A startup is so much more than just a company in its early stages. It is a small operation that is aiming high; almost like innovation waiting for the opportune moment to go boom! If this bears resemblance to your business then you should learn some common startup funding terms to help you in the early funding stages.
Startup funding terms
Speaking of help, CoffeeMug.ai is the most suitable platform for startups to move forward with their innovative ideas. The platform encourages potential businesses to grow and transform their concepts into viable business plans. The team at CoffeeMug.ai will help an entrepreneur determine whether his business idea is marketable, do market research to find out the best combination, receive feedback, and create a market-ready prototype.
1. Acqui-hired: This is when a company is purchased with the sole purpose of retaining the best talent. It is comparable to acquiring the intellectual capital to accompany in the form of its extremely talented employees. According to a CBInsights report, in 2012 and 2013, sixty percent of all acqui-hired tech companies were internet companies and thirty-eight percent were mobile companies.
2. Angel Investor: An angel investor is someone who invests his or her own money at an early stage for a share of the company. This may be a high-net-worth entrepreneur or a family friend who is willing to risk it and invest in a great idea. Angel investors, however, invest less than venture capitalists. In some cases though, Angel investors will form a group to invest in bigger business opportunities.
3. Burn Rate: The amount of money you spend each day in relation to the amount of capital you have is the burn rate. In order to calculate the lifespan of your company, at least till the next round of funding, divide your capital amount by the burn rate and you will know how long before your company goes under – unless you have the funds pouring in.
4. Convertible Note: Another important one on the list of startup funding terms is convertible notes which are in fact worth a certain percentage of equity in the company. Some business owners prefer to use convertible notes in order to attract angel investors without having to put a valuation on the company. The note converts into equity as soon as another investor comes in.
5. Disrupt/Disruptive: It is a term used to refer to a kind of product that will change or disrupt its marketplace. In most cases, it is the selling of a cheaper, poorer-quality product that initially reaches less profitable customers but eventually blows up and takes over an entire industry.
6. Exit Strategy: Another very commonly used among the terms for startup funding, this refers to the manner in which you envision getting money out of your company. You may want to sell it, get acquired or acqui-hire, merge with another company, go public or liquidate the business completely. It would be a good idea to have that answer now in order to be a step ahead.
7. Going Public: This is a company’s IPO or Initial Public Offering which is just another way to raise funding. In order to do this, you offer shares of your company to the public for purchase. Doing this could make you rich but it could also cost a lot. IPO deals are usually controlled by investment banks and a valuation of your company is done by analysts. Going public has its advantages and disadvantages but only a very small percent of companies opt to do this as the risks can be very high but can also pay off for some big investors.
8. Incubator: Startup incubators are basically groups that support select entrepreneurs and their businesses with mentorship and funding in exchange for an equity stake in the company. Incubators have become increasingly popular in the tech world and have been flaunted as the new business schools.
9. Non-disclosure agreement: It is important to protect startups secrets by holding employees responsible to pay damages for leaking them. A non-disclosure agreement does exactly that. It is a legal document that can be used to protect things like formulas, proprietary code, or customer information. A ‘one-party NDA’ where one side receives confidential information from the other may be drawn up or a mutual NDA may be drawn up for both parties.
10. Pivot: A startup pivot or business pivot happens when a company shifts its business strategy to accommodate changes in its industry, customer preferences, or any other aspect that impacts its bottom line. In order to pull something radical off, startups don’t always require to be pumped full of funding or additional resources.
11. Seed Round or Seed Stage: This refers to the very first round of venture capitalist funding for a business venture. This is for the development stage rather early on in the business journey, just past the angel investment stage and during this seed round up to $1 million can be raised. Any subsequent rounds of funding are referred to in terms of series; Series A, B, C, D, E or may also be referred to as startup stage, formative stage, mezzanine stage, etc.
12. Valuation: This happens at every round of funding and basically determines how much your company is worth. There are many formulas to determine the value of your company when you decide to sell shares. Pre-money valuation is how much a company is worth before funding. Post-money valuation is the value of the company plus funding. This may sound simple but how you value your company compared to the amount of investment can dilute shares.
13. Venture Capitalist: A VC is an investor who invests in businesses in exchange for an equity share of the company. They usually invest institutional dollars and focus on later-stage startups and invest larger amounts of money; up to $ 2 million per round.
14. Vesting: This refers to the schedule under which founders and employees must remain in the company before receiving their full share of the equity. A vesting schedule helps keep the company together and ensures employee loyalty.
There you have it; the 14most common terms for startup funding. Remember CoffeeMug.ai has successfully managed to prop up a number of startups through multiple rounds of funding, adding considerable value at each stage.
FAQs
Q. What term is used for the initial funding received by a startup?
A. The money raised by a new company to cover its initial cost is called startup capital. In order to market your idea or concept to investors, entrepreneurs must first develop a scalable business model.
Q. What are the four types of entrepreneurial funding for startups?
A. Venture capitalists, angel investors, crowdfunding and incubators are the four common types of entrepreneurial funding for startups.
Q. What are the 4 types of startups?
A. Small business startups, buyable startups, scalable startups, and social startups are the four types of startups.
Q. What is a ghost investor?
A. Ghosting is an illegal financial practice in which two or more market makers work together to try to influence the price of a stock. Corrupt firms utilize ghosting to manipulate stock prices in order to profit from price fluctuations.
