In this note I am going to look at modern startup terminology every neophyte startup founder and entrepreneur should be acquainted with.
In the world of entrepreneurship like every other field of endeavor, there are certain terms used by people to communicate among professionals in the same profession. Also, in startups and tech there are certain startup terminology an entrepreneur should know to be effective and efficient. Knowing these words has a psychological feel that builds confidence in the entrepreneur and aids him or her when selling to investors or clients.
Follow me as we explore startup terminology as used in the world of startups. The startup terminology included here are by no means all the terms use in tech and startups.
I consider these as some of the basic ones the neophyte founder should get acquainted with. It will also help anyone making the transition from their 9-5 jobs to entrepreneurship.
Modern Startup Terminology
An angel investor or angels also known as business angel or informal angel is an affluent individual who provides capital for a business startup usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organized themselves into an angel groups or networks to share research and pool their investment capital, as well as to provide advice for their portfolio companies. Sophisticated angel investors are known as super angel.
Acquihire is a neologism created from a combination of the worlds acquire and hire that is used to refer to one company’s acquisition of another in other to gain talented employees.
Acquihire is common in the tech world, where large tech companies often purchase startups to gain access to cool concept- and expertise of the people who created it.
The term acquire is also known as acqhiring. It may be hyphenated as acq-hire. The term acquihire is largely attributed to Rex Hammock who coined it in a 2005 post on the rexblog
Application Programming Interface (API)
This is a set of routine protocols and tools for building software applications. The API specifies how software components should interact and used when programming graphical Users Interface GUI components.
A good API makes it easier to develop all the building blocks. A programmer then put all the block together.
The rate at which a new company uses up it ventures to finance overhead before generating positive cashflow from operations. It is a measure of negative cashflow. When your burn rate increases or even falls, it is a time to make decision on expenses. (E.g. reduce staff)
A business plan is a written document that describes a business, its objectives, strategies, and the market it is in as well as its financial forecasts. It has many functions from securing external funding to measuring success within your business.
Source: Business link
A business model describes the rationale of how an organization creates, delivers, and captures values. (Economic, social, cultural, or other forms of value).The process of business model construction is part of business strategy.
In theory and practice, the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, target customers, offerings, strategies, and infrastructures, organizational structures, trading practices and operational processes and policies.
When a business is established, it either explicitly or implicitly employs a particular business model that describes the architecture of the value creation delivery, and capture mechanisms of the business enterprise. The essence of a business model is that it defines the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those pay to profit.
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This simply means starting a business without external help or capital. Such startups fund the development of their company through internal cashflow and are cautious with their expenses. Generally at the start of a venture a small amount of money will be set aside for the bootstrap process. Start ups can grow by reinvesting profits in its own growth if the bootstrapping cost is low and return on investment is high.
Investopedia explains Bootstrap
Compared to using venture capital, bootstrapping can be beneficial as the entrepreneur is able to maintain control over all decisions. On the downside, however, this form of financing may place unnecessary financial risk on the entrepreneur.
Furthermore, bootstrapping may not provide enough investment for the company to become successful at a reasonable rate.
Bring Your own Device (BYOD)
This refers to the policy of permitting employees to bring their own computing devices-such as smartphones, laptops and personal digital assistant to the workplace for use and connected to the secure corporate network.
This is a process of getting work or funding usually online from a crowd of people, The word is a combination of the words crowd and outsourcing.
The idea is to take work and outsource it to a crowd of people usually in the internet. Famous example of crowd sourcing is Wikipedia creating the world most comprehensive encyclopedia by giving the crowd the ability to create information.
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This has its origin in the concept of crowd sourcing which is the broader concept of an individual achieving a goal by receiving and leveraging small contributions from many parties.
Crowdfunding also known as crowdfinancing , equity funding , and crowd sourced fund raising is the collective effort of individuals who network and pool their money usually via the internet to support efforts initiated by other people or organizations.
Crowdfunding can also refer to funding a company by selling small amounts of equity to many investors. Crowdfunding model involve a variety of participants. They include the people or organizations that propose the ideas and who support the proposals. Crowdfunding is then supported by an organization (the platform) that brings together the project initiator and the crowd.
This is the process of enterprise being changed or influence by new technologies emerging from consumer markets into professional arenas.
Certain types of smartphone, for example, began as consumer products and are now used extensively in corporate environments, military and other professional spheres.
Source: Business Dictionary
Consumerization of IT
This refers to a trend in which a business’s employees expect to be able to use personal devices to connect to corporate networks. The consumerization of IT has grown out of consumer increasing integration with their personal mobile devices, such as smartphone and tablet, and computers which are now depended upon as personal and personalized assistants.
As a result many employees are demanding that their employers allow them to use devices they have chosen and are comfortable using. It is this policy that gave rise to the concept of BYOD.
Dead valley (aka valley of death) is a phrase in Venture Capital used to refer to the period of time when a startup firm receives an initial capital contribution to when it begins generating revenues.
During the Death Valley curve, additional financing is usually scarce, leaving the firm vulnerable to cashflow requirements. The name ‘’Death Valley’’ refers to the high probability that a startup firm will die off before a steady revenue streams is established.
After a firm receives its first round of financing, it incurs a lot of initial costs, offices are usually built, staff is hired and operating cost are incurred, meanwhile the firm is not earning significant income.
Unless a firm can effectively manage itself through the Death Valley curve, it will fall victim to negative cashflow.
An innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market, displacing an earlier technology. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, first by designing for a different set of consumers in the new market and later by lowering prices in existing market.
This is the process of evaluating a prospective business decision by getting information about the financial, legal and other material (important) state of the other party.
Due diligence is used most often when buying a business, as the buyer spends time going through the financial situations, legal obligations, customer records, and other documents. The prospective buyer wants to validate his/her opinion of the business to see if it is truly a good decision.
If you don’t do your due diligence in a business situation, you may end up buying something that isn’t as you thought it was, or you may end up in a business relationship that will caused you trouble. It may be costly to perform due diligence, because it usually involves the services of a CPA and an Attorney, but its certainly worth your trouble. Due diligence is a process which includes detailed review of all aspects of a business, including financial, legal, insurance, technology, and marketing/sales/competition, as well as general company information.
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This is used to describe a brief speech that outlines an idea for a product, service or project. The name comes from the notion that the speech should be delivered in the shortest time period of an elevator ride, usually 20-60 seconds. It refers to an entrepreneur’s attempt to convince a venture capitalist that a business idea is worth investing in. Venture capitalist uses the quality of the elevator speech as a way to judge whether to continue with an idea.
The elevator pitch should include why your product, idea or project is worth investing in by explaining such things as features, benefits and cost savings.
Equity is ownership in any asset after all debts associated with that asset are paid off.
Equity=Assets minus Liabilities.
In terms of startups, it is commonly used to describe a business giving up percentage of ownership in exchange for cash. An equity
investor is then entitled to share in any future profit and sale of business assets. (After debts are paid off)
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This is the process of changing a private company into a public company by issuing shares and soliciting the public to purchase them. Floatation allows companies to obtain financing from outside the company instead of using retained earnings to fund a new project or expansion.
Business incubators are projects designed to help new businesses develop successful launch. In some instances, the projects are overseen by colleges or universities and are based in facilities located on campus.
Source: WISE GEEK
In tech. circles YC or Y combinator is probably the most well known incubator. In Africa especially in Nigeria and Ghana we have the CO-CREATION HUB in Yaba, Nigeria and the Melt water school of technology MEST Accra.
This is the act of repeating a process with the aim of approaching a desired goal, target or result. Each repetition of the process is also called iteration. The result of one iteration is used as the starting point for the next.
First used in the 1980s by management consultant Gifford Pinchot, intrapreneurs are used by companies that are in great need of new innovative ideas. Today, instead of waiting until the company is in a bind, most companies try to create an environment where employees are free to explore ideas. If the idea looks profitable the person behind it is given an opportunity to become an intrapreneur.
This is a word coined and trade marked by Eric Ries. His method advocates the creation of rapid prototypes designed to test market assumptions and uses customer’s feedback to evolve them much faster than via more traditional product development.
Letter of Intent (LOI)
An agreement that describes in detail a corporation’s intention to executes a corporate action
The letter of intent is created by the corporation with its management and legal counsel, among others, and outlines the details of the action. Letters of intent are used during the merger and acquisitions process to outlines a firm’s plan to buy/take over another company. For example, the letter of intent will disclose the specific terms of the transaction (whether it’s a cash or stock deal)
An idea that spreads like a virus by word of mouth, email blog e.t.c An idea, belief or belief system, or pattern of behavior that spread through a culture either vertical by cultural inheritance (as by parents to children) or horizontally by cultural acquisition (as by peers, information, media and entertainment media.
Source: Internet slang.com
MINIMUM VIABLE PRODUCT (MVP)
Under the principles of lean startup methodology the first step for a new business is to clarify the problem to be solved and develop a starter product or offering called the minimum viable product.
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NON DISCLOSURE AGREEMENT (NDA)
This is also known as confidential agreement .It is a legal contract between you and another party not to disclose information that you have shared for a specific purpose. Such agreement is used to discourage employees or business contracts from not releasing sensitive information to others.
Source: BUSINESS LINK
This means to change direction. More specifically, to make a structured course correction with a business idea and then to test a new hypothesis or a new business model to see if it works.
Companies usually pivot when their current idea is not working or has lost momentum .However, you may pivot when you have launched an early version of your product/idea and it needs improvement.
PRODUCT MARKET FIT
It can be loosely define as the point in time when your product has evolved to the point that a market segment finds attractive so that you can grow your product/company scalably. In many ways finding product market fit quickly allow you to focus on company’s growth rather than spending a lot of time and money on iterating your products to find that fit.
This is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed document. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet is then drawn.
A term sheet lays the ground work for ensuring that the parties involved in a business transaction are in agreement on most major aspects of the deal, thereby precluding the possibilities of a misunderstanding. It also ensures that expensive legal charges involved in drawing up a binding agreement or contract are not incurred prematurely. They generally cover the more important aspect of the deal, without going into every minor detail and contingency covered by a living contract.
For example, a term sheet from a venture capital company that is investing in early stage company may contain such details as the amount of investment, the percentage stake sought, and anti-dilutive provisions and valuation.
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USERS GENERATED CONTENT (UGC)
This is term used to describe any form of content such as video, blogs discussions from posts, digital images, audio files and other forms of media that was created by consumers or end users of an online system or service and is publicly available to other consumers and end users. Users Generated Content is also known as Consumer Generated Media (CGM)
Venture capital provides long term committed share capital to help unquoted companies grow and succeed. Obtaining venture capital is very different from raising a loan.
Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of your success or failure. Venture capital is invested in exchange for a stake in your company and as shareholders .The investor’s returns are dependent upon the growth and profitability of your business.
I hope the startup terminology contained in this note has helped broaden your view about tech and startups as well as entrepreneurs.
As stated before, this startup terminology are inexhaustive. You can add more of your own in the comments below.
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