Are you someone who is starting up or wondering what all the buzzwords in the startup ecosystem mean? Well, here is a glossary of top startup terms & startup meanings to comprehend and benefit from!
An accelerator is a fixed term program that usually lasts from three to twelve months. It provides a combination of education, mentoring, and networking, often with investment. It is distinct from other forms of investment and incubation, such as angel investing, grants, or incubators. It is a kind of hub where startups are given mentorship, space to work on their ideas and sometimes seed capital.
Incubator programs offer the opportunity for startups to grow and get traction in the market. This includes offerings from basic physical resources to mentoring in order to acquire real customers.
One of the big differences between accelerators and incubators is in how the individual programs are structured. Accelerator programs usually have a set timeframe in which individual companies spend anywhere from a few weeks to a few months working with a group of mentors to build out their business and avoid problems along the way. Y Combinator, Techstars, and the Brandery are some of the most well-known accelerators.
Startup incubators begin with companies (or even single entrepreneurs) that may be earlier in the process and they do not operate on a set schedule. If an accelerator is a greenhouse for young plants to get the optimal conditions to grow, an incubator matches quality seeds with the best soil for sprouting and growth.
A company is bootstrapped when it is funded by an entrepreneur's personal resources or the company's own revenue. Evolved from the phrase "pulling oneself up by one's bootstraps."
Bootstrapping a startup means starting lean and without the help of outside capital. It means continuing to fuel growth internally from cash flow produced by the business.
Many sizable businesses started out bootstrapping.
Companies like GrabOn, Zoho, HappyFox, InterviewBit bootstrapped and grew to success in India.
The burn rate is used by startup companies and investors to track the amount of monthly cash that a company spends before it starts generating its own income. A company's burn rate is also used as a measuring stick for its runway, the amount of time the company has before it runs out of money.
The churn rate is the annual percentage rate at which customers stop subscribing to a service or employees leave a job. It is the percentage of customers who cancel their subscription to your product or service within a given time. A high churn rate indicates that there's something about your product or service that people either don't like or weren't expecting when they signed up. It’s best to always calculate your churn rates and work on getting it lower month on month.
Crowdfunding is the practice of funding a project or venture by raising small amounts of money from many people, basically via the Internet or such dedicated websites. Crowdfunding has also been used to arrange funds for entrepreneurial ventures such as artistic and creative projects and startups etc.
The term “crowdsourcing” is from two other words: crowd and outsourcing. Outsourcing is defined by Google’s dictionary as “obtain (goods or a service) from an outside or foreign supplier, especially in place of an internal source.” It is using the knowledge and power of the crowd to speed up a process.
Some examples of crowdsourcing include, Wikipedia is a crowdsourced encyclopedia, GitHub often utilizes crowdsourcing to solve technological technological problems, using online websites or freelancers to work on projects is also an example of crowdsourcing.
Crowdfunding is the process of sourcing money or funds from a group or groups of people.
Crowdsourcing is the process of sourcing information or skills or end products from a group or groups of people.
A persona is essentially a description of your ideal customer. It includes general and detailed information about that user's motivations, their goals, their situation in life, and the type of person they are.
Example of a customer persona template:
Early adopters are the first users of your product. They will typically be key influencers and active on social media. They will give you your most honest and sometimes overly direct feedback. If you can identify these people effectively and have them interacting with your startup from an early stage, you can get lots of free exposure.
Equity represents one's percentage of ownership interest in a given company. For startup investors, this means the percentage of the company's shares that a startup is willing to sell to investors for a specific amount of money.
Exit strategy is how you plan to sell your company to give you and your investors a return on their investment. This ranges depending on the industry but a standard multiple with technology investments seems to be 10x.
Startup funding — or startup capital — is the money needed to launch a new business. It can come from a variety of sources and can be used for any purpose that helps the startup go from idea to actual business.
Under a freemium model, a business gives away a service at no cost to the consumer as a way to establish the foundation for future transactions. It is a popular tactic for companies just starting out as they try to lure users to their software or service. It is also where users get to use a basic product or service for free, but must pay for a premium version with additional features. Examples: MailChimp, HootSuite, Canva, Duolingo
Growth Hacking is a relatively new field in marketing focused on growth, coined by Sean Ellis in 2010, after using it to ignite breakout growth for Dropbox, LogMeIn, Eventbrite & Lookout. It started in relation to early-stage startups who need massive growth within a short time on tight budgets, and also reached bigger corporate companies. The goal is to rapidly test ideas that can improve the customer journey, and replicate and scale the ideas that work and modify or abandon the ones that don't before investing a lot of resources. A growth hacking team is made up of marketers, developers, engineers and product managers that specifically focus on building and engaging the user base of a business. Growth hacking is not just a tool for marketers. It can be applied to new product innovation and to the continuous improvement of products as well as to growing an existing customer base.
Startup investors are essentially buying a piece of the company with their investment. They are putting down capital, in exchange for equity: a portion of ownership in the startup and rights to its potential future profits.
Lean startup is a methodology for developing businesses and products that aims to shorten product development cycles and rapidly discover if a proposed business model is viable; this is achieved by adopting a combination of business-hypothesis-driven experimentation, iterative product releases, and validated learning.
Life Time Value (LTV)
It's how much you expect to earn from a customer during the time they are with your company. That means you first have to know how long most customers stay with you. It could be six months, 12 months or longer. Then you multiply the monthly revenue you expect from that customer and you get the LTV.
Mergers and acquisitions
A merger is an agreement that unites two existing companies into one new company. Mergers and acquisitions are commonly done to expand a company's reach, expand into new segments, or gain market share. All of these are done to increase shareholder value.
A minimum viable product is a version of a product with just enough features to be usable by early customers who can then provide feedback for future product development. A focus on MVP development potentially avoids lengthy and unnecessary work.
A startup pivot occurs when a company shifts its business strategy to accommodate changes in its industry, customer preferences, or any other factor that impacts its bottom line. It's essentially the process of a startup translating direct or indirect feedback into a change in its business model. It’s also been quite a buzzword during COVID times.
Return on Investment (ROI)
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.
Unicorn is the term used in the venture capital industry to describe a startup company with a value of over $1 billion. The term was first coined by venture capitalist Aileen Lee. Some popular unicorns include Airbnb, Uber, SpaceX, Robinhood, and SoFi.
In simple terms, startup valuation is the process of quantifying the worth of a company, aka its valuation. During the seed funding round, an investor pours in funds in a startup in exchange for a part of the equity in the company. This is why valuation is important for entrepreneurs as it helps in determining the equity which they have to give to a seed investor in exchange of funds. It is also of great importance for an investor as they need to know how much company’s share they will receive in lieu of the funds invested during the seed stage. So, fundamentally, startup valuation can prove to be a real deal maker or breaker, which is why valuation does not involve any guesswork on the basis of valuation of other similar startups
Venture Capital (VC)
Venture capital is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth.
Tell us in comments if there any other startup terms that you are curious about!