Every community has its specific vocabulary that you need to understand if you want to be a full-fledged part of it. This holds doubly true for startups and their investors.
That's why we're presenting a selection of 28 essential words and phrases you should know. Although some of them have Romanian equivalents, in practice, they are most commonly used in English.
1. Angel Investor
A person with available financial resources, often with experience from other startup projects. They are interested in helping with the development of new projects from the very beginning.
They invest in the early stages of a project and often bring not only their finances and contacts but also a personal commitment to the project. This phase is quite risky, which is reflected in the size of the desired ownership stake, which is typically in the tens of percent.
2. B2B, B2C
Within business-to-business (B2B), a company targets other businesses with its product. Conversely, in business-to-customer (B2C), the end customers are the direct target group.
3. Bootstrapping
Funding the startup's launch from its own resources or with minimal funds from someone else. These startups are referred to as bootstraps, and the generated funds are reinvested and used for their further growth.
4. Break-even Point
Also known as the turning point, this is the moment when a startup transitions from being in the red to being profitable. Startups aim to reach this point before the runway.
5. Burn Rate
The amount of money a startup spends in a month. Investors often associate this metric with calculating the runway.
6. Cap Table
Short for the Capitalization table, it's a table that shows the ownership percentages in the startup and any agreed-upon equity.
7. Convertible Note
A loan with predetermined conditions that converts into equity over time. It's used when the startup's value cannot be determined in advance, but all parties involved believe the market will determine it soon.
8. Due Diligence
A summary of the most essential information about a startup for potential investors (legal, financial, technical, personnel, or tax information). Due diligence helps investors better assess risks and determine the appropriate level of investment.
9. Early Adopters
The term for the first users of a product who provide valuable feedback. It's crucial to communicate effectively with them to identify product flaws for its users.
10. Elevator Pitch
A concise, compelling presentation of your startup or product. You can use it to attract potential investors or at conferences. Capture the listener's attention with a clear metric and explain your product's value in the shortest time possible.
TIP: Try to keep your presentation within the time it takes for an average elevator ride.
11. Equity
An investor receives equity, or a business share in the startup, for their financial contribution. In the USA, there is also the term "sweet equity," where startups issue company shares to their first employees instead of cash.
12. Exit
Refers to selling one's ownership stake in a startup, usually because the startup's value has increased, and the investor has achieved their goal of creating a highly valuable company in a short time and monetizes their stake in this way.
13. First Mover Advantage
Refers to the advantage of having a unique product in the market, also known as FMA, and is something to highlight for investors.
Having the product as the first in the market also has disadvantages, as educating the market simultaneously with selling the product can lead to lower revenues compared to products with established demand.
Startup founders often neglect a thorough analysis of direct and indirect competition in the local and global markets.
They live under the assumption that they have no competition and possess FMA. A confrontation with existing competition is one of the most common disappointments.
14. Growth Hacking
A marketing strategy focused on quickly finding scalable growth by rapidly changing different communication channels. It involves innovative ideas for reaching customers and presenting your idea to others.
15. Incubator vs. Accelerator
An incubator is a setting where you operate your startup and meet other founders, mentors, and investors, allowing further development.
Conversely, an accelerator is a shorter, several-month intense program that brings the project and team to a state where the startup is attractive to investors. In both cases, the program may be associated with financial investment.
16. IPO
Initial public offering, indicating the moment when a startup enters the stock market and sells company shares. The company is now publicly tradable (previously accessible only to large funds and investors).
17. Launch
The phase in which the market-fit product is introduced to the market. Early adopters are the first to buy it. They provide initial feedback, and the interest in the product is measured.
18. LTV, CAC
Important metrics for every startup, although often overlooked. Lifetime Value (LTV) is the amount that comes from users of the product throughout its lifecycle.
Customer Acquisition Cost (CAC) indicates the amount of money needed to acquire a customer. Balancing these two figures can predict whether a startup has a chance of success.
19. MVP
Minimum Viable Product represents the most basic version of a product for which a customer is willing to pay. It's not a half-baked product or a beta version; it has all the key features at this stage.
The goal is to obtain initial feedback from users and, based on that, shorten the time and reduce the costs of developing the final product.
20. One-Pager
An elevator pitch translated to paper, a concise and clear business card for the startup. It's a one-page presentation that introduces you to potential investors, clients, or partners.
21. Pivoting
Often means a shift to a new strategy, typically related to a change in the startup's previous operation. Pivoting can also refer to adding new key features, focusing on a new customer group, or changing the platform.
22. ROI
A key indicator for every investor. ROI stands for the return on investment. Investors require information about when they will see a return on their investment. It depends on many criteria, but the investment horizon typically ranges from 5 to 7 years.
23. Runway
An estimate of the time horizon within which a startup will run out of financial resources. Until then, the startup should secure regular income covering essential expenses, as in the break-even point.
24. Scale-Up
It refers to startups that have an MVP and demonstrate successful growth based on a predetermined business model. To accelerate their further growth, startups invest mainly in ensuring the rapid scalability of all necessary processes and resources.
25. Seed Funding
An investment phase that is most commonly between angel investment and venture capital. It is typical for startups that are in their early stages but have a tested MVP and a functioning business model. Seed funding is used to allow the startup to grow and accept larger investments.. It is typical for startups that are in their early stages but have a tested MVP and a functioning business model. Seed funding is used to allow the startup to grow and accept larger investments.
26. Traction
Traction is the speed at which a startup grows, acquires new customers, and increases its revenue. It is a relative metric, and investors want it to remain consistent over time.
27. Value Proposition
The alpha and omega of any product is its added value for the customer. This differentiates the company from competitors and can convince customers to purchase over the long term.
28. Venture Capital
This involves risky financing that follows angel or seed investments, with capital funds mostly investing in rapidly growing scale-ups. Although their traction suggests that the startup will be successful, the return on investment is not guaranteed even in this case. A venture capital investor anticipates the appreciation of their risky investment in subsequent investment rounds, typically referred to as Series A.