COLLECTION OF STARTUP TERMINOLOGIES
With a government slapping the word ‘innovation’ on everything from buildings to tax breaks, sharks in tanks on our TV screens and young tech billionaires answering the questions of a clueless US congress, you’re no doubt inundated with information about “startups” all described using a language that you’re not entirely sure that you follow. Rest easy, fellow e-traveller, in this article we’ll take a look at what the lingo means so you can effectively call BS when confronted with it (and confronted with it you will be).
BURN RATE Very similar to runway, burn rate simply refers to how much you’re spending over a particular period of time (i.e. how quickly you’re ‘burning’ your cash). Usually it is talking about your monthly spend, so if you’ve got $20,000 worth of budgeted expenses each month then your ‘burn rate’ is $20,000. Sometimes referred to as ‘run rate’.
CAP TABLE This is the list of shareholders and what each owns relative to one another.
EXIT When founders are talking about the ‘exit’ they are referring to how the shareholders are going to get paid for their shares. This could involve being bought out by a larger company (e.g. a competitor) or buy having an IPO and there is usually a strategy in place early on for the exit. Note that some companies aren’t interested in an exit, they love what they do and want to build it forever and whilst that’s great it isn’t always what an investor wants to hear.
FOUNDER Pretty simple, anyone being described as a ‘founder’ is going to be one of the people who started the company. The founders will be the ones who came together with the initial idea and got it off the ground.
GRANTS Also known as “free money”, this refers to funds being handed out by the government to encourage startups, and small businesses in general, to grow and succeed. More information on the grants available to startups here and small business in general here.
GROWTH HACK Marketing is expensive and there is a world of potential customers out there! Growth hacking gives businesses a way of growing rapidly using cheap or free methods online – these might include clever PR or viral marketing via social media.
HOCKEY STICK Refers to the desired growth curve of any business seeking to grow rapidly. Slow at first, then a meteoric rise to massive levels of success. One can dream.
INCUBATOR These come in various forms, but are typically co-working spaces (i.e. big offices that are shared by many small business) that offer a supporting environment for startups. Most of the time they will be sponsored by big corporates and will have specific support in place including programs they can put the young businesses through (also referred to as ‘accelerator’ programs). They may or may not involve investment in the startup and free office space and other professional services.
MVP Stands for ‘minimum viable product’ and when people talk about MVP they are referring to the simplest (i.e. cheapest) version of their product they can put together to get customers and/or investors interested.
PITCH DECK Also referred to as simply ‘the deck’ this is a slide presentation that is shown to potential investors to get them interested in giving money to the startup. A good deck will clearly articulate the problem the company is trying to solve, how they are going to solve it as well as the size of the potential market and how the investor will make their money back (and then some).
PIVOT Refers to when a business strategically changes direction with the business in light of some new information. This could be as a result of a change in consumer behaviour, government regulation or new competitors entering the market. Pivot too many times and you might find yourself turning in circles.
RUNWAY You’ll often hear those working in startups referring to how much ‘runway’ they have left. This has nothing to do with air travel and everything to do with how much cash they have in the bank. Runway refers to the point where the cash runs out – for example if the company is spending $20,000 a month and they’ve got $100,000 in the bank they’ve got 5 months runway left. It will also typically include any known cash injections (e.g. investor funds, tax refunds, earned revenue, etc.). More info here.
SAAS This stands for ‘software as a service’ and basically means you sell your software product as a subscription online. This is how most of us buy our software these days both as consumers and as businesses.
SCALEABLE If your business is ‘scaleable’ it means that it can grow to a very large size in a manageable fashion. A small accounting firm isn’t very scaleable because for every customer you acquire you need more people to deliver the service, however for a software company the additional costs of adding a new customer are almost non-existent. So, software scaleable, accounting firms not so much.
STARTUP Or is it ‘start-up’ or is it ‘start up’? Whatever it is, the actual definition for this one tends to be a little elusive and varies depending on who you’re talking to. Some use it to mean any business just getting started whilst others use it to refer to a fledgling technology company. That being said, the most commonly accepted definition for ‘startup’ would be newly founded company with a potential for substantial growth. Says me.
STOCK In Australia we refer to ownership stakes in companies as ‘shares’ (i.e. you have a ‘share’ in the company), however our friends in the US refer to these stakes as ‘stocks’. Same thing, different word.
STOCK OPTIONS This is where you’ve given someone, often an employee, the right to purchase shares in the company at a later date based on an agreed price upfront. Can be a very effective motivator for employees who can see their hard work translating into a higher share price (and thus making their options more valuable).
SWEAT EQUITY In the early days you likely won’t have the money to pay people properly or to attract great talent, so instead of using cash you can give away shares in the company, or options, to get the right people working for you. Very effective tool, but one that needs to be thought about carefully upfront as it can be hard to undo.
TERM SHEET This is a basic document that goes between a company and an investor and dictates what they are getting (i.e. what percentage of the company) and how much they are paying for it. It will also deal with the rights of the investors including things like board seats.
VALUE PROPOSITION What is your business going to do differently to all the other businesses out there? Also referred to as your USP (or ‘unique selling proposition’) this is what sets you apart from the competition.
VC Is short for ‘venture capitalist’. These guys work for VC firms which, basically, gather money from people who want to invest and pool it into a fund before going out and finding startups to invest that money in to. A good VC will offer guidance for the startup around everything from structuring deals to employment to exits.
Obviously this list isn’t exhaustive, but it should give you a great starting point for understanding what exactly they are talking about on the latest episode of Silicon Valley.
If you’ve got a startup (or an idea for one) and you’d like some support getting the everything setup right and keeping the numbers in check, why not drop us a line today for a free chat? We’d love to help.