Glossary of start-up terms – Given the exciting time we had visiting the UK’s first hardware incubator, CRL, and speaking to US start-up backers Bolt, we figured everyone could do with a brief guide to start-up jargon:
Often confused with an incubator, an accelerator refers to a shorter term programme that assists startups with funding, resources and, most importantly, mentorship. An incubator will typically take a larger chunk of equity.
Typically a rich individual, interested in investing in your company, who meets a set of standards that proves they can afford to risk their money.
When a company buys a controlling stake in another company.
When a company buys your start-up for the talent of its staff, rather than its product.
An individual who provides a small amount of funding for a stake in your start-up, usually a friend or family member.
Taken from the expression, ‘pulling oneself up by one’s bootstraps’. In this case, it means self-funding your start-up from your own savings or that jar of 50p coins you’ve been saving for a rainy day.
A short-term loan to cover the gap between moving from your bootstrapping phase to an externally financed one.
When someone buys enough shares in a company to own the controlling interest.
Money you have available for use by the start-up. You’ll need some to get started and will spend lots of time seeking out more to keep growing.
Chinese Unicorn hunt:
While other countries are easing their investment in start-ups, China is throwing more money at them. With a fund estimated at $338 billion, China hopes to uncover more unicorns (see entry for ‘Unicorn’, further down) to boost its slowing economy.
Sites like Kickstarter and Indigogo have made this a mainstream option for funding. However, the process is now less about financing and more about creating a community, soliciting feedback and creating a buzz to draw in bigger investors.
Raising capital by selling off shares in your company.
Just had your start-up bought out for big money? This is your exit, and for many, the end goal.
Silicon Valley heads might ask us to celebrate it, but their focus is on comparatively cheap software start-ups. If you’re in the late stages of a hardware project that goes belly-up, it’s unlikely you’ll find much reason to pop a champagne cork.
First Mover Advantage:
If you’ve a new and unique idea, then you’re going to want to make noise about this to potential investors – FMA is a big deal. The downside of being the first to have an idea is that market demand for it might not yet exist, so generating initial interest may be harder.
That graph in your Powerpoint presentation showing growth better resemble one of these if you’re going to keep investors happy – expectations will be for doubled sales every year.
Already a big deal for software, hardware incubators are organisations with the necessary experience, access to mentors and potential investors to help earlystage companies develop, usually in exchange for equity.
An Initial Public Offering is the first time shares in a business are offered to the general public, turning a private company into a public one.
Start-ups in an incubator are usually assigned a ‘neutral’ figure to offer advice and guidance, separate from what the incubator staff might be proposing. They are usually people who have successfully developed similar products in the past on an industrial scale.
Minimum Viable Product:
The bare minimum of a product needed to prove the concept and demand. The term MVP originates from software startups, where debugging can be carried out with a simple patch or update. This attitude creates problems for physical products that can’t afford to be incomplete or unfinished when given to consumers.
Idea gone bad? A pivot is when a start-up changes direction sharply, usually repurposing the original technology – such as ‘health-focused wearables’ for humans becoming ‘happiness monitors’ for pets.
Proof Of Concept:
Investors, at every stage, are going to want to see a POC, so there’s pressure to get a working prototype fabricated. The more money you’re seeking, the more polished and developed your POC will need to be.
Return On Investment:
ROI is the money an investor gets back as a percentage of the money they invested in a venture to begin with.
As in, which funding round are you in? Seed is followed by Series A, B, C, and possibly more.
Seed funding is the first official round of financing for a start-up. Usually used to raise funds for proof of concept and prototyping.
More and more designers and engineers are working for start-ups (usually part time) in return for shares in a company. Great for recruiting hard-working talent you can’t afford to pay full price for, but a gamble for those doing the work.
A document following due-diligence discussions that includes terms the parties have agreed informally, not legally, including the valuation.
A start-up company with a valuation exceeding $1 billion. There are more around than you would expect – Uber, Xiaomi, Snapchat – but this ‘bubble’ could burst, causing havoc for start-ups seeking funding further down the ladder.
What a start-up is judged to be worth, impacting appeal to investors and how much equity you might have to give up to reach your funding goals.
Got an amazing concept render for a product you are selling but which doesn’t actually exist? It’s vaporware – a dodgy way to test market demand that won’t make you many friends.
VC firms have money to invest in small, high-risk, potentially high-reward companies. Usually an individual investor is in charge of a pot of this cash, and has a particular market sector on which they focus.