Startup terms you should know
Here is the list of 40 startup terms if you are getting into startup world
If you are new to startup world, or just wanted to learn more terms which are used in the satrtup ecosystem then this blog is for you. I have complied 40 startup terms with the explainsation of each of them.
1. Angel Investors
Angel Investors are those who will invest in your startup in the very beginning, you may or may not have any business model or revenue, That is why they are called Angels. They are the people who believe more in you than the idea you have.
2. ARPU (Average Revenue Per User)
When your business starts getting revenue and you have transacting users then if you divide the revenue by the transacting users you will get the Average Revenue Per User. This will tell you the average revenue you are getting from a paying user.
MRR/# of active customers = ARPU
3. Acqui Hired
If your startup doesn't perform well and you decided to sell it considering you have good technology and people. So when the other company acqui-hires you, they may not pay you directly for the acquisition but they will hire the people from your company and provide them a designation so that they can keep working on the product (but now under a different company).
In Acquisition, it involves a cash or stock component. When they acquire you, they will pay you through cash or stock or both.
When you are bootstrapping a startup, you are not taking any money from outside. You will run your startup with your own money which could also include the contribution of your friends and family.
6. Burn Rate
Burn rate is the amount of money that you lose every month as a loss. This means if you are in the early days of your startup and your revenue cannot fully cover the running cost of your startup. So the amount left after spending the revenue is called the burn rate.
7. Business Model
Business Modal can be an excel sheet or a presentation that will clearly show that month on month, quarter on quarter, year on year how will your business do in terms of revenue and expenses and profit/loss.
This is a forward-looking projection but it also includes past data, so if you already have a startup then whatever monthly revenue and cost and thus profit/loss you have in the past, that will be the part of the business model and how do you project it in the future is the part of the business model.
8. Business Plan
A business plan is done along with a business model, which is:
- What is product strategy?
- Who are its consumers?
- What is its go-to-market strategy?
- How are we going to compete with the competition?
Based on all these questions, the valuation is decided and how big the company can become. All of that is part of the business model.
9. Cap Table
Cap table means who are the shareholders of the company and what percentage of ownership do they have? This is something that comes into play when you raise an investment. Usually, the first question investors ask is what is the cap table? What is the current ownership? If they invest in the company then how does the cap table change? or how the ownership changes?
10. Churn Rate
Churn rate means that every month or every quarter or whatever period for which you are evaluating, what percentage of your customers who are paying are you losing? Meaning they are getting churned, going out of your system and that revenue has become your loss.
11. Conversion Funnel
Conversion funnel means all the steps the customer follows to become your paying customer. It could start with them seeing your ad on Google or Facebook for the first time. Then they land on the page, then maybe they give their email, based on it they receive and then they click on the link which is in the email and they see a catalog, then they place the order by paying some money to you and become your paying customer.
Whatever the steps the customer followed to pay for your business is the conversion funnel.
12. CAC (Customer Acquisition Cost)
This is a very important term in startups. It means that at what cost do you acquire a new customer. It usually not only includes marketing costs but all other costs that are directly attributable to you getting that customer on board.
13. Customer Segment
This is which are your targeted customers. If you are targeting the whole world, that means you are not targeting anyone. In the whole universe, which demographics, which income profiles, which industries, which persona, will find your product relevant to themselves, which is who you are going to target.
14. DAU (Daily Active Users)
If your product is a B2B (Business to Business) product, then how many users use it daily. This is mostly used for apps, which means how many users launch the app on daily basis.
Equity means stocks in the startup. If you are buying equity, then that means you are buying stocks of that startup, which means you get ownership and shareholding in the startup.
16. ESOPs (Employee Stock Options)
These are those options that every startup employee gets, which gives them the right to purchase the startup stocks whenever they want to. It also means that these are not stocks but stock options, very important to differentiate. These are not stocks that you are given, this is an option that you have to buy the stocks should you want to.
17. Exercise Period
The exercise period means that when you will leave the company/startup, then with all your ESOPs, how much time will you get to convert those options into actual stocks. This is a very important determinant that if this period is small, then you will have to buy those stocks with your own money, which you would not want to do.
If this period is long, then it allows you to wait for a time when you will get a chance to sell it to someone, then you would want to buy those stocks because, not buy those stocks, convert those options into stocks because that is what make economic sense.
18. Exercise Price
When you get ESOPs, you get them at an exercise price which means they are not free. Usually, the startups charge a very nominal amount like $1 per ESOP or stock option. But there could be companies, that give you a discount on their current stock price, especially if it is publicly listed.
They may say that our stock is for $15 in the stock market but for you, this stock is for $7.5 which is a 50% discount so that $7.5 then becomes your exercise price.
Exit means that an investor invested in your startup, at some point in time which is usually between 7-10 years, will want a return on their money through an exit. Exit could be an IP or it could be a sale or acquisition or it could be a merger, but this is usually the 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 richer features, you have to pay a certain amount. Freemium is a combination of free and premium.
21. GMV (Gross Merchandise Value)
It is used a lot in e-commerce companies. It 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.
22. GTM (Go To Market Strategy)
Go-to-market strategy means that whatever product you will be launching your product, it's not like people are eagerly waiting for your product, so you need to adopt a GTM or go-to-market strategy, which means,
- How will you ship the product out in the market?
- How will people get to know the product?
- How will they give feedback?
- How will they pay for the product?
All of these things are part of the GTM or Go To Market Strategy
An incubator is a place where your startup incubates or nurtures in a way. Incubators help with ideation, they will help with mentoring, they will help with coaching, and they even help with funding. So these are incubators or they are also called accelerators such as Y Combinator, you must have heard of it. They are a great way for you to start your startup through the expertise of people who have already done that.
24. IPO (Initial Public Offering)
One of the exit possibilities for a startup is to do an IPO. This means that company ownership is transitioning from private to public ownership, for that reason, sometimes it is also called going public.
25. LTV (Life Time Value)
It is a very interesting term. It showed when you acquire a customer, what do you think how much value would you able to extract from them in their life time and then the question arises, how can one know that? This is why this becomes a tricky thing.
You have to plot the retention, you have to gauge when will the customer return and when the customer returns how much would they spend, and when will they return? So, there are a lot of parts that go into the measurement but LTV is a very important metric for any startup, especially during the time of investing.
26. MAU (Monthly Active Users)
This means if you have an app, then how many users use it in a month. It is exactly like DAU (Daily active users) but at a monthly level.
27. MVP (Minimum Viable Product)
This is that version of your product that doesn't have many features but the work that end-users need to do, is done perfectly and that's where it stops. So, it is the quickest and fastest way for you to get a product into the market without making it into this really big feature-rich product.
28. Pitch Deck
Pitch Deck 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 you working in?
- What is the biggest problem of the market?
- How does your business solve the problem?
- How has been your experience so far?
- Which team is making this product?
If your original startup plan doesn't work for whatever reasons, you will pivot. You will go to something else that you are doing and doing well, which you feel can become another separate business.
30. Product Management
This is a fancy job, where you will be the owner of the product. You are not necessarily an engineer, you don't perhaps even have to be a technical person, but you need to have a business model. You should know what the consumer wants, you should know how the engineers think, and you have to combine them both, so you become the manager of the product and essentially help the product get released or shipped.
Retention means at what speed or what percentage of your original users come back to you for purchase. Naturally, the more the retention better the startup will do, 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.
32. Revenue Model
The revenue model means how will your startup earn money? It's a very simple but very important point. You have to earn money, so what will be the mechanisms through which you will make money through your customers.
33. Run Rate
Run rate means whatever is your current situation of revenue, How much will it be able to do in a year. What people mostly do, you can call it a mistake, but what they do is, multiply the sales of the last month by 12 and they get an annual run rate, but naturally, they assume they do the same number of sales every month if it is growing rapidly, then after a year it would be a lot, and if not then growing rapidly or there is seasonality in the business, then maybe 12 is a wrong number but the revenue run rate gives a sense that based on the present state how big it can get in a year.
34. SAAS (Software as a service)
If you are running a software or a B2B or even a B2C company, then you take a price every month because you are giving the software as a service where someone buys into the software and uses it for a monthly fee.
35. Seed Fund
Seed fund comes after the angel investing, which 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 before which you get institutional investing or organized investing.
36. Series of Funding
Whatever investing is done after the seed funding is called series funding. They can go from Series A, B, C, D, E, F...
Traffic means how many people come to the product page or use your app every day, every week, or every month.
Valuation means that is the value of the company basis the investment that it has raised or the stocks it has had?
If you have ESOPs, then there is a vesting period, meaning if you have got 100 ESOPs, then you will not get all of them at one point. The vesting period is usually 3-4 years.
40. WAU (Weekly Active Users)
Just like DAU (Daily active users) and MAU (monthly active users), WAU is weekly active users. Any business which has a weekly trend should be measuring itself on WAU.