Whether you are talking to peers, competitors or investors, you as an active entrepreneur will be judged on your familiarity with today’s startup and funding jargon. I’m not recommending that you saturate your discussions with lingo, but responding with a blank stare once-too-often won’t convince anyone that you can build the next world-changing business or outpace the market.
In that context, I offer you my latest collection of popular investor-to-entrepreneur terms and concepts. See how many of these you have personally encountered or feel confident that you can confidently discuss with investors -- or even explain to friends and family.
This term is currently applied to recent startups who profess a current valuation which exceeds $1 billion. Prime examples include Uber, Airbnb and Snapchat. People are even talking about “decacorns" -- investable companies with net worth now exceeding $10 billion -- like Dropbox and Pinterest. Could your startup be the next one?
2. Frothy startup valuations
Overvalued stocks have been called "frothy’" for some time, but now the term is being tossed around in lieu of the word "bubble" in the new world of perceived overvalued startups. It implies runaway investor speculation on future values, fear of missing out on trends, and it leads to unicorns. Frothy is good for entrepreneurs.
3. Seed-round investment
This term refers to an initial venture-capital investment, often wrongly sought to seed early product development. In fact, most often, it is limited to seeding a startup business rollout or scale-up after development is completed from friends and family. A seed round is intended to be followed by a bigger Series A round.
4. Super-angel investors (micro-VCs)
These terms refer to a class of professional investors who invest their own money, like angels, but have the larger resources and scope of venture capitalists with other people’s money. Ron Conway, of SV Angels, and Reid Hoffman, LinkedIn's founder, are names often mentioned in this category.
5. Deep-dive meeting
After viewing your slide deck, if investors are still interested in your startup, they will ask for a deep-dive meeting to drill in on any hard questions before commencing due diligence. Although the term may sound negative, it’s actually a very positive sign. Expect your skills, insights and motivation to be tested -- so be prepared.
6. Sweat equity
Startup founders typically invest some real dollars into their new startup as well as months or years of their time with no salary. This unpaid work component is sized in dollars, added to any funds contributed, to represent the total contribution of a founding partner and converted to an equity ownership percentage in a new startup.
7. Equity crowdfunding
Hundreds of crowdfunding sites claim to help you get funding for your startup in the form of a donation, pre-order or a token reward. But recent changes in the law, associated with the JOBS Act of 2012, have made it possible to sell small chunks of ownership or equity to non-accredited investors -- regular people on the Internet.
When a startup proclaims that it is cash-flow positive but pays no salary yet to the founders, investors call this Ramen-profitable. It implies that founders are living on inexpensive Ramen noodles and barely covering living expenses in order to re-invest all returns back into the business. It’s a term of respect and endearment.
9. Growth-hacking marketing
This term is used to describe non-traditional ways to incent growth such as social-media and viral marketing. These alternatives are used in lieu of traditional media such as radio, newspaper and television. Growth hackers are the marketing equivalent of clever software hackers and are highly respected by investors.
10. Acquire a startup
Sometimes investors are very impressed with the skills and expertise of a startup team but are not so impressed with the business potential of the current idea. They may decide to acquire the startup in order to hire the team for another project in their portfolio. These deals usually come with retention packages -- so be careful.
Just for fun, I’ve come up with a scoring system on my own non-scientific survey to help you rate yourself on your level of startup investment acumen. How many of the terms defined above have you personally used in a conversation or explained in the context of your startup?
- 8 to 10: Excellent startup investment savvy
- 5 to 7: Average, but watch out for investment sharks
- 2 to 4: Newbie entrepreneur, in real need of an angel
- 0 or 1: Stick to bootstrapping for your startup
The world of investing in startups has shed much of its mystery over the past few years and now extends well beyond the arcane science of a few venture capitalists to the world of accredited angel investors and more recently to regular people through crowdfunding. The new entrepreneurial age is here, but you can’t be competitive if you don’t speak the language.