Interested in launching a startup? Here are 12 terms every founder should know
Indian startups are taking the world by storm. If you want to join the bandwagon of budding entrepreneurs, here are some terms you need to be familiar with.
Employment is so last century. Today’s youth want to be their own masters and dip their feet in entrepreneurship. India has become a powerhouse for startups in the last decade. We’re the third-largest startup ecosystem in the world, boasting of over 86,000 startups and 115 unicorns.
If you habour the dream of starting your business, then you should be familiar with the startup lingo. From business plans to financing methods and exit strategies, there are certain terms that should be at your fingertips. In this article, we will introduce you to basic startup terminology that will make your journey smooth sailing. Ready to get started?
1. Business plan
“If you do not know where you are going, every road will lead you nowhere.” – Henry A. Kissinger
Every new venture needs a business plan. It is a document that outlines the company’s goals, vision, mission, market plan, research methodology, and financial projections, as well as how it plans to achieve all of these. Key personnel responsible for achieving these may also be mentioned.
A business plan answers important questions about the company’s future. Whether you want funding or want to attract top talent, having a startup business plan is imperative for your success.
2. Deck
A deck or a pitch deck is a written, graphical summary of your business plan. It is typically a presentation that you can use to tell investors what your startup is all about and why they should invest in it.
A pitch deck should be short, informative, and effective—investors and clients should immediately understand what your startup is all about and what they will gain from associating with it. Typically, it should contain no more than 10 slides and cover all key aspects of your startup.
3. Bootstrapping
Every startup needs funding to get started—be it putting products on the shelves or growing its team. A startup that resorts to bootstrapping gathers finance from its own founders, friends, and family. It can be thought of as self-funded.
Usually, most startups use bootstrapping to finance the early stages. Indian stock-broking startup Zerodha is an example of a massively successful business that has remained bootstrapped.
4. Angel investing
A high-net-worth individual who bets their own money on a startup is called an angel investor. They invest in a startup with the goal of making a profit through a startup exit. Angel investing involves committing one’s own wealth to a startup’s growth in exchange for equity or as debt.
Angel investment can be good for your startup not just for the finance you get but also because angel investors come with a reliable network that you can leverage to grow your company.
5. Venture capital
VC or venture capital is an important startup funding term to know. Venture capitalists (VCs) are firms or groups of individuals who invest in high-growth startups to turn a profit. It is a form of private equity financing wherein VCs provide you with money in exchange for equity.
Just like angel investments, venture capital also comes with a ton of perks such as guidance, mentoring, and networking opportunities.
6. Valuation
In simple terms, valuation is how much your company is worth. When approaching an investor, it is vital for you to know the pre-money valuation of your company. This is how much your company is worth before funding.
Post-money valuation refers to how much your startup is worth after you get funded. The valuation of a startup is usually based on its revenue and growth potential.
7. Seed round
Seed round, also called seed funding or seed capital, is the first official funding round that a startup receives. Though commonly used to indicate the first round of venture capital, it can also be used to denote funding that a startup has received via angel investing, crowdfunding, or even from friends and family.
8. Startup exit strategy
Every entrepreneur sets up a business with the aim of making money. A startup exit strategy is how an investor, venture capitalist, or you as a founder, plan to sell the business to clock in a profit.
It involves deciding how you want to exit the startup, when and what levels of valuation. You could sell to another founder, take your startup public through an Initial Public Offering (IPO) or go in for a merger.
9. Minimum Viable Product (MVP)
A minimum viable product or MVP is the initial model of the product a startup intends to sell. An MVP only includes essential or core features of the product. It is used to test the product in the market with a minimum investment to see how it will be received. The idea is to test the riskiest assumptions to build better versions with advanced features in the future.
10. Burn rate
Burn rate is one of the most important startup jargon to know. It refers to how much money your startup will use or “burn” in a specified period of time, say over a year.
Startups will usually burn a certain amount of cash in their beginning stages before turning a profit. Investors will want to know the burn rate of your startup before investing. Too steep a burn rate may turn investors away.
11. Unicorn
A startup that has a $1 billion valuation is called a unicorn. India has over 100 unicorns as of 2023 and this number is expected to go up to 250 by 2025.
12. Dragon
A dragon is a startup that raises $1 billion in a single round of funding. Dragons are rare but are considered super startups. India’s most famous dragon startup is Flipkart.
Riding the wave
From the humble beginnings of the seed round, where ideas take root and flourish, to the heady heights of unicorn status, where startups capture the imagination of investors and society at large, the startup journey is one of courage, perseverance, and adaptability.