ENTREPRENEURSHIP VOCABULARY
Accredited Investor = A rich individual potentially interested in investing in your company. Or,
more technically, according to the SEC:
“A natural person with income exceeding $200,000 in each of the two most recent years or joint
income with spouse exceeding $300,000 for those years and a reasonable expectation of the
same income level in the current year; or A natural person who has individual net worth, or joint
net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding
the value of the primary residence of such person.”
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What this means for your start-up is you must require potential investors to prove that
they can afford to risk their money in your start-up, in order to comply with the law.
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.
Boot-Strapping = Using “friends and family” cash to get going.
B-to-B = Business to Business. Your company sells things to other companies.
B-to-C = Business to Consumer. Your company sells stuff to the masses.
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.
Burn Rate (aka Run Rate) = How fast you are blowing through your cash.
Capital = Monetary assets currently available for use. Entrepreneurs raise capital to start a
company and continue raising capital to grow the company.
Churn Rate = Customers lost subsequent to acquisition in a subscription-based business model.
Because of the churn rate, your growth might not look like you think it will.
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.
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.
Cottage Business/ Cottage Industry = A nice business but not something massively scalable.
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.
Disruptive Technology = Something that completely changes the way society does something
(e.g. Uber/Lyft vs. Taxis or Amazon vs. in-store shopping).
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.
Exit Strategy = How you will sell the company and make your investors lots of money. Who is
going to buy you and why?
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.
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.
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.
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.
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.
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.
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.
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!
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.
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.
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.
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.
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.”
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.
SaaS = Software As A Service. You sell subscriptions to use your software.
Scale up = (also “scaleable”) 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
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).
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.
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.
Term Sheet = The document that outlines what the Investors will get for what they put in —
including % ownership and voting rights.
Traction = Proof that people are actually buying and using your stuff.
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.
VC = Venture Capital or Venture Capitalist. (BASICALLY INVESTORS (MONEY IN EXHANGE FOR
STOCK).
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.