Thinking of going into the business of developing mobile apps? Here’s an ever-evolving, soon-to-be-all-inclusive list of startup-specific terms you ought to know as a tech entrepreneur. Notice “soon-to-be-all-inclusive”, right next to “ever-evolving” – it’s because we plan to constantly update this list of terms and keep it fresh and relevant.
“A” Round Financing. It’s the first significant round of venture capital received by a startup and usually comes in the form of convertible preferred stock. This investment is generally made upon the founders demonstrating that their idea is both viable and potentially profitable.
Acquisition. A company acquires the controling interest of another company. May happen on good or bad terms.
Angel fund. A formal or informal gathering of angel investors who cooperate in certain parts fo the investment process. The group is managed by member angels.
Angel Investor. Also called informal investor, angel funder, private investor, seed investor or business angel. It’s that special someone to invest in the startup early on, helping it to get underway. What an angel investor usually expects in exchange for their financial aid, is convertible debt or ownership equity.
Assets. All of the financial resources that a company owns. There are three types of assets: current assets (any form of currency), fixed assets (material goods and equipment), and intangible assets (intellectual property, copyrights, patents).
Balance sheet. A short-version financial statement of a company’s assets, liabilities, and capital on a given date.
Book value. The book value of a stock is determined from a company’s balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities, and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding, and the result is book value per common share.
Bootstrapping. Entails starting a business while relying on one’s own resources – a situation a lot of startup founders are familiar with. Usually, small ventures set aside a certain amount of money to ensure the bootstrap process.
Bridge financing. A temporary funding meant to help a company cover its costs until it gets another round of capital from equity investors or debt lenders. Usually the repayment is made in full as soon as the company gets the new capital, but not necessarily.
Broker. A licensed individual whose job is to raise capital for startups from private investors and/or investor funds.
Debt financing. When a startup needs money to run the business, but it’s not willing to give up ownership, it gets this kind of loan. The startup has to pay back the interest and the principal to the people that invested, but it’s not losing any shares. This type of financing is divided into long-term and short-term debt financing.
Equity financing. As opposed to debt financing, equity financing entails capital a business gets by selling a certain percentage of company ownership to the willing investors.
Funding round. This calls for a round of venture capital financing, in which startups obtain financial aid from several investors, usually venture capitalists, on the same terms.
IPO. Stands for Initial Public Offering, which is the event in which a private company puts up its shares on the market for the wide public.
Lead investor. Usually a venture capitalist, the lead investor is the first person to put money into the deal. Oftentimes they have the largest share as well. And since they’re the initiating venture capitalist of the deal, they act as social proof to other investors the company may want to attract.
Pre-seed round. As implied by the name, this round of funding of usually up to $750K precedes a seed round (of somewhere between $1M and $3M). While a seed round could usually go into building a working prototype or an MVP, a pre-seed round has a rather pre-product purpose.
Seed round. A seed round represents the first time a startup gathers capital outside of their own resources. The most common purpose of this round of financing goes towards building a working proof of concept or even an MVP.
Valuation. The procedure in which the worth of a company is determined at a given moment. It’s a procedure the company will go through repeatedly in different stages of it’s life or for the different investment rounds it will go through.
Venture Capitalist. A VC is a professional investor. Usually, manages other investors’ money and is focused on high returns from exits or IPOs.
Accelerator. A short termed challenge in which teams receive training and work with the aim of receiving a see round that usually amounts to somewhere between $15K-$50K. The accelerator lasts several weeks and ends with the startup teams pitching their ideas to the investors.
Add-on Services. Services that a venture capitalist contributes with, that or not of monetary, but rather from a mentor’s position: help assemble a management team, or prepare the firm for an IPO.
Advisor. Someone helping an entrepreneur grow their startup venture with business advice, guidance, and connections.
B2B. A business-to-business kind of transaction, where none of the parties are a consumer but are both established companies.
B2C. As the name says, it’s a transaction, where one of the parties is an established company, while the other is made up of the consumers buying the product or service offered by the former.
Board of Directors. Elected by the company’s shareholders, this group of people make the decisions on major company issues. An example would be the decision of hiring/firing the company’s CEO.
SAAS. The acronym stands for Software-as-a-Service and means a software licensing and delivery model in which software is hosted by a third-party provider and made accessible to customers via the Internet.
Term sheet. A term sheet is a bullet-pointed document consisting of the terms and conditions of an agreed-upon business proposal.
Benchmark. A performance goal used to measure a company’s success. Benchmarks are used internally by the company’s management to iterate their measure accordingly, and externally by investors determine if a company should receive additional funding for example.
Burn rate. Represents the rate at which a startup burns through their capital to finance operations ahead of generating positive cash flow.
CLV. Customer Lifetime Value is the total amount of profit a company can expect from a customer of the business, throughout the lifetime of the customer-company relationship.
ROI. Stands for Return on Investment. Represents the percentage of profit compared to the capital invested.
Runway. Is the calculation of how much time and money the company has at its disposal to operate in the red. Here’s an example: if a company’s expenses amount to 10k a month, and it has 100k saved up in the bank, then the company’s “runway” is that of 10 months.
Agile. The agile approach to software development is based on iterative, incremental work sequences. It emphasizes adaptability and collaboration amongst the team members involved in the project, as well as market feedback.
Business Model Canvas. The Business Model Canvas (a.k.a. BMC) is a strategic management tool comprising 9 fundamental building blocks – key partners, key activities, key resources, value proposition, customer relationships, channels, customer segments, cost structure, revenue streams – that, as Alexander Osterwalder puts it, describe “the rationale of how an organization creates, delivers and captures value”.
MVP. The essential-features-only version of the product that provides value to the user, while providing the company with valuable insights regarding how the product works for the user, as well as the company’s business goals.