2023 Essential Startup Glossary
Starting a business can be overwhelming, especially for those new to the world of entrepreneurship. One of the most common challenges entrepreneurs face is navigating the complex and jargon-heavy world of start-up terminology. In this article, we provide a brief glossary of common start-up terms that every entrepreneur should know.
An accelerator is a program that provides start-ups with mentorship, resources, and networking opportunities to help them grow and scale their businesses. Accelerators are typically focused on a specific industry or sector, and often offer funding in exchange for a small equity stake in the start-up. In contrast to incubators, accelerators are short-term programs that support businesses at stages following the development of a minimum viable product. Acceptance into an accelerator is often more competitive than incubators.
An angel investor is an individual who provides capital to start-ups in exchange for ownership equity. Angel investors are high-net-worth individuals looking to invest in early-stage companies. They typically provide mentorship and guidance to the founders.
Bootstrapping is the process of starting and growing a business with little or no outside funding. Bootstrapping can involve using personal savings, relying on revenue generated from customers, or finding creative ways to finance the business.
Burn rate is the rate at which a start-up is spending its available cash. Burn rate is an important metric for start-ups. It can be used to help manage finances and make informed decisions about how to allocate resources.
A capitalization table (or "cap table") is a spreadsheet that outlines the ownership structure of a company. A cap table includes the types and amounts of equity that have been issued to founders, investors, and employees.
A convertible note is a type of short term debt that can be converted into equity at a later date, typically when the company raises a round of funding. Convertible notes are often used by start-ups to bridge the gap between seed funding and a Series A round.
Due diligence is the process of thoroughly evaluating a potential investment or business opportunity. This will include reviewing financial statements, assessing the market potential of the business, and verifying the credibility of the founders and management team.
Equity is ownership in a company. When an investor provides capital to a start-up in exchange for equity, they become a shareholder in the company and gain partial ownership.
An exit is an event in which an investor or founder sells their stake in a company, typically through an acquisition or initial public offering (IPO).
An incubator is a program that provides start-ups with resources, mentorship, and workspace to help them get off the ground. Incubators are typically focused on a specific industry or sector, and they may offer funding in exchange for a small equity stake in the start-up. In contrast to accelerators incubators are long-term programs that support startups at all stages of the development process.
Minimum viable product (MVP):
An MVP is a version of a product that has enough features to be viable for testing and validation with a small group of customers. MVPs are often used by start-ups to validate their product-market fit and gather feedback before launching a full product.
A pitch is a presentation that entrepreneurs use to present their business idea to investors or other potential partners. A pitch typically includes an overview of the business, a description of the product or service, and a plan for growth and profitability.
Pre-money valuation is the valuation of a start-up prior to raising a round of funding. Pre-money valuation is an important consideration for both entrepreneurs and investors, as it determines the amount of equity that is issued in exchange for capital.
Seed funding is the first round of funding that a start-up receives. Seed funding is typically used to cover the costs of developing a prototype, conducting market research, and building a team. Seed funding can come from a variety of sources, including angel investors, venture capital firms, and crowdfunding campaigns.
Series A round:
A Series A round is the first round of institutional funding that a start-up receives. Series A rounds are typically larger than seed rounds and involve more formal terms and conditions, such as preferred stock and board seats.
A term sheet is a document that outlines the terms and conditions of a potential investment. Term sheets typically include information about the amount of capital being invested, the valuation of the company, the rights and preferences of the investors, and the terms of the exit.
Venture capital (VC):
Venture capital is a type of funding that is provided to start-ups with the expectation of high returns on investment. Venture capital firms typically invest in companies that have the potential for rapid growth and a strong competitive advantage.