Many entrepreneurs use technical Startup terms like MVP, Pitch deck, valuation of a startup, pivot, funding, bootstrap, series A, B, C and etc. Initially, I also did not understand anything but it’s nice to hear.
We will talk about all the technical startup terms that help a startup founder, startup employee, or if you want to do a startup in the future. So you need to know all technical startup terms.
Technical Startup Terms
There are many technical startup terms but I will explain only those which are most important to know.
Idea Stage
The idea stage is the initial phase of a startup or business venture where the concept or idea is conceived. This is the stage where entrepreneurs or founders identify a problem or opportunity and come up with a unique and innovative solution. During the idea stage, the focus is on researching and validating the market, understanding the target audience, and refining the business concept.
Prototype
A prototype is a preliminary version or model of a product, service, or solution. It is created to test and validate the functionality, design, and user experience before investing significant resources into development. A prototype helps to visualize and demonstrate the core features and functionality of the idea in a tangible form. It can be a basic mock-up, a wireframe, or even a functional version of the product with limited features.
MVP
A Minimum Viable Product (MVP) is the first version of a product that includes only the essential features and functionalities required to solve the core problem or address the main pain point. The purpose of an MVP is to quickly release a working product to the market and gather feedback from early adopters or users. The feedback received helps in validating the product concept, identify areas for improvement, and make informed decisions for future development.
The MVP approach allows startups to test their hypotheses, iterate on their product based on user feedback, and avoid investing excessive time and resources into building a fully-featured product that may not meet the market’s needs. The focus is on delivering value to users and validating the viability of the business idea.
The progression from the idea stage to the prototype stage and then to the MVP stage represents the iterative and incremental development process of a startup. It involves refining and validating the idea, creating a tangible representation of the concept, and ultimately launching a simplified version of the product to gather real-world feedback and iterate on its development.
Pitch
In the business world, a pitch refers to a presentation or proposal made to persuade and convince others about a business idea, product, or service. It is a concise and compelling way to communicate the value proposition and potential of a business to potential investors, partners, or customers.
A pitch typically includes key information about the business, such as the problem it solves, the target market, the unique selling points, the business model, and the financial projections. The goal of a pitch is to capture the attention of the audience, generate interest in the opportunity, and ultimately secure support or investment.
Pitch Deck
A pitch deck, on the other hand, is a visual presentation that accompanies the pitch. It is a slide deck or a set of PowerPoint slides that provides a structured and visually appealing overview of the business. A pitch deck is designed to enhance the delivery of the pitch and support the key points and messages being communicated.
A well-crafted pitch deck typically includes the following elements:
- Problem statement: Clearly define the problem or pain point that your business addresses. Explain why it matters and the impact it has on the target market.
- Solution: Present your solution and highlight how it effectively solves the problem. Explain the unique features, benefits, or advantages of your product or service.
- Market opportunity: Demonstrate the size and potential of the target market. Provide market research, trends, and data to support your claims.
- Business model: Explain how your business generates revenue and creates value. Outline the pricing strategy, revenue streams, and cost structure.
- Competitive analysis: Assess the competitive landscape and highlight what sets your business apart from competitors. Showcase your competitive advantage or unique selling proposition.
- Team: Introduce the key members of your team and their relevant expertise. Highlight any previous successes or accomplishments that showcase the team’s capabilities.
- Financial projections: Provide a summary of the financial forecasts, including revenue projections, expenses, and profitability. This helps demonstrate the financial viability and potential return on investment.
- Ask: Clearly state what you are seeking from the audience, whether it’s investment, partnership, or support. Be specific about the amount of funding needed and how it will be used.
The pitch deck should be visually appealing, concise, and easy to follow. It should support the key messages of the pitch without overwhelming the audience with excessive details. The goal is to create a compelling and memorable presentation that captures the audience’s attention and leaves a lasting impression.
Funding
Funding for startups can come from various sources, depending on the stage of the business and the specific needs. Here are some common funding options for startups:
Bootstrapping
This involves using personal savings, and credit cards, or borrowing money from friends and family to fund the startup. Bootstrapping allows founders to maintain full control and ownership but may have limitations in terms of available capital.
Seed Round
The Seed Round is the initial funding round for a startup and is typically aimed at financing the development of a product or service from its concept or prototype stage to a more advanced stage. In a Seed Round, startups seek funding from angel investors, venture capital firms, or early-stage investment funds. The funding obtained in a Seed Round is used to support product development, market research, and initial go-to-market strategies. The investment amount in a Seed Round is typically higher than in an Angel Round but lower compared to subsequent funding rounds.
Angel Investors
Angel investors are individuals or groups of individuals who provide early-stage funding to startups in exchange for equity or convertible debt. They often bring not only financial support but also mentorship and industry connections.
Venture Capital
Venture capital firms invest in startups with high growth potential. They typically provide larger funding amounts in exchange for equity. Venture capitalists may also offer strategic guidance and support in scaling the business.
Crowdfunding
Crowdfunding platforms allow startups to raise funds from a large number of individuals who contribute smaller amounts of money. This approach can help generate early market validation and build a community around the startup.
Incubators and Accelerators
These programs provide startups with funding, mentorship, and resources in exchange for equity or participation in the program. They often have a structured curriculum and a network of industry contacts to support the startup’s growth.
Grants
Some startups may be eligible for government grants or research funding offered by organizations, institutions, or foundations. These grants are typically focused on specific industries or areas of innovation.
Bank Loans
Startups can apply for traditional bank loans to secure funding. However, getting approved for a loan may require a strong credit history, collateral, and a solid business plan.
Corporate Partnerships
Collaborating with established companies through strategic partnerships or corporate investments can provide startups with funding, resources, and access to the partner’s customer base or distribution channels.
It’s important for startups to carefully consider their funding needs, the stage of their business, and the type of funding that aligns with their goals and vision. Additionally, startups may combine multiple funding sources to meet their financial requirements and support their growth.
That can run even in physical space Or they virtual give support to the startup in terms of funding, office space, connection, industrial connect prototype development, etc. These are some global examples of incubators and accelerators and these are some Indian examples We have already raised a seed round and a Pre-series A round what are the valuations and rates?
Series A, B, C, and So On
Series A, Series B, Series C, and so on refer to subsequent rounds of funding that a startup may pursue as it grows and progresses beyond the early stages. These funding rounds are typically aimed at providing capital to support the scaling and expansion of the business. Here’s an overview of each round:
- Series A: The Series A round follows the Seed Round and is focused on helping the startup transition from the development stage to the growth stage. At this point, the startup should have a validated product or service, some traction in the market, and a clear plan for scaling the business. Series A funding is usually provided by venture capital firms and institutional investors in exchange for equity in the company. The investment amount in a Series A round is typically larger than in earlier rounds.
- Series B: The Series B round occurs after the Series A round and is aimed at accelerating the startup’s growth. Startups at this stage have typically demonstrated market traction, revenue growth, and a scalable business model. The Series B funding is used to further expand operations, develop new products or services, and enter new markets. Venture capital firms and other institutional investors continue to provide funding in exchange for equity.
- Series C and beyond: Subsequent funding rounds, such as Series C, Series D, and so on, follow a similar pattern of providing capital for further growth and expansion. These rounds are typically pursued when the startup has achieved significant market traction, has a well-established business model, and aims to enter new markets, make acquisitions, or invest in research and development. The investment amounts in these later-stage rounds can be substantial, and the investors may include venture capital firms, private equity firms, strategic investors, and sometimes even public investors.
Each funding round allows the startup to raise capital to fuel its growth and reach various milestones. As the rounds progress, the valuation of the company may increase, and the ownership stakes of early investors and founders may dilute as new investors come in. The specific timing and requirements for each round can vary depending on the startup’s needs, market conditions, and investor interest.
Valuation
Valuing a startup can be a complex process that involves assessing various factors and using different methodologies. Here are some common approaches to startup valuation:
- Market-based approach: This approach compares the startup to similar companies that have recently been bought or sold, looking at factors such as revenue, user base, market share, and growth potential. This approach relies on market multiples and benchmarks to estimate the startup’s value.
- Income-based approach: This approach focuses on the startup’s projected future cash flows and applies a discount rate to determine its present value. This method often involves making assumptions about future revenue, expenses, and growth rates. Techniques such as discounted cash flow (DCF) analysis or the venture capital method may be used.
- Asset-based approach: This approach assesses the value of the startup’s tangible and intangible assets, such as intellectual property, equipment, inventory, and brand value. It may also consider liabilities and outstanding debt. However, for many startups, their value is primarily based on their potential future earnings rather than their current assets.
- Stage-based approach: Startups go through different stages of development, from the early stage to the growth stage. Each stage carries different risks and potential rewards. Valuation in this approach takes into account the startup’s stage of development, milestones achieved, and future growth prospects.
- Comparable transactions: This approach looks at recent transactions in the industry or sector to assess how similar startups have been valued. It considers factors such as the size of the investment, the ownership stake acquired, and the startup’s performance metrics.
It’s important to note that valuing startups can be subjective and dependent on various assumptions. Startups, particularly in the early stages, may have limited financial history and uncertain future prospects, making valuation challenging. Additionally, factors such as the team’s expertise, market conditions, competitive landscape, and potential risks also impact a startup’s value.
It’s advisable to consult with experienced professionals, such as financial advisors, venture capitalists, or business valuation experts, who can provide guidance and expertise in determining a fair and reasonable valuation for a startup.
Pre-money Valuation
It’s all about pre-money valuation Now let’s talk about post-money valuation That is, the new valuation of the company that has happened after raising the investment So its calculation is also very simple How many total shares were there of the company 1200 multiplied by each share price which was 10,000 which is 1.2 crore rupees valuations.
You can also simply understand this like this the existing valuation of the company plus how much the investor has invested, add them both i.e. 1 crore which was already valuation plus 20 lakh rupees means 1.2 crore rupees It means, holds the ear this way or that way, the answer will be the same.
Bubble
A bubble or a startup bubble refers to a time when investors are ready to invest high amounts in startups, making their valuations very high.
Now you understand that valuation is a tricky thing especially when the new business just started. How to value the company at that time So there is another way to invest in a startup without looking at the valuation. which is called a ‘Convertible Note’
Convertible Note
In this, the startup is given money and being told That we are not able to do its valuation right now but whenever your next round of investment will happen whatever valuation gets decided on give us a discount of 20%, And then you convert this money of ours into shares. Suppose convertible notes of 20 lakh rupees were given to the startup And decided that in the next round, we will get a discount of 20%.
Assume in the next round the valuation done is Rs 1 crore. So convertible notes which were of 20 lakh rupees That 1 crore minus 20% discount will be converted at a valuation of 80 lakh rupees So after doing all this negotiation, etc.
Equity
Equity refers to the ownership interest or stake that an individual or entity holds in a company. In the context of a startup or a business, equity represents the portion of the company that is owned by its shareholders or investors.
Equity can be acquired in different ways, including:
- Initial investment: When individuals or entities invest capital into a startup, they receive equity in return. This can happen through various funding rounds, such as seed funding, angel investment, or venture capital investment. The amount of equity received is typically determined by the valuation of the company at the time of investment and the terms negotiated between the investor and the startup.
- Employee stock options: Startups often offer stock options as a form of compensation to their employees. Stock options grant the right to purchase company shares at a predetermined price, known as the exercise price or strike price. As employees exercise their options, they acquire equity in the company.
- Founder’s equity: When a startup is founded, the founders typically allocate a portion of the company’s equity to themselves. This allocation is based on their contribution, such as the initial idea, intellectual property, or capital invested.
Equity represents a claim on the assets and future profits of a company. Shareholders who hold equity have ownership rights, which can include voting rights, dividend entitlements, and the right to a share of the company’s proceeds if it is sold or goes public.
It’s important to note that equity ownership in a startup is subject to dilution. As a startup raises additional funding or issues new shares, the ownership stake of existing shareholders may be diluted. This means their percentage ownership in the company decreases unless they invest more capital to maintain their ownership percentage.
Equity is a fundamental concept in startup financing and plays a significant role in determining the distribution of ownership and potential returns for investors and shareholders.
Sweat Equity
Sweat equity refers to the contribution of effort, time, and expertise by individuals to a business or project instead of monetary investment. It is often used to describe the non-financial contributions made by founders, employees, or partners in a startup or small business.
Unlike monetary equity, which involves investing capital in exchange for ownership, sweat equity represents the value created through hard work, skills, and commitment. It can include various forms of contributions, such as:
- Time and labor: Individuals may contribute their time and effort to the development and growth of a business. This can involve working long hours, taking on multiple roles, and performing tasks necessary for the success of the venture.
- Expertise and skills: Sweat equity can also come from individuals who bring specialized knowledge, skills, or industry experience to the business. This can include technical expertise, managerial skills, marketing know-how, or industry connections.
- Intellectual property: If individuals contribute intellectual property, such as patents, trademarks, or copyrights, to a business, it can be considered sweat equity. Their intellectual property rights can add significant value to the company.
Sweat equity is often recognized and rewarded by granting individuals equity ownership or stock options in the business. This allows them to share in the success and potential profits of the company. The amount of sweat equity granted is typically determined by the perceived value of the contributions made and the agreed-upon terms between the parties involved.
Sweat equity can be an essential component of startup and small business growth, as it enables individuals with limited financial resources to participate in and benefit from the success of the venture. It aligns the interests of the contributors with the long-term success of the business and can serve as a motivation for hard work, dedication, and commitment.
Term Sheet
when the VC or investor likes a startup So first of all, they give a term sheet to the startup in which many terms and conditions are written We have signed the term sheet But it is not legally binding You got the term sheet but haven’t got the money yet, it is not necessary you will get it When will you get it? Once your shareholding agreement (SHA) gets signed which is a legal government document One more thing is shown in this document which is called cap table Means, what % of the company is with which person, which VC has or which company, that list.
Non-disclosure Agreement
A nondisclosure agreement is a legal contract between two or more parties that contains information that will remain confidential for a specified period.
Pivot
Pivot is a term used in the startup world to describe a significant change in a company’s business strategy, direction, or focus. When a startup realizes that its current approach or product is not gaining traction or achieving the desired results, it may choose to pivot to explore new opportunities or address emerging market needs.
A pivot can involve various aspects of the business, such as the target market, product or service offering, pricing model, distribution channels, or even the overall business model. Startups often pivot based on feedback from customers, market trends, competitive landscape, or insights gained from testing their initial ideas or prototypes.
Pivoting allows startups to adapt and refine their strategies to increase their chances of success. It requires a careful evaluation of the market, customer feedback, and the startup’s own capabilities. By making a pivot, a startup can redirect its resources and efforts toward a new approach that has a higher potential for growth, market fit, and customer satisfaction.
Pivoting is considered a normal and sometimes necessary part of the startup journey, as it allows entrepreneurs to be agile, responsive, and adaptable in the face of changing circumstances. It requires a willingness to learn from failures or setbacks and to make strategic adjustments to position the startup for long-term success.
Scalability
The ability of a startup’s business model, product, or service to handle and accommodate growth without significant increases in costs or resources.
Burn Rate
The rate at which a startup uses up its capital to cover expenses and operational costs. It indicates how long the startup can operate before it runs out of funds.
Unicorn
The term unicorn refers to a startup that is valued at more than $1 billion. The term first came into existence in 2013 and was coined by Elaine Lee.
Lean Startup
Lean startup refers to a way of starting a startup after testing and experimenting with the ideas needed to build the products for the startup.
Exit Strategy
A plan or strategy for a startup’s founders and investors to cash out their investments, typically through an initial public offering (IPO), acquisition, or merger.
Love,
Saurabh Goel
Saurabh Goel
He is the Founder and CEO of the Training and Counselling Company ‘Brain Soul & You’. He is an NLP Wellness Coach, Life Coach, Brain analyst, and Trainer for Education, Corporate, and Entrepreneurship. For more than 7 years, he delivered presentations on entrepreneurship, mind programming, and motivation. He did his B.tech in IT and later choose to be a successful psychologist. He is helping people in various ways through his counseling and training sessions.