Entrepreneurship vocabulary

Disruptive Technology

Something that completely changes the way society does something (e.g. Uber/Lyft vs. Taxis or Amazon vs. in-store shopping).

Incubator

Startup incubators are groups that support chosen entrepreneurs and/or their businesses with mentorship and funding. In exchange, the incubator takes an equity stake in the company. Increasingly popular and competitive in the tech world, incubators have been touted as the new business schools.

Round

Startups raise capital from VC firms in individual rounds, depending on the stage of the company. The first round is usually a Seed round followed by Series A, B, and C rounds if necessary. In rare cases rounds can go as far as Series F, as was the case with Box.net.

Boot-Strapping

Using "friends and family" cash to get going.

Cliff

Usually applies to vesting schedules (shares given to employees over time). Cliffs are a way for the CEO to fire employees or let them leave without giving them stock within a limited period of time (usually 1 year). Cliffs are also used on CEOs by investors to make sure the CEO sticks around after getting the cash.

Traction

Proof that people are actually buying and using your stuff.

VC = Venture Capital or Venture Capitalist

. (BASICALLY INVESTORS (MONEY IN EXHANGE FOR STOCK).

Deck (aka Pitch Deck)

A 10-slide power point presentation that covers all aspects of your business in a concise and compelling way. There is a standard format and real artistry to making a good deck.

Going public

A company's IPO, or initial public offering. Think of it as just another way to raise funding. You are offering shares of your company for purchase to the public. It could make you rich but it could also cost a lot. IPO deals are structured by investment banks, and your company is valued by analysts. There are pros and cons to going public and only a small percentage of millions of U.S. companies actually do it. Investment in IPOs can be risky but can pay off big for some investors.

Proof of concept

A demonstration of the feasibility of a concept or idea that a startup is based on. Many VCs require proof of concept if you wish to pitch to them.

Nondisclosure agreement (NDA)

A legal document that protects a startup's secrets by holding employees responsible to pay damages for leaking them. NDAs can be used to protect things like proprietary code, formulas, or customer information. You can have a "one party" NDA where one side is receiving confidential information from the other, or a mutual NDA for both parties.

Bridge loan

A loan taken out for a short-term period, typically between two weeks and three years, until long-term financing can be arranged. Also known as a swing loan.

Cottage Business/ Cottage Industry

A nice business but not something massively scalable

Convertible note

A note is worth a percentage of equity ownership in a company. Some business owners use convertible notes if they want to attract angel investors without having to put a valuation on the company. The note turns into equity as soon as another investor comes in

Accredited Investor

A rich individual potentially interested in investing in your company.

Growth Hacking

A term coined by Sean Ellis to describe a marketing technique that focuses on quickly finding scalable growth through non-traditional and inexpensive tactics such as the use of social media

Gross Profit vs. Net Income

An Overview = Gross profit represents the income or profit remaining after the production costs have been subtracted from revenue. Revenue is the amount of income generated from the sale of a company's goods and services. Gross profit helps investors to determine how much profit a company earns from the production and sale of its goods and services. Gross profit is sometimes referred to as gross income. Net income is the profit that remains after every expense and cost have been subtracted from revenue. Net income helps investors determine a company's overall profitability, which reflects on how effectively a company has been managed.

Due diligence

An analysis an investor makes of all the facts and figures of a potential investment. Can include an investigation of financial records and a measure of potential ROI.

GAAP

Generally accepted accounting principles, or GAAP, are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices.

Burn Rate (aka Run Rate)

How fast you are blowing through your cash

Market Penetration

How much of your potential market are you capturing and how quickly. VCs want to know. Do not say, "if we just capture 1% of the market we will..." - they want you getting a lot more than that.

Monetize

How you are making money — or more often, how you plan to make money.

Exit Strategy

How you will sell the company and make your investors lots of money. Who is going to buy you and why?

Capital

Monetary assets currently available for use. Entrepreneurs raise capital to start a company and continue raising capital to grow the company

Pivot

Much like its meaning when used to describe a mechanism turning on a central point, the term pivot in the startup world occurs when a company quickly changes directions after previously targeting a different market segment.

Term Sheet

The document that outlines what the Investors will get for what they put in — including % ownership and voting rights

Seed round or Seed stage

The first round of venture capital funding for a business venture. This is for the development stage, just past the angel round, and can be up to $1 million of capital. Subsequent rounds are referred to in terms of Series (Series A, B, C, D, E) or stages (startup stage, formative stage, mezzanine stage).

Stock: Common, Preferred

The main difference between preferred and common stock is that preferred stock gives no voting rights to shareholders while common stock does. Preferred shareholders have priority over a company's income, meaning they are paid dividends before common shareholders.

Vesting

The schedule under which founders and employees must remain in the company before receiving their full share of the equity. For example, if you have a five-year vesting schedule you may get access to 0% in year one, 25% in year two, 50% in year three, 75% in year four, and 100% in year five. A vesting schedule helps to instill staff loyalty and keep the company together for a certain period of time. Cliff vesting is when someone becomes fully vested on a specified date.

Hockey Stick

The shape of the growth curve VCs want to see and believe! This means your start-up will have to double sales every year

IP = Intellectual Property

This can be a patent (costs $25k generally and takes time to obtain) or a secret sauce or formula like Coke. Not every start-up has IP, but if your business depends on it, you better protect it!

Angel Investment

This type of investment typically happens when a startup is in its early stages; it's when an investor, or a "business angel," provides startups with initial or growth capital for a stake in the company. Having invested in big names like Google and Uber, CEO of Amazon Jeff Bezos is one of the world's most well known angel investors.

Startup

Though there's no universal definition of a startup, one that's generally accepted is that it's a company in the early or growth stages of operation, usually under three years old and (if not already) becoming profitable

ROI = Return On Investment

What the investor can expect to get for what they put in. It can also be used to describe the results of a particular marketing campaign's success. You want things to be "ROI positive."

Valuation

What your company is being valued at. "Pre-money valuation" is the value before you take investors' cash. "Post-money valuation" is that amount plus the investment put in.

Scale up

You can say you've scaled up when your company has grown in terms of size, geographical location, market, etc. The noun scaleup refers to a company that has already validated its product in a market and is economically sustainable. Scaleable = Something that can grow to a huge size because the market and demand is big enough or because you will be able to move into different markets with your product

Freemium

You give the basic product away for free and then try to upsell features to your customers. This marketing ploy is often used in directory businesses

SaaS = Software As A Service.

You sell subscriptions to use your software.

B-to-C = Business to Consumer

Your company sells stuff to the masses

B-to-B = Business to Business

Your company sells things to other companies.