Decoding the start-up lingo
We’re all about start-ups these days. While entrepreneurship is on the rise, we take the time to talk about some common start-up lingos that are now part of our everyday conversations.
What do these terms exactly denote? Here’s what you should know.
Crowdfunding: When you raise money from a large number of people each contributing in small proportions. It may be in the form of debt, donation (reward crowdfunding), or in exchange of equity. Many websites are dedicated to the cause, such as, Kickstarter, Indiegogo, WitWorks, Wishberry and Catapoolt.
Angel investors: Affluent individuals provide seed funding to start-ups in return for equity (shares) or convertible debt (converts to equity later on) in the venture. They invest their own wealth usually in small start-ups and do not have a benchmark for returns. They may or may not influence the board decisions being busy professionals themselves. E.g. Meena Ganesh, CEO Portea Medical, invests in five start-ups each year to the tune of $25-250K in each. She financed SilverPush and HackerEarth.
Venture capital: Companies look up to venture capital for expansion. It is the seed funding provided by professionally managed private limited companies that may be registered with SEBI. The companies are called venture capitalists. For example, SIDBI, Small industries development Bank of India. They derive the investments from the pension funds or family businesses and aim at least 40 per cent returns. They usually invest in large firms for their better growth that may not essentially be start-ups. They get the preferred stocks of the companies that mean they can en-cash their stocks before the common stock holders in case of bankruptcy or other liquidity events. They generally influence and monitor the management decisions by being its active members.
Pro-rata: Literally meaning ‘in proportion’ these are the rights of the investors to maintain their equity levels in the start-up companies by participating in the later fundraising rounds.
Boot-strapping: You build your business with minimal resources. You restrict your generous cash outflows to spend the money wisely. One way start-ups do it is by hiring freelancers for various jobs thus reducing their expenditure on the infrastructure required to set-up workstations for each employee. Another way is ‘sweat equity’, that is, you pay for the work in terms of equity. A related term is ‘Ramen profit’ that just covers the basic needs of all the staff members in the start-up.
Exit strategy: It is cashing out an investment. It also translates into the value you bring to your investors and buyers.
First mover advantage: It is when you tap new spaces. You find a problem and offer a solution. For example, Amazon.com utilised the e-commerce platform. Research suggests continuous innovation, patenting and implementation speed are the key factors sustaining an early mover.
Growth-hacking: The products that start-ups offer are different from traditional ones. Here Twitter or food ordering platforms like Foodpanda are the products. So you do not have to actually look for vendors or customers that are market retailers. But you adopt unconventional ways to target the clientele with focus on the exponential growth depicted by the J-shaped growth curve also called the hockey-stick. You may be called a lean start-up if you intend to achieve the maximum growth with little investments. The easy ways to hack growth is called the low hanging fruit.