The startup ecosystem contains many terms and jargon that are not easy to understand for people not involved in it or for those who are just getting started in the field. If you have ever wondered how to count the churn rate of your startup or why having contact with angel investors can benefit you, then you will find this article useful. We have collected a vocabulary covering the most important terms and phrases that should be familiar to all people who work within the venture capital sector and startups. Having said that, let's get started with learning.
A
Accelerator
A business program that includes mentorship, education, and financing to support early-stage companies aiming for growth. There are many acceleration programs that operate on regional, national, or international levels; they could also be topically divided, and participation criteria can vary. We have covered leading programs from many European countries such as Ireland, the UK, Austria, Germany, and more.
Accredited Investor
A high-net individual who is capable of making potentially high-risk investments. According to the US Securities and Exchange Commission, an accredited investor should have a minimum net worth of $1 million, or $200,000 in annual individual income. As for Europe, since 2011, European Securities and Markets Authority (ESMA) has replaced the Committee of European Securities Regulators (CESR), which adopted a document identifying investors' and investment firms' activities. As per the document, professional investors are companies, institutions, firms, and private individual investors, possessing knowledge, experience, expertise, and the ability to assess investment risks. For now, ESMA regulates the security market throughout Europe.
Acquisition
A process when one company or investment group is acquired for over 50% of the controlling interest or is being fully bought by another company or investment group. For example, the fourth largest European acquisition in 2021 was between two Polish firms - Allianz Group, a financial solution company, acquired 51% of Aviva, a life and non-life insurance operations company.
Advertorials or Advertainment
Paid content that is meant to look like a real story or blog post. Advertorials include helpful information about a product or service written naturally and without an obvious selling. It is a way to make readers click the links in the writings since display ad pricing is no longer beneficial for companies.
Agile
Being agile in the business environment means being flexible, adaptable, and able to respond quickly to rapid changes. An agile organization is dynamic by swiftly transforming processes, strategy, and technology, and, at the same time, stable, with a strong structure that includes clearly identified metrics, targets, and objectives.
Angel network
A formal or informal organization of angel investors who pool their resources, and expertise, exchange information for the improvement of their deal flow and often make co-joint investments. Discover the leading networks in Europe and the CEE region.
Angel investor
A high-net individual investing in early-stage, potentially profitable startups. Angel investors support financially, provide helpful contacts and knowledge, and often do not require any interest for financing. However, they get an equity stake in exchange for backing startups. Learn how you can prepare your startup for angel investments. By the way, did you know that the most active CEE Business Angels are from Estonia?
Angel round
A small round that usually involves the first money after the founder's own, one's friends, or one's family financing for a company's beginnings. To get angel support, startups need a product, preferably an MVP, a team, a future development plan, and a record of the resources used in a company. Usually, startups get funding in the amount of 25.000 - 50.000 EUR, so knowing how and what to spend the money on is essential. Here, we explain the advantages of business angel funding.
Anti-dilution clause
A contractual clause protecting investors from their investment’s devaluation. When the number of shares increases, the percentage of an owner's stake in a company decreases, which leads to a dilution.
Attribution (Modelling)
A rule or set of rules indicating how conversions and sales credit are allocated along conversion paths. Attribution modeling is a helpful tool for advertisers who aim to identify the value of their marketing channels. So, several touchpoints across the customer journey help to indicate the most valuable traffic sources.
Attrition
Customer losses expressed as a percentage within a given period. Synonym to churn rate and retention rate.
Amazon Web Services (AWS)
A cloud computing service provider from Amazon offering IaaS (infrastructure as a service), PaaS (platform as a service), SaaS, and organizational tools like database storage, customer service, IoT, and more. AWS is a helpful tool for startups, government agencies, NGOs, and educational institutions, as it is considered reliable and beneficial to use rather than owning a personal server.
Annual Recurring Revenue (ARR) or run rate
Revenue derived from subscription. APR is used by SaaS and PaaS companies to determine if their subscription model is workable or not.
B
Balance sheet
A financial statement that communicates the company’s financial situation as of a given date. Balance sheets include information about all assets, liabilities of a company, and owners' equities.
BHAG (Big Hairy Audacious Goal)
Pronounced as "Bee Hag." It is a concept used by founders to identify the big, long-term goal or target fuelled by the company's values and purpose. It is the big thing that each company aims to achieve.
Bleeding Edge
Often untested and characterized by a high degree of uncertainty and risk, a new, experimental product or service that may be considered unreliable.
Bootstrapping
Self-funding. It is typical for new startups when founders use their own or their friends' savings without any external backing. Atomico's State of European Tech Report in 2021 found that 31% of CEE-founded unicorns were bootstrapped, compared with only 7% in Europe.
B2B (business-to-business)
A commercial interaction between companies, typically happening in the supply chain, where one company purchases raw materials from another to manufacture. The biggest European B2B companies are Pitch, a German presentation software, Otrium, a Dutch platform offering unsold brand cloths, and Primer, a UK-based payment and commerce services platform.
B2BC (business-to-business-to-consumer)
Cooperation between two types of companies - B2B and B2C. It is a joint effort that involves reaching new markets and customers through partnerships with consumer-oriented businesses or services.
B2C (business-to-consumer)
Direct interaction of a business with consumers.
Bridge loan
Short-term loans (up to three years) that are given to startups by investors to keep them afloat between funding rounds. Startups face a cash burn rate, which means their expenses exceed their revenue due to operations and expansion. When lacking cash between long-term financing rounds, companies can use bridge loans with a faster application and funding process than traditional loans. However, this support is not without drawbacks; for example, bridge loans have high-interest rates, large origination or upfront fees, and short repayment terms.
Bubble
A period in an economic ecosystem where a market value or rather price assets face rapid escalation, leading to overvalue and over-inflation. This leads to businesses going bankrupt and investors losing their money. Among the examples of a bubble economy is the dot-com bubble, when internet and tech-based companies in the 90s got lots of investments, leading to companies' commercialization and rise in the stock market index, which resulted in their demise.
Burn rate (run rate)
The rate at which a business spends its cash reserves. Burn rate is measured when a company has negative cash flows, i.e., spending more than it earns.
Burn multiple
The amount of revenue generated per dollar spent.
Business advisor
A strategist who guides planning, marketing, financing, and business development. Since a business advisor knows the nuances, early-stage startups can benefit significantly from their consultations. Companies at any stage can hire a business advisor. Identifying the reason for hiring is essential, as each specialist specializes in different aspects, be it business expansion, dealing with human resources, preparing for investments, and more.
Business plan
A document with the company's objectives and strategies to reach the set goals.
Buyout (leveraged buyout)
Acquiring a majority stake in a company. A company that aims to grow quickly and gain revenue pays a small piece of the needed capital and uses debt, the leverage, which makes up a large portion of the buyout price, to cover the rest.
C
Cash Flow Positive
Money is flowing into a business at a faster rate than it is leaving it so that a company can grow its liquid assets. Cash flow is vital for investors and entrepreneurs as it indicates the amount of money getting in and out of business. Not to be confused with profit, the money left after paying off all company obligations.
Cap table
A document with detailed information on ownership percentages among shareholders in a firm. To learn more about the cap table, read the article on our blog.
Capital
Assets with monetary value / financial assets, e.g. funds or cash flow.
Carried Interest
A generated profit share (15%-30%) given to a fund's partner as compensation/reward for improving the fund's performance.
Churn rate
The number of customers unsubscribing or leaving service or project.
Cliff vesting
It is the process by which an employee becomes fully vested, i.e., receives the entire amount of benefits, like profit sharing, stock options, or retirement benefits. Typically, companies give equity, or a portion of ownership, to their employees, encouraging their retention and performance. Once the stock is earned, an employee becomes vested in the benefit plan and receives its benefits. Such plans usually have a vesting period of four years and a cliff period of one year - employees receive full benefits after completing the cliff period. Sometimes, investors use cliffs on CEOs to make them retain their positions after getting cash.
Commercialization
Introducing new products or services to the market.
Conversion rate optimization (CRO)
Increasing the user conversion rate, which is the percentage of users who complete the desired action, like clicking, buying, and signing up, on a website or mobile app.
Convertible note
A debt converted into equity based on pre-agreed terms between a startup and investors. For example, in seed funding, a debt is converted into shares when Series A closes.
Copyright
A type of intellectual property allowing owners to copy, adapt, distribute, perform and display their artwork.
Cottage business/industry
A business that is not likely to scale, making it an unattractive investment to VCs or Angels. It is usually a small business with few workers, using local raw materials and simple tools, rarely exporting, and characterized by small manufacturing units.
Corporate VC
A business entity that directly invests in a startup company outside of its own organization. Usually, CVC provides additional managing and marketing expertise. Check out our list of leading CVCs investing in the CEE region.
Coworking space
A shared place where people - workers, entrepreneurs, or students - to independently work. It could also be a collaboration hub or a community center where its members can share their knowledge and ideas. We cover coworking spaces from different countries in our blog, like Serbia, Latvia, Czechia, Hungary, and more.
Crowdfunding
The process of raising capital from a joint public effort with no return or rewards for an idea or business.
Crowdsourcing
A practice of getting knowledge, information, service, or products from a large group of people for free instead of paying for focus groups. Many giant companies, like Lego, Boeing, or Unilever, used crowdsourcing, asking for people's opinions and ideas on logos, graphic design, and more.
D
Deal lead
Investor responsible for the investment process, including the organization of investment rounds and terms negotiation.
Debt capital
Capital or finance raised through borrowing a loan or any other financial security. The borrowed funds are to be repaid with interest at an agreed future date. Debt financing includes selling bonds, notes, or bills to investors for growth and expansion.
Demo day
Pitch day, when startups participating in an accelerator or other program showcase their ideas or projects to potential investors, within a limited amount of time.
Dilution
A decrease in a shareholders' percentage ownership due to selling additional company stock shares.
Disruptive Technology
An innovation that changes how society, industries, and businesses function, e.g., Uber, Airbnb, and Amazon created a new norm in the transportation, housing, and shopping industries.
Down round
A financing round in which a company offers additional shares at a lower price than in previous rounds. Businesses do that when their valuation (the company's worth) is lower than in the previous rounds, which forces them to sell their capital stock more cheaply. Down rounds lead to a lower ownership percentage, loss of market confidence, and damaging company morale.
Dragon
A startup that raises $1 bln in a single funding round.
Drag-Along Rights
An agreement according to which the minority shareholders are obliged to join in the sale of a firm if the majority decides to sell it.
Due diligence
A thorough examination of two sides between an investor and entrepreneur for potential partnership or investment. In the startup ecosystem, VC funds or business angels usually examine startups - their business potential and financial data to ensure the firm is worth investing in. Have a look at our article with a detailed explanation of what due diligence is.
E
Early adopter
An early customer who uses a product or service before it goes to the public. Early adopters give direct and honest feedback, which can be helpful for early-stage startups.
Economies of scale
Efficient production that allows companies to gain a cost advantage over a larger volume of goods.
Ecosystem
A supportive environment for everyone involved. The startup ecosystem includes investors, angels, startups, accelerators, incubators, and coworking spaces.
Elevator pitch
A very brief introductory speech for one's business or ideas, performed as if one rides in an elevator. Learn how to write a perfect elevator pitch for investors.
Equity capital
Distributed shares of a company among shareholders, or, simply put, debt-free capital. It is total company assets without total liabilities. Shareholders have the potential to earn capital gains and dividends when they own stock in a company. Additionally, equity holders have a say in corporate decisions and elections for the board.
Equity crowdfunding
Investing in startups at an early stage for shares, usually through platforms like Kickstarter or SeedInvest.
Evangelist
A startup fan who eagerly promotes the startup and works hard for its success
Exit
When a company is acquired by cash, sells its shares in an IPO, or fails.
F
FMA (First Mover Advantage)
An advantage first players have in a new industry.
Founder
The individual who starts a business / a person who is eager to fix an existing problem with goods or services.
Freemium
A way to attract users through offering the basic product or service for free, but with additional features for a fee.
Friends, family, and fools, or the 3 F’s
The capital early-stage startups get from the people closest to them. The word "fools" implies that investments in seed ventures involve a high level of risk.
G
Gamify
A process in which game-style incentives are introduced into every day or non-game activities to engage users and encourage them to use a product, service, or website more. For example, companies can use loyalty points, flyer programs, and provide access to sponsored events, and more.
Go-to-market strategy (GTM)
Successfully introducing a new product or service to the market. A GTM includes identifying a target audience, making a marketing plan, and developing a sales strategy. To have a workable GTM strategy, a company needs to place its product as a solution to a market problem.
Grant
Money that is given by a government or other organization without the need to pay it back or buy equity.
Growth hacking
A marketing technique of using inexpensive ways to grow quickly through social media platforms or referral marketing. A good example is PayPal, a giant online payment company. Starting out, the company offered $10 for a friend referral. Additionally, it partnered with eBay, which displayed PayPal's payment badge alongside other payment options.
Gross Merchandise Value (GMV)
The total revenue generated by selling goods or services.
H
Hacking
Combining a computer science degree with entrepreneurial skills to create new technologies that disrupt an industry.
Hockey Stick
A term used by investors to describe a graph, reminding of a hockey stick, which shows a sudden increase in growth.
I
Incubator
Similar to accelerators, it is a place offering long-lasting business resources: capital for equity, mentorship, coworking space, and access to networks.
In-kind support
When businesses get something at no cost: donated goods and services, voluntary work, free use of equipment. Companies can get in-kind contributions through partners or external organizations.
Intellectual property
A category of protected property that covers trademarks, patents, copyrights, and trade secrets.
Investment syndicate
A group of private investors who work together to fund a startup.
Investment round
The process of raising money for a business from investors in exchange for equity or ownership. It is possible to raise seed, series A, B, or C funding round depending on the development stage of the startup. The last round, the C round, results in an IPO or an acquisition of a business by a bigger player. Check out our article on funding rounds for more information.
Iterate
The idea of repeating a process, analyzing the results, and adjusting them for better outcomes.
IPO (going public)
Publicly sold shares of stock of a previously private business. This way, a company gets cheaper access to capital, diversifies its ownership, and expands operations. Going public is possible at a growth stage for mature companies, where the company's shares are priced through underwriting due diligence, a thorough examination, or an audit of financial records. However, not all companies go public, as it involves significant accounting, legal, and marketing costs, disclosure of business and financial details, risks of unraised money, loss of control because of the new shareholders, and more.
Stay tuned for the next part of our Startup Glossary! Next letters will be coming soon…
Related Posts:
How To Outperform The Competition With ESG? (by Agnieszka Hajos-Iwańska, Partner, B2RLaw)
How To Improve ESG Metrics In Your Startup? (by Julia Pycka, Associate, B2RLaw)
ESG Due Diligence: The New Standard For Investment Round (by Magdalena Zawiślak, Associate, B2RLaw)
