Startup Glossary

A business accelerator is a program that helps get a startup venture up and running as quickly as possible. It links up the new business to sources of funding, provides rigorous and immersive education and mentoring. It also makes offices, support services, and equipment available.

It's really like the accelerator pedal in your car. When you step on it, your vehicle goes faster. Likewise, a startup can attain its goals faster when it takes advantage of a business accelerator.

Angel investors may seem heaven-sent, especially to startup ventures in need of funding. These are wealthy individuals who finance the startup in exchange for some ownership of the company. They are also sometimes called seed investors or private investors.

Angel investment could come in any amount that usually doesn’t exceed a million dollars.

A startup company's burn rate refers to how quickly it can spend its money. You can also think of burn rate as the amount of time a company can continue operating until it has no more money left to spend. Entrepreneurs use it to measure the sustainability of a business venture. Burn rates are usually expressed in months but may also be estimated in weeks or even days.

If you literally get all your money, set it all on fire, and watch until everything burns away, you'll get a sense of what burn rate is.

A business incubator is a private company or government institution that is dedicated to helping startup companies grow. Most business incubators specialize in a specific industry such as education, industry, or technology that promise to make a positive social impact. They are not set up for-profit and don't take equity for their efforts.

A business incubator works in much the same way as an egg incubator, which provides eggs with warmth until they hatch. It provides startups with the necessary support so they can become successful businesses.

A business model is a story that explains how a company works. In the case of a startup, it explains how the venture will make money. A business model first defines who the prospect is and what they value. It then describes how the startup intends to deliver this value to customers.

Think of it like a structure built by the inter-dependent factors that support a business's viability, such as goals, target market, competition, sources of revenues, financing methods, pricing, etc.

A business plan is a document that details how the startup will conduct the business. It states the business objectives in terms of projected income and profits. It then explains the strategy for how the company will meet these objectives.

A business plan is like a roadmap. It shows you where the destination is (the business objectives) and how to get there (the business strategy). You can use various tools to draw up and showcase your business plan, including business plan services, apps, and templates, including timeline templates, for example.

Business valuation is a process that estimates the value of the startup. It can also determine the value of an owner's share in the business. It's like a jeweler appraising a rare gem's value.

The process is usually conducted by a professional valuator to make sure that the figure arrived at is an objective estimate. Normally it involves looking at the company's assets, its market value, or its earning potential before issuing a price tag.

Business valuation may be required in lawsuits, buying or selling the company, securing funding for the startup, strategic planning, and other situations.

Have you heard the saying, “if you can’t beat them, buy them”? It may sound funny, but it’s actually quite serious for those in the business world.

A buyout occurs when a person or group makes an investment in a company that’s significant enough to give them ownership equity or a majority share. When this happens, the existing equity holders of that particular company are replaced by the acquirer who thus “buys” them out.

Buyouts, in many cases, usually include having to purchase the outstanding debt of the said company as well.

A co-founder is a person that took part in starting up a business. They supported the founder's vision and agreed to join the initiative to set up the venture. There could be more than one co-founder on a startup. The legal definitions of this title usually depend on contract agreements.

Having persons of this position has been a sound practice for reasons like achieving company goals, accessing one's network and resources, or keeping the motivation up.

A copyright is a legal declaration of who owns a specific intellectual property (such as a movie, song, book or design). It also describes in detail all the rights of the property's owner to earn from it. It states that no one can use or profit from a creative work without the owner's permission and appropriate compensation.

Copyright is like the land title on your real estate property. No one else can build on your land or use it without first getting your permission.

Cost management is simply the process of planning a company’s budget and controlling it as well as spending the money according to the budget. It calls for anticipating expenses to control production costs and offer products that are affordable to consumers. 

Startup companies apply the process at every stage of their business operation. For example, cost management implies making accurate projections during planning. It also includes closely tracking spending during the implementation period. Additionally, cost management entails making sure the actual cost of the project matches the budgeted cost. This helps startups predict expenditures and prepare the right budgets in the future.

Let's say you woke up with an idea so innovative that you decided right then and there to put it to work. However, it dawns on you that it would be next to impossible since you don't have enough funds to invest in your project. Here's where crowdfunding can help.

Crowdfunding is an alternative method of financing. It implies inviting a lot of people to invest or donate money to finance a startup business venture, usually via the Internet. In return, when the business succeeds, it can pay back the funders, share the profits with them, or give them some products for free.

During the course of a conference on the environment, a big question is asked — how do we reverse global warming on a community level? The question is broadcast over the Internet, encouraging people to give their thoughts such that a collective solution could be drawn. This is an example of crowdsourcing.

Crowdsourcing is the practice of getting inputs from other people to solve a problem or achieve a goal. These inputs are usually in the form of ideas, opinions, or information. But they may also include goods or services.

A disruption is an event or a situation that takes place when something really innovative forces significant changes in the way things are done. It can be a product, a service, or an idea. In business, it's common for a startup to displace what established companies have built.

For example, when it first launched, Uber caused a major disruption in the transportation industry.

Due diligence is the process of thoroughly investigating all the financial, technical, and other details behind a transaction, product, or potential investment. It is done to make sure that all the facts are correct and the deal is fair to all parties involved.

When you buy a car, for example, you may call a mechanic to check the engine, the suspension and all the other details to make sure the car is road-worthy and worth the money you are about to spend. That's due diligence.

Imagine getting into an elevator with a prospective customer or investor. You have a great opportunity to pitch your product or your idea for a startup. But all you have is the time it takes them to get to their floor. Your pitch must be short and straight to the point yet completely communicate the benefits. And it must be compelling and memorable.

This speech is called an elevator pitch. It is a very brief sales presentation on which the future of your project may depend.

A salesman literally selling wares out of his car, a young graduate opening a hole-in-the-wall consultancy, or a parent leaving a day job to 'be his own boss.' The spirit that drives all of these efforts is called entrepreneurship.

Entrepreneurship is a disciplined and creative process of transforming an opportunity into a profitable business. It often involves spotting a market gap that no one else sees, and the willingness to take on the risk and mobilize usually limited resources to make a profit.

Equity financing is a way for a startup to raise funds. It means that the company is willing to sell part of its ownership, or stocks, to interested individuals or groups in exchange for money. It provides a way for investors to gain ownership interests in the venture. At the same time, the startup gets an infusion of funds without getting into debt.

For example, let’s say your best friend wants to start a coffee shop business but only has half of the money to get started. He offers you partial ownership of the company in exchange for shouldering the other half of the expenses.

Nothing goes on forever. At some point, entrepreneurs will want to free themselves from their startup and seek to cash in as well. So they need an exit strategy.

It is a strategic plan for investors and founders to monetize the company either by putting it up for a merger, a buyout, or an IPO. Either way, the final desired outcome of an exit strategy is to make a substantial profit.

Think of a car you own. If you are tired of it, or it has outlived its usefulness you might be planning to dispose of it. But most importantly you'd like to earn some cash from it, so you put it up for sale. That's like planning your exit strategy for your startup.

A founder is a person who starts up a business venture, either by himself or with some other people. They essentially own the company. The startup is usually based on the founder's vision, a solution to some prevalent problem that no one else has addressed.

Founders take an active interest in launching their ideas, invest in resources to start their company, and use everything at their disposal to become successful.

Growth hacking refers to business strategies that focus exclusively on growing a company. These are usually low-cost marketing initiatives to acquire and retain customers. These tactics are more concerned with getting the desired results, rather than following traditional marketing procedures. Startups often employ growth hacking to gain traction in the marketplace.

In a way, it’s like guerilla warfare, where guerillas do everything it takes to win battles and survive, rather than follow established rules of engagement.

An Initial Public Offering (IPO) is a process that allows a company to raise capital by selling shares of ownership to private institutions and the general public. The transaction takes place in a special market called a stock exchange. There are specific regulations and requirements to an IPO, and startups normally do not qualify. They have to wait some time and meet these requirements before it can be offered to the public.

It's like building a house, for example, and offering it for sale. Except instead of just one person buying it, you have many more people putting in money and thus becoming part owners of the house.

An innovation is a new and better way of doing things. It can be subtle and incremental, such as a simple change in how something has always been done. For example, the simple process of reversing the direction the barb is twisted in barbed wire was an innovation that made it much safer for people to handle it.

At the other end of the spectrum, an innovation can be radical and disruptive. Such is the case for the iPhone, which disrupted the telecommunications industry and created the category for smartphones.

You can think of innovation as the implementation of disruptive changes to enable a company to meet its goals. These changes can be as costly as acquiring equipment, or as simple as restructuring work routines.

Intellectual property refers to any creation of the mind, especially those that could potentially be worth something for the person who thought it up. This could be an idea, a song, a piece of writing, the solution to a math or engineering problem, the cure for cancer, and anything else that can be useful or entertaining. Many startups are built on the intellectual property of their founders.

Intellectual property is protected by copyrights, patents, and trademarks because its unauthorized duplication or misrepresentation can deprive its owner of millions in lost sales.

Lean startup is a business development model where entrepreneurs quickly launch a prototype product, measure customer feedback, and use the insights to make adjustments or decide if the venture is viable enough to proceed. This methodical approach eliminates costly trial and error. It shortens the usually long product development cycles and delivers better products or services faster to customers.

Entrepreneurs behind a lean startup do lots of market experimentation and testing, which helps produce new products and businesses that are responsive to the market's needs.

Market penetration can mean two things. The first is a measurement. It compares the volume of products sold to the total target market, given as a percentage. For example, if you estimate that there are 100,000 people who need your product, and you are able to sell 20,000 units, your market penetration is 20% (20,000 / 100,000 x 100).

Market penetration also refers to strategies and activities that help increase a product's market share. These include advertising and promotional initiatives.

Both definitions are important to startups, since both penetrating markets and gaining traction are important to success.

A minimum viable product (MVP) is a product or service developed with a few basic features to gauge how potential customers would respond to it and gather feedback. The results are studied and the insights are used as a basis for the good’s final design that incorporates its full set of features.

If you’ve heard of the phrase “testing the waters,” that’s more or less the principle behind producing an MVP.

A patent is a license granted by the government to an inventor. It gives the inventor exclusive rights to earn money from his creation. At the same time, it prevents others from making, copying, or using the invention for a period of time.

Let’s say you invented a flying bicycle and had it registered with the patent office. If someone else appears selling a similar product, you can challenge this. The patent you filed for earlier is your proof that you are the original inventor. Your competitor must then to stop his activities unless he compensates you fairly.

Pitch decks are short presentations used by entrepreneurs to communicate a summary of their business plans to their audience — most often to solicit funds from investors for a startup.

The term originates from the fact that you intend to convince the audience about your idea; you want to "pitch" something to them. And then the presentation slides are stacked one on top of another, like a deck of cards. Hence, it's a pitch deck.

When you have a plan and things are not going as expected, you pivot.

In startup business, a pivot means a shift in the company's business strategy and direction in response to market data and customer feedback. The idea behind it is to correct mistakes made because of erroneous assumptions or test a new product or business model as a reaction to changes in market conditions.

A pivot may involve changing your target market, pricing, inventory management, distribution network, etc. The flexibility of being small allows startups to make the necessary alterations in strategy whenever the need arises.

Preferred stock is a type of ownership in a company. Owners of this type of stock enjoy a higher claim on assets and earnings than those who own common stock. It also has a higher priority when the company pays dividends.

It's like having VIP access to an event. You get preferential treatment, plus a lot of perks while regular ticket holders do not.

Convincing people to support an idea or a project requires more than a healthy dose of optimism. Hard-nosed investors demand clear evidence that a startup and its business proposal can be viable and successful. It’s called a “proof of concept (PoC).”

A PoC is evidence that a business idea works. It's usually a document that presents the feasibility of an idea, as well as verifiable test results of the concept, design, or plan in question.

The word “prototype” originated from the Greek term “protypon.” “Protos” means “first” while “typos” refers to “mold” or “pattern.” So, a prototype is literally “the first of its kind.” It’s a working model of a machine or process that is built to demonstrate how an idea works.

Businesses, especially startups, create prototypes of their products to test them in actual conditions. They also show prototypes to their stakeholders, potential partners, and prospective customers so they can take a look at and get a feel of the product.

Just because it says “Return on Investment,” doesn’t mean it’s the profit!  Remember that.

ROI is the percentage you gained after investing capital (money and other forms) in a profit-driven venture.

For example, you invested $500 in a pizza business. By the end of the month, your total sales are $800. Your profit is $300. To convert it into percentage: ($300/$500) x 100 = 60%. Your ROI is 60%.

The result in percentage is preferred because it would be easier to compare it with other ROIs in different situations.

Scalability is a system's readiness to handle growth. It demonstrates a startup's ability to increase production or accommodate more customers when necessary. Startups that prove they can scale up as they grow are more attractive to investors, who see them as less risky investments.

You can think of scalability as a rubber balloon. If you blow in more air (customer demand) the balloon must be able to adjust and increase in size.

Seed funding or seed capital is a relatively small amount of money that is used to start a business, fund research, or develop a product.

In many cases, a person might take out a personal loan to fund a business idea. However, sometimes that isn't a viable option, which is when seed funding might come into the picture. Family members, friends, crowdfunders, and angel investors usually provide seed funding in return for a share of equity (or ownership) in the company.

The term's reference to a "seed" is quite fitting. A tiny seed can someday grow into a lush forest. A tiny investment can help a struggling startup grow to become a successful enterprise.

Series A funding is the startup's first round of significant venture capital financing. It usually takes place after seed funding, and once the startup demonstrates growth potential.

It's like reaching Level 2 of a video game. Of course, the challenges are even more difficult than the previous level, but the rewards can be greater.

Series B funding is the next stage of financing the business after Series A. By this time, the company has achieved some stability, processes are working well, and customers are supportive. Revenues are starting to build up, but this may still not be enough to conquer the market.

Series B funding can help the venture increase its market share and improve its scalability. New financing options are accessible, such as new investors who prefer a company that has grown past the shaky startup stage.

Getting to Series B is like getting to Stage 3 of a video game.

Social entrepreneurship is an approach to addressing social, cultural, and environmental concerns. Startup ventures in this case are created around an advocacy that provides a solution to an important social issue. Any profits generated by the company are used to fund and sustain the advocacy.

A prominent example of successful social entrepreneurship companies is Grameen Bank, which lends small amounts of money to people. They use this to start up their own backyard business. It helps them fight poverty and become financially self-sufficient.

A startup is a business venture that has just been created and is in the early stages of its operations. It is easy to confuse it with a small business that has just started up. A newly-launched restaurant, for example, does not qualify as a startup.

Forbes magazine suggests that a startup has the ability to grow and scale quickly, without any concern for geographic constraints. It also must be trying to address a problem where the solution is not obvious, and success is not guaranteed.

Some invest in cash, while others invest their sweat.

There are individuals who are willing to work for a low salary in the initial stages of a company in exchange for a share of company ownership. This is sweat equity.

Sweat equity is an investment in a company, usually a startup. But instead of cash, a person contributes labor or services. This gives someone without sufficient funds the opportunity to be part of the company. Those who allot time and effort to the venture can expect to get profitable returns eventually.

A term sheet is a document that outlines the terms and conditions of the investors. It's not legally binding, and the parties are not yet required to fulfill the terms. But if there are no objections and the document is executed, it forms the basis of a formal agreement.

You can think of the term sheet as a letter of intent that communicates the principal points of the deal.

A trade secret can be a technique, a formula, a process, a design, a device, or some information that a company uses to manufacture its products or deliver its services. No one outside the company knows what this is, and it gives the business an economic advantage over competitors.

It's like the secret sauce that makes your favorite dish at the local restaurant taste incredibly delicious. This sets it apart from other establishments, which try their best to duplicate the dish but can't.

In an alternate universe, Johnny Bravo would trademark his signature moves, Tony Stark his inventions, and Cinderella her glass slippers.

Generally, a trademark is a coverage of rights related to visual, auditory, and other physical representations unique to a person or company.

It can be a slogan, logo, design — or anything one declares to have rights over so that it is protected from misuse.

In real life products, you might also notice the ‘R’ sign with a circle around it, or ®, as well as ™ carried by products everywhere. Those are Registered Trademark and Trademark signs, respectively.

They’re important because they represent the trademark claims of a person or company that owns a brand.

A unicorn refers to the mythical beast resembling a white horse with a spiraling horn and a lion's tail. It’s thought to be so elusive that the term unicorn has been adopted in financial circles to describe a rare privately-held startup company that's valued at one billion dollars or more. The term unicorn has been adopted in financial circles to describe a rare privately-held startup company that's valued at one billion dollars or more.

Most unicorns are in the tech industry — software, biotech, and the like. Not surprisingly, unicorn startups are pursued by venture capitalists eager to ride their tremendous growth potential.

A value proposition is a value that a company promises to deliver to its customers. It's what they communicate to their prospects to convince them to buy their products. A value proposition should depict clearly and attractively the core benefit that customers can get from a product or service.

You can compare it to a wedding vow, where the bride and groom promise each other undying love and devotion.

Venture capital is a type of funding. Private firms offer it to a startup company that has demonstrated its potential to succeed over the long term. In exchange for providing capital, the venture capitalist receives an equity stake in the company. They hope to realize an attractive return on their investment when the company succeeds.

Providing venture capital is like giving water and fertilizer to a farmer who just planted some seeds. The farmer promises you that when harvest time comes, you will get a part of the yield.