Fixed-term programs that provide training, advice and mentorship to entrepreneurs and often culminate in public pitch event and demo in front of investors to raise capital.
When one company buys controlling stake in another company. Can be friendly (agreed upon) or hostile (no agreement).
Individual who provides a small amount of capital to a startup for a stake in the company. Typically precedes a Seed Round and usually happens when the startup is in its infancy.
A company is bootstrapped when it is funded by an entrepreneur's personal resources or the company's own revenue. Evolved from the phrase "pulling oneself up by one's bootstraps."
A bridge loan is a financial instrument that helps the borrower to bridge a funding gap and cover short-term obligations until permanent financing is secured (e.g. with a fundraising round).
Besides banks who provide immediate cash, suppliers may also be willing to defer the compensation, which can help to bridge the funding gap.
Burn rate is defined as the monthly negativ net cashflow. It is normal for early-stage and growth companies that want to scale fast.
With the burn rate, founders can estimate the runway, which is the duration until when the company runs out of money.
CAC - Customer Acquisition Cost
The CAC is the average cost to acquire one new customer.
A Startup should keep track of and reduce the CAC over time.
As a general metric the CAC should not be higher than 1/3 of the customer lifetime value (see LTV)
A cofounder agreement regulates how founders work together, split equity, and how leaving cofounders shall be compensated. Founders may also define roles, responsibilities, decision and voting rights.
Initially online templates can be used and adjusted to the own circumstances. Later the cofounder agreement will be replaced with a shareholder agreement when investors come on board.
A convertible note is a loan to a company and can be converted into equity at a certain time or at a fundraising round.
It is a simple and fast method for continuous fundraising, especially before an equity round.
Usually such a note carries an interest rate or a valuation cap to incentivice early investors.
Is a broad term used to describe a funding method where one company receives money from many (private) individuals, usually throgh online platforms. The money may carry a return or is donated.
Same as Crowdfunding but here the investors receive a return of the company they invest in.
Is a way to solve a particular problem by asking many people to provide information. This concept makes use of swarm intelligence.
Is used to describe the passive ownership of Startup shares, usually from founders or early supporters, who are no longer active in the company.
Commonly, the remaining shareholders are not happy with dead equity and would prefer a cleaner cap table.
ESOP - Employee Stock Option Plan
An employee stock option plan is used to incentive key employees and motivate them with company shares. These options usually vest over time or based on performance. Alternatively to real stocks, a company may choose phantom/virtual stock.
Often investor expect an exit strategy and want to see how they can realise a return
Good Leaver / Bad Leaver
A Good Leaver / Bad Leaver clause defines if a leaving cofounder or key employee is still entitled to the vested shares (see vesting). This definition should be agreed upon in a shareholder or cofounder agreement, and also in ESOP's .
A bad leaver usually loses all (vested) company shares and has no further claims.
A good leaver can usually keep the vested shares or can be bought out to avoid dead equity.
The aim of growth hacking is to get new (paying) clients rapidly. It is an interdisciplinary function of marketing and IT development and hence is comprised of a team or a person that combines marketing and coding skills.
Growth hacking requires fast iterations and unconventional approaches that go beyong typical online marketing and product development.
The exponential growth of revenue or the cash flow of a company looks like a hockey stick on a chart.
An organization that helps develop early stage companies, often in exchange for equity in the company. Companies in incubators get help for things like building their management teams, strategizing their growth, etc.
IP (Intellectual Property)
Patents, Trademarks and Copyrights to protect your business know how that makes you unique. Also other company internas should be protected and can be considered IP. Make sure to specify who owns IP (should be the company).
small changes as opposed to pivot, blurred line when many iterations lead to a pivot over time.
Are users who join much later, usually when you solution is established/mainstream. Make sure identify these Personas.
A company that is run by its founders with the aim to provide a certain standard of living is referred to as lifestyle or cottage business. Usually those companies are bootstrapped, do not scale as much as VC Startups and become profitable quickly.
LTV - Lifetime value
The LTV is the average total revenue a company makes from one customer. The nuber is comprised of the average revenue from one sale times the customer retention rate, which how often one customer will buy again from you.
To increase that value customer retention an upselling are important measures.
A form of hybrid capital with a form of debt financing that also includes embedded equity instruments or options. Convertible and subordinated loans are examples for mezzanine capital.
A minimum viable product (MVP) is a first functioning product that focuses on the core features only in order to receive quick market feedback and adapt as needed. It is far from the perfect product but it provides clear benefits to the customers.
Due to the reduced features it is faster to go to market with an MVP and receive first user feedback. It allows you to quickly test your hypothesis if users need your solution and are willing to pay for it. That helps to adjust the following development according to validated user needs. The term became popular through the book, The Lean Startup, by Eric Ries.
Non-disclosure agreement. An agreement between two parties to protect sensitive or confidential information, such as trade secrets, from being shared with outside parties.
Phantom Stock / Virtual Stock
Phantom Stock give the holder the right to a cash payment upon a designated time or event (such as an Exit), which payment amount is tied to the market value of the equivalent number of shares of company's stock.
This means the company has a contingent liability to the lender and does not give out real stocks with voting rights. However, Phantom Stock dilute all shareholders and hence should be acknowledged in the shareholder agreement.
The act of a startup quickly changing direction with its business strategy. Pivots usually happen at earlier stages when the company is searching for the right problem-solution fit by continuously validating hypotheses with user feedback.
Proof of Concept
A POC is a demonstration of the feasibility of a concept or idea that a startup is based on.
It does not necessarily require a technical solution (like a prototype or MVP) but you should be able to showcase a (hypothetical) solution and let potential customers run through it. It is a quick way to receive market validation. If the outcome is positive, go ahead and start building the solution; if not, then iterate and try again.
Many VCs require proof of concept if you wish to pitch to them.
Resource investing is everything that is invested by external stakeholders into a company that is not cash. Resources can be labour, knowledge (smart capital), services, goods and materials. The investor gets a return from the company, such as equity, profit or revenue shares, access to IP, discounts, or goods.
The runway is the time until a company is running out of cash. The total cash deposits divided by the burn rate (in months), show you the runway (in months).
When Startups are raising money, they usually want to cover a 12-18 months runway.
Startups that are scaling are in a phase of fast growth.
Investors are interested in highly scalable business in billion dollar markets. There are different aspects that may allow your business to scale, such as international expansion, omnichannel sales, product adaptation, value chain integrations, etc.
Before a Startup is able to scale it should have achieved product-market fit and internal processes should be automated as much as possible.
The seed round is the first official round of financing for a startup. At this point a company is usually raising funds after a proof of concept and now wants to bring a solution to the market.
Refers to the specific round of financing a company is raising. For example, company X is raising their Series A round.
Service for Equity
Service for Equity is a concept where external parties contribute services of any kind in return for company shares of the client. This concept enables resource investing, as opposed to capital investing. It is also closely related to Sweat Equity, which usually refers to team members who provide uncompensated labour and receive company shares for that.
A supplier credit enables the buyer to pay later because the supplier accepts deferred payments.
It is a great way for the client to optimize their cash flow. In the meantime he can generate more revenue and hence it is a very simple form of financing.
Sweat equity is a form of resource investing where the "investor" receives company shares for labour. In the early stages of a new company this concept helps to allocate company shares/equity to founding members and supporters.
A non-binding agreement that outlines the major aspects of an investment to be made in a company. A term sheet sets the groundwork for building out detailed legal documents.
Proof that your hypothesis is working usually by having first users.
Vesting is used in order to reduce the risk that a founder or key employee leaves the company prematurly and keeps all the shares. Vesting means that such shareholders are not entitled to the full amount right away, but rather over a period of time (time based vesting) or upon achievement of milestones (performance based vesting).
For example, if an employee was offered 200 stock unites over 5 years, 40 units would vest each year. This gives employees an incentive to perform well and stay with the company for a longer period of time. Hence, it defines how many shares a good leaver can keep, depending on the time of termination.