Terminology 101

Accelerator:
This is typically an entity or a program, created by one, normally lasting a few months which has been designed to help startups grow rapidly. Many accelerators usually require startups to apply for acceptance into a class, which consists of a group of startups who will proceed through the program together, following a schedule with fixed beginning and ending dates. Accelerator programs typically provide startups with some combination of business education, mentoring, office space and funding, often, but not always, in exchange for stock in the startup. Startups need to do a research on the Accelerators before enrolling since the expertise and domain knowledge of the team coupled with past success stories can have a bearing on the success of the Startup.

Angel Investor:
A high net-worth individual with rich experience in a particular domain, who invests in a startup, seed-stage or early-stage company in return for an ownership stake. Angel investors usually invest their own money (unlike venture capital firms, who, for the most part, invest other people’s money) and may do this individually or as part of an angel group.

Angel Round:
A round of startup financing received from angel investors.

Bootstrapping:
The phase where founders use personal assets and operating revenues to found and build a company.

Bridge Loan:
A short-term loan, usually to tide over immediate expenses in the anticipation of future funding.

Common Stock:
It’s a class of stock in a company. Holders of common stock or shares have the right to receive dividends and, in liquidation, the right to share in the assets of the company, but only after other claims (such as those of preferred stockholders) have been paid. Holders of common stock have voting rights, unlike holders of preferred stock, who usually do not have the right to vote.

Convertible Debt:
A debt obligation that may be exchanged at an appropriate time in the future, by the lender, for an equity interest in a company, usually at the time of a future financing.

Convertible Preferred Stock:
Preferred stock that may be converted by the holder into a fixed number of common shares. The terms and triggers for the same are discussed at the issuance stage.

Coworking Space:
A workspace shared by unrelated businesses or by companies who have made co-working space their core business offering, often with shared equipment, conference rooms and support services.

Crowdfunding:
A fairly evolved and a relatively new way of seeking finance for a project with small amounts of capital obtained from a large number of individuals, usually via the Internet.

Down Round:
A round of financing for which the share price is lower than it was for the previous round, usually because the company is not performing well.

Early-Stage Funding:
This is the startup’s first round of substantial funding. Early-stage funding is usually provided by venture capital firms and generally consists of two parts Series A financing and Series B financing.

Elevator Pitch:
A short speech describing an idea for a business or project crisply and in as few words as possible. The term elevator pitch comes from the idea that the pitch is so brief that you could give it to someone you met in an elevator, during the time it takes to complete the ride.

Founder:
A person who founds a startup.

Friends & Family Round:
A round of startup financing in which seed funding is received from friends and family members.

Initial Public Offering or IPO:
The first public sale of stock by a company.

Lean Startup :
A method for developing startups proposed by Eric Ries and discussed in his book, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.

Pivot
To change a company’s direction quickly, based on what the company has learned about its customers, its technology and the business environment.

Pre-Money Valuation:
The pre-money valuation is the value put on the company before raising capital.

Post-Money Valuation:
The value of the company after it has raised capital. For eg.If Company X raised $1 million at a pre-money valuation of $3 million.It’s Post-money valuation would be $ 4 million (3+1).

Seed Funding:
This is the initial funding used to start a business, usually one that has not yet started to produce revenues. Seed funding often comes from the assets of the founders and their friends and families but may also come from other sources, such as seed accelerator programs, angel investors, micro VC’s and private equity funds.

Series A Financing:
The first financing after seed funding, it usually involves the sale of preferred stock in the company to venture capitalists. Series A financing usually occurs after a startup has begun generating revenue, but generally prior to the point at which the startup begins to generate profits.

Series B Financing:
The financing stage following Series A financing, it usually takes place after a startup has achieved certain business milestones.

Valuation:
Investopedia defines valuation as the process of determining the current worth of an asset or company.