FAQs on Startup Terminology

A startup can be defined as a business venture that aims to develop and bring to market a unique product or service. One common feature of startups is deployment of technology for a rapidly scalable business model. Not all startups are technology related, however. One reason that startups are linked to technology in the minds of the general public may be that as a term ‘startup’ entered popular jargon in the late nineties, when a large number of internet companies were founded. Oddly, after the burst of the dot-com bubble, the term was used less frequently until it gained popularity again in the years following the financial crises of 2008.

There are a number of terms that come up often when we talk about startups. Whether you plan to create your own, or simply enjoy reading and learning about others, it should be helpful to be familiar with these common startup terms!

Here is a list we curated for you:

• Five stages of a startup:
• Seed Stage – The first stage wherein the aim is to develop an idea / concept
• Early Stage – This stage entails having a product on the market along with the initial metrics
• Growth Stage – In this stage the focus shifts to accomplishing sustainable scaling
• Expansion Stage – The stage wherein founders must consider new markets
• Exit Stage – The ‘sale’ stage, either through acquisition by another company, or by an IPO

• Angel Investors– An Angel Investor is someone who invests their own money at an early stage of a startup in return for a share in the company. This could be a friend, family member or a high-net-worth entrepreneur who finds it worthwhile to invest in the concept/idea. Some investors even form ‘angel groups’ to invest in bigger business opportunities.
• Acqui-hire – Small, failing companies are often purchased solely for their staff, a convenient acquisition of a talented team of people who are good at working together, this is known as an Acqui-hire.
• Accelerator / Incubator – These are groups that support selected startups with mentorship and funding in return for an equity stake in the company. Highly popular at present, incubators have been referred to as the ‘business schools of the future’.
• Boot-strapping – When a company is funded by an entrepreneur’s personal resources or the company’s own revenue, it is termed ‘bootstrapped’.
• Burn Rate – The amount of cash a company is spending each month in relation to its capital is the Burn Rate. Capital amount divided by the burn rate determines the lifespan of a company, till the time further funding is arranged for.
• Churn Rate – The rate of attrition or ‘customer churn’ is the percentage of service subscribers who terminate their subscriptions within a given period.
• Disruptive Technology – A hallmark of startups, disruptive technology is an innovation or technology that upsets an existing market by challenging the prices in the market, replacing outdated technology, or using technology in new ways to create massive impact.
• Exit Strategy – The founder/s plans on how they envision making money out of the company.
• FMA – First Mover Advantage refers to the initial advantage gained by the first significant occupant of a market segment. This may be a result of technological leadership, early purchase of resources or creation of some product/service that is ahead of its time.
• Freemium – A pricing strategy whereby a product or service is provided free, but an amount is charged for additional features or services as a premium.
• Growth Hacking – A term coined by Sean Ellis that is used to describe a marketing technique that aims to find quick, scalable growth through non-traditional yet economical methods, such as use of social media or the internet. The aim is to spend as less as possible to lure as many customers as possible.

• Loss Leader Pricing – Selling a product at a loss as a marketing expense, only to lure in customers that you expect will bring repeat business
• MVP – Minimum Viable Product is a product with the bare minimum features to satisfy early consumers and to provide feedback for future product development. The aim is to create proof of concept, and it is often used in creating new software that will be Beta tested, so that later an upgraded version can be released.
• Pivot – A Pivot implies a change in the course of a startup based on results of user testing and analysis. It usually entails a change in the target market or use of the developed technology for a completely new purpose.
• Seed Round – This is the first round of venture capital funding for a startup. They usually follow the angel round for the development stage. Consequent rounds of funding are referred to in terms of Series – Series A, B, C, and so forth.
• Sweat Equity – Shares of a company given in lieu of work done by employees are termed Sweat Equity. It is a good recruiting technique that helps new companies draw talent.
• Unicorns – A privately held startup company that is valued at over $1 bn is called a Unicorn. Coined by venture capitalist Aileen Lee in 2013, the term was created to exemplify the statistical rarity of such high success.
• Valuation – In basic terms it refers to how much the company is worth. There are a few different formulas for determining the valuation of a company. Valuation takes place at each round of funding.
• VC – Venture Capital is a form of private equity financing provided by investors to startups that are considered to have potential for growth. It can come from well-off investors, investment banks, or other financial institutions.
• Vesting – It is the process by which the parties in a startup accumulate non-forfeitable rights over the stocks of the business. The vesting schedule defines how and when the shares of the company, promised for the founder / employee, will be allocated to them. Vesting is used to encourage better performance and loyalty to the company.

It has been argued that times of economic downturn are the best times to start a business. Opportunity costs are low and the ability to turn a profit in such a time can practically guarantee success when the market recovers. With figures like Steve Jobs, Bill Gates and Mark Zuckerberg inspiring the next generation to consider a path of entrepreneurship, here’s hoping that the future brings with it a growing number of home-grown startups that can reach unicorn levels.

• The article was originally published in Career Ahead July 2021 issue.