Startup Dictionary: 20+ of the most common startup buzzwords briefly explained

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From the streets of London to the skyscrapers of Shanghai, the impressive emergence of startup ecosystems in the last 15 years has brought along with it a new set of buzzwords, as did the popularisation of stock markets in the ’80s and ’90s.

Words like ‘unicorn’, expressions like ‘churn rate’ and acronyms like CPC came out of garages and co-working spaces and spread to the mainstream and social media, forming the new jargon of a community of aspiring and experienced entrepreneurs.

We tried to summarise some of the most common buzzwords and expressions below, but there are many more. The focus here is on the more important words for startup founders and teams to know.

Alpha test – Alpha testing is a type of conformity testing. It is performed to identify all possible issues and bugs before releasing the product to everyday users. The focus of this testing is to simulate real users by using a black box and white box techniques. The aim is to carry out the tasks that a typical user might have to engage in, but alpha testing is usually carried out in a lab environment and conducted by employees.

“A” round financing – The first major round of business financing by private equity investors or venture capitalists, usually in the form of convertible preferred stock. An “A” round by external investors generally takes place after the founders have used their seed money to provide a “proof of concept” – demonstrating that their business concept is a viable and it can generate enough traction to reach profitability.

Beta test – Beta testing of a product is performed by ‘real users’ of the software application in a “real environment”, and can be considered a form of external User Acceptance Testing. A limited number of end-users of the product have access, and give feedback on the features and quality of your product or service, allowing you to make improvements to the product through customer validation.

Bridge loan – Also known as a swing loan, it is a short-term loan to bridge the gap between financing rounds.

Burn rate – How fast does your startup spend its capital?  Depending on the business model, some will spend more funds early on building a user base and infrastructure, while others will need the majority of the funds to consolidate its brand later on, with not so much launch expenses.

Buyout – When a party buys a company’s shares to the extent that the buyer gains control over the company that sold the shares.

CAC – Customer Acquisition Cost. This refers to the amount you need to pay in marketing and sales in order to acquire one user.

Churn rate – Also known as attrition rate, churn rate is the percentage of subscribers to a service who discontinue their subscriptions to the service within a given time period. For a company to expand its clientele, its growth rate, as measured by the number of new customers, must exceed its churn rate.

Decacorns – Any company valued at more than $10 billion.

Disruptive – Game-changing. If your startup has a product or service or a business model or all of them set out to revolutionize its industry.

Dragon – A “Dragon” is a startup that raises $1 billion from investors in a single round.

Fire sale – A fire sale means that you are selling your company and assets at a heavily discounted price, since the founding team is no longer able to maintain/grow the company’s business.

Gamify – The application of elements of game playing such as scoring, competition, incentivising, rewarding, etc. It works as a marketing technique to engage users with your brand.

Lean startup – This is a method to develop businesses and products first coined by author Eric Ries. The main focus of the lean startup is to prove the business concept as quickly as possible and in a clear manner through a Minimum Viable Product or MVP.

LTV – This means the Lifetime Value of a customer. Example: if I can engage a customer for 24 months in a subscription service that costs €30 monthly, his LTV is €30 x 24 = €720.

MVP – Stands for Minimum Viable Product and is a development technique in which a new product or website is developed with sufficient features to satisfy early adopters. The final, complete set of features is only designed and developed after considering feedback from the product’s initial users.

Pivoting – When your initial business model isn’t working, the CEO and team often pivot to a plan B. The initial mission might stay the same, but what changes is the plan on how to get there.

PoC – Proof of Concept or PoC is a complete cycle that proves your idea can work for at least one customer.

Pro-rata rights – Pro-rata investment rights give an investor in a company the right to participate in a subsequent round of funding to maintain their level of percentage ownership in the company.

Usually, pro-rata rights are given to larger investors in rounds, and are not necessarily given to all investors. Depending on their strategy, those may or may not take up their pro-rata rights in subsequent rounds of financing.

Ramen profitable – It means that the startup is making enough profits to cover the cost and basic living expenses for everyone working there.

Unicorn – Non-listed company reaching the valuation of $1 billion.

Vanity metrics – Twitter, Facebook and Instagram impressions, posts views and other metrics that do not show real traction, but many times are used wrongly by the startup founders to defend that their company has “traction”, when it does not.

Vesting period – A defined period of time that an employee who gets stock options must work in the company in order to fully own their shares in the company’s stock option plan.

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