In the founding scene, many terms circulate, forming their language. We’ve put together the most important ones for you in our startup ABC so that you can get started right away and get on with your business partners right away.
An accelerator is a program that includes mentoring, training, and usually a “demo day” where companies pitch their ideas to experts. These experts include investors, business partners, industry experts and business angels. Accelerator pursues the goal of the rapid development of the startup.
The anti-dilution provision is a clause in a Participation Agreement that grants an investor the right to maintain the same percentage ownership of a company by purchasing a proportionate amount of shares in the future when securities are issued. Thus, the clause protects the investor from dilution, especially with convertible preference shares.
The asset deal means the transfer of certain assets, liabilities and legal relationships of a company or a company to a buyer. In an asset deal, assets are acquired individually and transferred to the buyer (singular succession). Excluded from this are assets that are used by the company and are owned by the shareholder.
In our startup ABC, we explain the essential terms of the scene. (Photo: piktochart)
Benchmarking is a process for measuring the performance of a company’s products, services, or operations relative to those of another company that is considered the best in the industry. The primary goal of the benchmarking is to identify opportunities for improvement for one’s startup.
In bootstrapping, a company is founded with little capital and without external financing. The challenge is to generate positive cash flow as quickly as possible and break even.
Learn in the founder blogs of Studydrive and xentral how their path to bootstrapping has progressed and what eight tools can help you get started on a cost-effective startup.
The break-even point is the state where the total cost (spend) and total revenue (revenue) are the same. In this situation, there is no net profit or loss. From this point, profit can be made.
The burn rate is used to determine how a new company spends its risk capital on financing overheads before generating a positive cash flow from operations. In short: The startup determines where the money is lost. The burn rate is usually measured monthly.
A Business Angel is a wealthy business expert who provides founders with advice, contacts and money. Typically, business angels invest about 100,000 euros in the early corporate phase.
In cash flow, the cash inflow of a company is measured at a fixed period (for example, within one financial year). Accordingly, it is a balance sheet from business administration. The direct calculation of cash flow measures the ratio of deposits and withdrawals. In the indirect calculation, all non-cash expenses are added and all non-cash income deducted.
The Chief Executive Officer (CEO) is the top position in an organization. The person at the top is responsible for implementing existing plans and policies, ensuring successful business conduct, and determining future strategy. A startup can be founded or run by several CEOs.
To obtain the planned results from the subordinates, a manager must effectively manage the activities of the assistants. Monitoring ensures that events in a startup are executed according to the predefined plans.
Crowdfunding is a method of raising capital through the joint efforts of friends, family members, clients and individual investors. This approach builds on the collective efforts of a large pool of individuals, primarily online through social media and crowdfunding platforms, and uses their networks for greater reach and visibility. Known platforms for crowdfunding are Kickstarter.
Crowdfunders often receive goodies in return.
Crowdinvesting is equity-based crowdfunding. An investor usually receives shares in return. Investors thus become shareholders of the startup and benefit from the proceeds and a possible sale of the company to a large investor (see exit strategy).
The exit strategy is about building a startup quickly and then selling it. Both investors and founders are intent on maximizing profits from the company.
First Mover Advantage
A first mover is a product that has the advantage of being the first of its kind on the market. This also applies to services. Primarily, the First Mover Advantage enables a company to build keen brand awareness and customer loyalty before competitors enter the scene. Other benefits include extra time to perfect the product or service and set the market price for the new product.
Franchising is a licensing relationship: The franchisor provides the franchisee with a license to run a business under a brand. The franchisee sells the identical products and services. He also benefits from support in the form of organization, training, marketing and management.
Many startups employ external specialists on a fee basis. So they do not have to pay the usual fees as in the full employment of a permanent employee and can flexibly book freelancers.
Growth Hacking is the generic term for mostly free strategies that are geared exclusively to growth. It is usually used in conjunction with startups that need a massive push in a short space of time on a budget. The central element in growth hacking is virality.
The launch is when the startup starts to compete in the market. Usually, the launch is preceded by a lot of preparation, including the creation of a business plan and website, as well as the organization of office space, etc.
At Lean Startup, everything focuses on efficiency. Business startups and all associated processes should be as thin as possible. The entrepreneur Eric Ries coined this term and presented in his book The Lean Startup a similar strategy.
Some of the typical startup terms can be very hard to understand – mainly because most are anglicisms. (Photo: piktochart)
The strategy to promote the market share of an existing product by means of nationwide measures, be it through advertising, price reductions or discounts. It is also intended to increase the market volume.
Minimum Viable Product
A product that meets the minimum requirements to satisfy first-time customers in the marketplace. From customer feedback on Minimum Viable Product, startups can conclude further development and improvement.
A pitch deck is a presentation made up of several slides, with which startups want to convince investors, business angels, venture capitalists, etc. A Pitch Deck contains a lot of essential information: product, market analysis, unique selling proposition, business model, etc. Also, this information has to be presented visually appealing in the slides to arouse the curiosity of potential business partners.
An alternative asset class that consists of funds and investors that invest directly in private companies or buy-outs from public companies. This includes capital that is not listed on the stock exchange. In addition to individuals, private equity companies (PEGs) also exist. The involvement of a PEG in young companies is called venture capital because of a high risk-return.
Return on Investment (ROI)
Return on Investment (ROI) is a performance measure that measures the efficiency of an investment or compares the effectiveness of various assets. The ROI is designed to measure the return on a given investment in direct proportion to the investment cost. When calculating the ROI, the benefit (or revenue) of an investment is divided by the investment cost. The result is displayed as a percentage or ratio.
Sweat Equity describes the free contribution that an entrepreneur puts into his startup: long working days, a lot of commitment and not least a self-financing without equity. This makes Sweat Equity one of the instruments of secure startup financing.
The term sheet is a non-binding statement of intent that sets out the necessary conditions for investment. It is to be understood as the basis for detailed planning, from which then a binding agreement or a contract can result.
This term coined by US founder Aileen Lee and referred to startups that are valued at more than $ 1 billion before going public or exiting. As Unicorn, these companies are called because they are relatively rare.
The use or value promise which entrepreneurs convey to the customer. These can be, for example, principles such as quality, reliability or longevity of a product. The sign of use is an elementary part of marketing and sales to stand out in the competition.
Venture capital is a way to finance business. Venture capitalists may be wealthy individuals or companies. Venture capitalists usually receive company shares in exchange for their investment.
Vesting is the assignment of rights of a person leaving the company. For example, a vesting clause should ensure that a startup founder returns his shares to the company after a defined vesting period. For that, one receives compensation. The freed shares can then be redistributed.
The most important terms at a glance
In addition to the concepts presented, there are many more that you will encounter while contacting investors, business angels, other entrepreneurs, etc. The better you speak the language of the founders, the easier it will be for you to communicate in the business environment.