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Have you ever found yourself in a startup event not being able to make any sense of the VC’s questions? Have you found yourself tangled in an article on entrepreneurship? Have you faced difficulty communicating your idea to a mentor? Not sure what does all the fancy startup jargon means?
Fret no more, for we bring you a list of the most commonly used terms in the startup world, so that you are on the same page with mentors and investors and they don’t appear French to you! Find below a super quick guide on the most commonly used words in the startup space.
Bootstrapping
Bootstrapping is starting a venture with personal capital invested by the founders themselves. Certain revenue rich domains such as eCommerce work very well as bootstrapped startups. Quite literally, strapping your boot and carrying it yourself!
Learn More: Hear from Bryan Johnson, Founder of Braintree & OS Fund, who bootstrapped Braintree for 5 years, at Startup Grind Chicago.
Elevator Pitch
An elevator pitch is an extremely concise, focused summary of the startup that can be explained in no more than 30 seconds. It is called elevator pitch since it is believed one must be able to grab an investor’s attention in 30 seconds: the time taken by an elevator to move from one floor to another.
Learn More: 10 Tips for a Persuasive Elevator Pitch
Pitch Deck
No, it’s does not mean the open-weather surface anymore, for you are an entrepreneur now! A startup deck is the description of an idea or venture in a few pages, usually in the form of a PDF or a Keynote presentation. The deck is an extremely powerful tool in communicating your business plan to investors or mentors.
Learn More: Beautiful Pitch Decks from 500 Startups Demo Day
Traction
Traction acts as validation of your idea in the form of customers purchasing, using, or recommending your product or service. It's one of the biggest subjects in modern startup literature, and a key point in investor meetings.
Learn More: See Justin Mares, co-author of "Traction," at Startup Grind Ottawa - then steal the book's latest traction strategy.
Incubator
Incubators are, as the name suggests, programs that hatch a startup. These take in idea-stage startups and help the team craft the optimal business model, monetization and go-to market plans. Most incubators are 1-3 month long programs and have angel investors on board.
Accelerator
Accelerators are programs that ‘accelerate’ or speed up the growth of your business. These usually come after the stage of ‘incubation’ and help scale up the venture through extensive mentoring and networking. Most accelerators are 3-6 month long programs and provide startups with a seed fund to utilize, often around $25,000.
Learn More: The Top 20 Accelerators & Incubators in the United States
Lean Startup
This term was first coined by Eric Reiss in his book ‘The Lean Startup’ and since then has taken over the startup world. A lean startup is one where the thrust is on proving the concept and validating the business model as quickly and frugally as possible before launching full-throttle in the market.
Learn More: Steve Blank, creator of the customer development model, offers 10 steps to launching your own lean startup.
Disruptive
A disruptive idea/product/service is one which replaces an existing customer segment, habit or product through an innovative offering. Think of it as ‘disrupting’ or ‘puncturing’ an existing convention in the market through a path breaking idea. ‘Disruptive’ is the buzzword today and every startup claims to be one without understanding the term. A good example of a disruptive startup is Uber, which changes the nature of city infrastructure.
Learn More: See Clayton Christensen, originator of "disrupting innovation" and author of the Innovator's Dilemma, interviewed by Mark Suster at Startup Grind 2013.
Burn Rate or Run Rate
Burn rate is the rate with which startups blow through cash. A commonly swapped term for this is Run rate, which essentially means how far the startup will be able to ‘run’ financially before crashing. While the burn rate is measured in finances per month, the Run rate is measured in months (or years). Startups often burn copious amounts of money before breaking even or going cash positive and this is an important metric for the investor for ascertaining sustainability.
Learn More: Learn about burn rates from Mark Suster, founder of Upfront Ventures.
Churn Rate
Churn rate refers to the average number of users lost in a period subsequent to acquisition. This usually pertains to subscription based ventures. High churn rates are a major heartburn for a startup since they pay heavily for customer acquisition.
Learn More: Calculate your churn rate.
Exit Strategy
Exit strategy is the startup’s plan to exit the company and repay investor’s money with multiple times returns. Acquisition, IPO, dilution of equity and strategic sale are common exit strategies for startups.
Learn More: Read about 5 popular exit strategies that are good for you and your investors.
Hockey Stick Growth
On a time versus growth (defined as sales, revenues, or number of customers) curve, a doubling of sales every year resembles a hockey stick in shape and is hence such stellar growth is called hockey stick growth. This is an Investor’s dream curve!
Pivoting
Pivoting refers to changing the direction or business model of the startup for validation of a new concept. Effectively, it means changing course on your idea.
Learn More: Read about profitable and disastrous pivots on the Wall Street Journal
MVP
Minimum Viable Product is a no-frills version of your product or service that can be quickly rolled out into the market to test traction. It includes only the core features required by the customer and nothing else. Most startups launch MVPs for beta rounds and then add extra features before a full launch.
Learn More: Read the LeanStack entry on Minimum Viable Products.
Scalable
A scalable idea is one which has potential to grow into a large business because of the market size or possibility for forward/backward integration into other markets or technologies. It should be able to grow quickly without a dramatic increase in unit economics.
Learn More: Check out Sam Altman's post on the latest view of scalability.
ROI
Return on Investment is the return investors can expect for the money they put into the venture.
An ROI positive investment is one which would fetch a positive ROI over a period. Investors typically want to see at least 10x returns on their investment over a 5-7 year period, but they are all ultimately looking to invest in unicorns.
Learn More: See how venture capitalists see things in this piece from AngelBlog
Unicorn
Startups which have valuations of over a billion dollars on the basis of equity funding are termed Unicorns since they are as rare as the mythical beast. These companies usually bring investors ROI of 20x or more.
Learn More: Read the follow-up to the Unicorn article that started it all, "Welcome to the Unicorn Club"
Stealth Mode
A stealth mode startup is one which is kept under the wraps until a certain milestone is met to avoid unnecessary attention from competitors. This is a common practice in patent technology or highly competitive markets.
Learn More: Always a hotly debated strategy, see how the masses define Stealth Mode on Urban Dictionary.
Valuation
Literally, this is the amount at which a startup is ‘valued’. There are two type: pre-funding valuation of the startup before receiving any investment cash based on its perceived product and team value; and post-funding valuation after a successful fundraise, which includes the investor’s money added to the pre-funding valuation.
Learn More: Get everything you need to know about company valuation from this Funders & Founders infographic.
GMV
A common term in eCommerce industry, Gross Merchandise Calue is the total value of merchandise (products/service) sold over a platform over a certain time frame. It is frequently used as a metric of traction for zero inventory startups such as aggregators and marketplaces.
Startups are casual, but just like other sciences, they have evolved a nomenclature of their own, and it is wise to know the popular vocabulary in order to fit well and sell well.
Any terms we missed? Let us know in the comments - and we'll keep improving the dictionary.
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