There are many terms in the Startup Industry that are very important to know before starting any startup. It will give you an entire idea of the Startup World.
We list down the Startup Terminologies that are essential to know by every individual. It is the Startup Dictionary where we list more than 50 Terms and our team keep on updating the terms. If you have any terms other than the listed ones, kindly share through comment. It will help our users to know more about this world.
Startup Terms and Concepts used in the Startup Industry/world
It is method of comparing two versions of webpage or app to similar visitors at the same time. The one that gets better conversion rate wins.
A Round Financing
It is company’s first significance round financing by private equity investor or venture capitalist.
These are those investors who invest in the startups who are at the initial stage. They are called Angels because they are like a God who gave a chance by investing in a newly born startup without seeing revenue.
If the Idea is impressive, they are happy to invest their money in your Startup.
ARPU refers to Average Revenue Per User. It is the value you calculating by seeing the number of transactions and these numbers are divided by the Total Revenue. Then you got to know the ARPU of your Startup.
ARPU = Total Revenue / Number of Transactions
If your startup doesn’t go well for any reason but the talent you are created is very Strong. The technology you used is advanced. Then someone can acqui-hire you which means that they will not give any funds to acquire your startup but they will absorb all the talent, people, and technology from your Startup.
In short you and your team will join another startup/organization
Any other startup will acquire your startup, they will do that in the form of cash or stock or a combination.
Before launching your product, you circulate your product internally to the employees/staff. They can use and test it out, gave their feedbacks then after the successful Alpha testing. Product will launch in the market.
After Alpha Testing, you can give a very basic version of your Product to your customers to test it. After Alpha and Beta Testing, product is tested internally as well as externally. In Beta Testing it will not go to the entire market.
This process is known as Beta Test/ Beta Testing/ Beta Version
It means that you will not raise any funds from outside. You will run your startup with your own money, profits, or reserves. It may includes the contribution from Friends and Family but not from the investors.
Burn Rate means the amount of money that you lose every month as a loss. Your revenue cannot fully compensate your cost.
Burn Rate = Total Cost – Total Revenue
Business Model is a data which will clearly show that month on month, quarter on quarter, year on year how will your business do in terms of revenue, expenses and profit/loss.
This is a forward looking projection but it also includes past data.
Business Planning is done along with Business Model that can be:
- Product Strategy
- Consumer Research
- Market Strategy
- Competitor analysis
All the plans to grow the startup is part of Business Plan
Data related to the shareholders of the company and the percentage of ownership of the respected shareholders. This term plays a vital role when you want to raise a funding. Every investors wants the CAP table.
It means after every equal period you evaluate the Churn rate in which you are analyzing the percentage of customers you are losing. In this you get to know how many potential customers you are losing in a specific period of time.
Cliff is the period of time after which any person can grant a ESOP (Employee Stock Options). Before a cliff employee will not be granted any ESOP.
Usually in Indian Startups the cliff is one Year. It means employee will have to be in that startup for an year before you get any ESOPs.
This a a hierarchy model that the customer follow to become your paying consumer. Many models are created by the startups to convert their customer into consumer.
Convertible Note is a term used in financing or Investing. It means that you don’t know at what value should you raise equity or investment. So, you create a note which worth a percentage of equity ownership in a company.
Some startup founders/owners use convertible notes, it attract angel investors without having to put a valuation on the company. The note turns into equity as soon as another investor comes in.
In this investors gave the money to you and when your next round of funding will done, whatever will be the valuation at that time. According to the valuation investors money will be converted in to the equity.
CAC (Customer Acquisition Cost)
This a very important term everyone should know. It is the value in which you acquire single potential customer to buy your goods or services. It includes all the cost that are directly attributable to you getting that customer onboard.
This refers to do the research to know your Target Audience. It can be done as per the locations, Gender, age, income.
It refers to Daily Active users. This term mostly used in apps or digital (online) firm. If your product is B2C (Business to Consumer), how many users use your service on a daily basis.
As Unicorn Startup means their valuation is above $1 Billion. Decacorn means your startup valuation is now valued above $10 Billion.
It is a rare thing you will hear in your startup journey. It means that a startup raised above $1 Billion in a single funding round which means investors invest above $1 Billion in a startup in a single round.
Then the startup known as DRAGON
Equity means stocks. It is the small parts of ownership of the startup. If you buy the Equity of the startup, it means you will get the ownership of the Startup as the proportion you will buy.
ESOPs refers to Employee Stock Options. These are those options that every startup employee gets, which gave them the right to purchase the startup stocks whenever they want to.
It means they are stock options not the stocks. These both are different.
Exercise Period means that when you will leave the startup, then how much time you will have to convert your ESOPs into actual stocks.
To know more the details about the ESOPs. Watch the Below Video
Exercise Price is the price in which an employee will get the stocks either it is ESOPs or equity from Share Market.
In the Startup industry Exit means that an investors invested in your Startup, at some point of time which is usually between 7-10 year, they will want a return on their money through an exit.
It could be a sale or acquisition or merger or IPO (Initial Public Offering) but this usually the time period that the investors wait for before they want their money back
Freemium means that your product adopts a pricing strategy in which some features are completely free for everybody but to get more and better features users have to buy the premium subscription.
It is the combination of the free and premium
GMV (Gross Merchandise Value)
GMV generally used in e-commerce companies. It basically represents the MRP of all the products that you have sold cumulatively. It gives a sense of whatever merchandise or products that you are selling, what is its total cumulative value.
GTM (Go to Market Strategy)
Go to Market means that whenever you will be launching your product, it’s not like people are eagerly waiting for your product.
So you need to adopt a GTM (Go to Market Strategy) which means: How will you
- you ship the product out in to the market?
- people get to know of the product?
- How will they give a feedback?
- How will they pay for the product?
All these things are part of the GTM or Go to Market Strategy.
It is a place where your startup incubates or nurtures in a way. They help you in many ways such as ideation, mentoring, technology, coaching, even help for funding.
Incubators also called as accelerators which helps to accelerate your startup. This is a great way to start your startup with the great expertise of people who already have done that.
IPO (Initial Public Offering)
IPO refers to Initial Public Offering which means Startup/Business will go public to raise money and offer their stock through Share Market for the first time. It is one of the exit possibilities for a Startup is to do an IPO.
Landing Page means if any customer sees your AD anywhere on any Digital Platform and they click on that AD, landed on the URL or webpage. That URL or webpage is known as the Landing Page.
On the Landing Page you place all the features and images of the product. Price may be included or excluded (It is totally up to you)
LTV (Life time value)
It basically means the value which you can extract from your user in long term. There are many things on which you have to focus to calculate the LTV. You have to measure that on an average in how much time your customer will return back and repurchase your product or service.
It is very important metric for the Startup especially during the time of fund raising.
MAU (Monthly Active Users)
This means if you have any app, how many users comes to your website/app in a Month. It is exactly like DAU (Daily Active Users).
MVP (Minimum Viable Product)
This is that version of your product which doesn’t have many features but the work that users needs to do, is done perfectly and that’s where it stops. It is the quickest fastest way for you to get a product in to the market without making it in to really big feature rich product.
It is a fancy term for a PowerPoint presentation. You send this presentation to investors, which includes several sections and becomes your pitch deck for fundraising.
Usually it includes which market are working in? What is the biggest problem of that market? How does your business solve that problem? Which team is making this startup, this product?
If your original plans doesn’t work for whatever reasons you will pivot (change) your business model. Just like Meesho, in the beginning it has another business model but then they pivot their model and change their Model to sell the products to the customers by resellers.
Pre Money Valuation
This means that before an investor invest their money, how much value do they derive for the startup.
Retention means at what speed or what percentage of your original users come back to you for purchase. More the retention rate more the startup will run because you don’t have to spend energy in getting the customer back as much as you have to spend energy in getting a new customer.
Revenue Model means how will your startup earns money. In this we analyze the mechanisms through which will make money through customers.
- WazirX Revenue model | How WazirX earns money
- Internshala Revenue Model | How Internshala earns money
- CRED Revenue Model | How CRED earns money
- JioMart Revenue Model | How JioMart earns money
Run rate means whatever is your current situation of revenue, you analyze that how much will it be able to do in a year. Revenue run rate gives a sense that based on the present state, how big can you generate revenue in a year.
SaaS refers to Software as a Service. If you are running a software or a B2B or even a B2C Company/Startup, then you take a price every month because you are giving the software as a service to your customer.
Seed fund comes after the angel investing means you have launched a product from some money through angel investing, now a seed is being sowed for that to grow even further and this is the first step which you get institutional investing or organized investing.
Series of Funding
This refers to series of funding raised by the startups from the investors. Basically, whatever fund raising after the seed funding will done, they will called as a series such as Series A B C D E F and it goes on.
Soonicorn is used when any startup very soon will touch the Unicorn Club. It means very soon the startup will value above $1 Billion.
Startup Term Sheet
Startup Term Sheet is a document which investors give you, which clearly mentions all the terms of their investments. This is the most important document before investing because the investing on its term sheet basis.
It is that equity that you get without spending any money because you have given your time or your expertise in the startup. Usually, it is given to the mentors or Advisors.
Term Sheet is a document which investors give you, which clearly mentions all the terms of their investments. This is the most important document before investing because the investing on its term sheet basis.
In the venture capital industry, a unicorn is a startup that has a valuation of $1 billion or more. Unicorn term was initially said by Aileen Lee (Founder of Cowboy Ventures). She referred 39 startups with a valuation of $1 Billion as unicorns
Related – Paytm Success Story and Founders
Valuation is basically means what is the value of your startup on the basis of investment that you raised or the stocks it has had. Just like the market capitalization used in the Public Companies listed in Share Market.
It means that whatever you are making or creating, what is the value you are offering your customers.
Venture Capital is basically all the institutional capital that your startup get. Thee are many VC firms like Sequoia, Matrix, Lightspeed, Accel Partners. All the Venture Capitalists invest their money in to startups and help them grow.
If you have ESOPs of the startup then there is a Vesting period which means you will not get all the ESOPs at one point of time. It will give you in the specific proportion at fix period of time. Usually in India it is 4 Years.
Most of the STARTUP terms have been explained easily by Ankur Warikoo (Founder of Nearbuy)