand the market thoroughly enough to make this prediction.
MVP (Minimum Viable Product) — First coined by Frank Robinson, and then popularized by Eric Ries, MVP is the bare-bones version of a product you think will provide a proof of concept. The MVP will generally give you an answer to whether your idea is going to work or not.
Pivoting — Generally means a move from one market segment to another. Say from early adopters to mass market.
Responsive Design — A term used for software development. It means your web app is responsive to desktop, tablet, and most importantly mobile screen sizes.
ROI (Return On Investment) — A performance measure used to evaluate the efficiency of an investment. ROI measures the return in relation to investment. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.
Split Testing (A/B Testing) — A way of conducting controlled experiments with the goal of improvement. Optimizely says: “This marketing methodology is frequently used to test changes to signup forms, registration pages, calls to action, or any other parts of a website where a measurable goal can be improved.”
Term Sheet — A document which outlines what investors are going to receive for providing an investment in your startup. If you get this congratulations, you’re well on your way!
Valuation — This measures the total value of your start up it. For instance, say you get an investment for $2 million for 20% of your startup. The startup’s valuation would be a total of $10 million.
Value Proposition — The elements of your product or service consumers would be attracted to compared to your competition.
Hopefully these terms help you better understand the startup culture, and the language venture capitalists use. If you have a startup, Tandon Group wants to work with you! We’ve had successful exits and helped grow companies to millions of users. Reach out to us if you think your company is the next big thing!