Start-ups are mushrooming prolifically across India and for first-time entrepreneurs, it’s necessary to be able to correctly decode the industry.
The word start-up has permeated a lot into our minds in the past few years with the likes of Flipkart, RedBus, Ola, etc., either having an incredible exit or getting funded obnoxious amounts of money. To understand the start up world better, it is imperative to know some of the most popular start-up terms:
It is a center where start-ups are guided by right mentoring, office space, resources, and in a few cases, cash. There is usually a fixed period in which the support is given. Start-ups are given intensive training where they are supposed to learn rapidly.
- Angel Investor
People who invest in early stage start-ups in exchange for equity are called Angel Investors. Amount spent is not as high as the ones invested by Venture Capitalists. A bunch of investors forms an Angel Group to invest in big opportunities.
If you have started your company by pooling in money from friends and family, then it is a bootstrapped start-up. It is a lesson in hard work, patience, and self-belief when you try to succeed with a bootstrapped venture.
- Burn Rate
To put it in simple terms, Burn Rate is how fast you are blowing your cash. Start-ups usually tend to burn a lot of money before they see any semblance of profit.
Also referred to as Pitch Deck, it is usually a Power Point Presentation that covers all aspects of the start-up in a short and attractive way. There is a standard format in making a good deck.
An overused word in the start-up world is ‘Disrupt’. Disrupt here means to change the ways of doing business that other companies have overlooked to work on. For e.g., iPod was a disruption to the way people used to listen to music, after Sony’s Walkman.
A term used for a start-up that raises $1 billion from investors in a single round.
- Employee Stock Option
When start-ups don’t have a lot of money to spend on salaries, giving stock options to employees is an attractive way to make them take up the offer. By giving lock-in period for the shares to vest, it also forces the employee to stay at the company for a long time.
When an investor or an entrepreneur give the start-up an exit, it necessarily means that they are getting rich. Usually, it happens thanks to an IPO or buyout from another company. Investors have their exit strategy in mind while the company they invested in is still growing. FLIPPING It is the act of buying shares in an IPO and sell them for a profit when there is a sharp rise in price. Brokerage firms discourage flipping and will try to allocate shares to investors who have the habit of holding on to them for a long time.
A freemium type of business model is when you give your basic product for free while you charge your customers if they need extra features. Businesses that use this technique are Dropbox, most mobile apps, Gmail, etc.
- Growth Hacking
It is a marketing technique that focusses on rapidly finding growth through inexpensive techniques such as the use of Social Media or any other non-traditional media.
- Lean Start-up
The mission of a lean start-up is to work on the business model by sustaining as cheaply as possible. The concept was originally developed with high tech companies in mind but is now used for any individual, team or company that is looking to introduce new products or services into the market.
MVP is abbreviated as Minimum Viable Product, which is the bare minimum version of a product which can be shown as a POC (Proof of Concept).
Pivoting is changing the direction of a company, this could be regarding business model, revenue model and for many cases, the entire product or service offering itself.
- Seed Round
It is the first round of venture capital funding for a business venture. This round of funding happens after the angel round of funding and during the developmental stage.
- Sweat Equity
It so happens that a start-up is looking for highly talented people but cannot afford to pay them their market rates. This is when you offer sweat equity which is essentially the shares of your company given in exchange for the work done.
This is a method where a group of Venture Capitalists will put in a portion of the amount required to finance a small business