Start-Up Terms You Should Know

Start-ups are very interesting. Isn’t it? A lot of people come out with great ideas. Some get the financial backing and of those, some actually get successful. And we see the people who have succeeded. Like Ritesh Agarwal and Roman Saini, people who have great ideas want theirs to be successful. But have you thought about the work that these people have put in to make their venture successful? No. I’m not talking about them quitting lucrative jobs or quitting school to make their dreams come true. That’s their personal sacrifice. I’m talking about the things like registration, finding funds, getting the right people to work with you and so on.

So, you have an idea that will revolutionize the industry. So you decide to start a start-up. As you are researching the process of ‘starting a start-up’, you come across a lot of unfamiliar terms and usages. Like angel investor or term sheet or bootstrapping or venture capital or IPO. Let’s see what some of these terms are:

1. Angel Investor: The first person to invest in the start-up. Like an angel.
2. Bootstrapping: Usually when someone tries to realise their start-up dream, they do not get any funding outright, So they invest their own money or money they borrowed from friends and family. This is called bootstrapping. In other terms, a bootstrapping start-up is a self-funded start-up.
3. Burn rate: It refers to how fast a start-up is spending the raised capital.
4. Crowdfunding: It’s more of a democratic way of finding funds. Instead of approaching VCs or angel investors, by appealing to large groups of people.
5. Equity financing: In simple terms, it’s raising capital by offering shares in the start-up. IPO, Angel Investing and VC are forms of equity financing.
6. IPO: Initial Public Offering. It’s like raising funds from VCs, but it’s offered to the public via a stock market for shares in the company. When you do that for the first time, it’s called an IPO and a subsequent Public offering is called an FPO or a Follow on Public Offer.
7. Seed Round: The very first stage of Venture capital funding. Comes after angel investors and is followed by rounds of funding named “series” (like Series A, Series B, etc)
8. Term-sheet: An important document where the investor states their terms for investing in the start-up. It may include provisions for exit, IPO, and so on. When the founders and investors agree on the term sheet, a binding agreement based on the agreed-up term sheet is signed.
9. Venture capitalist (VC): Someone who invests in early start-ups. A private equity investor.

These are a few of the terms that you will come across while you are setting up your start-up. But knowing these terms, and researching the ones that are not listed here will help you to be someone who knows what they do and may even give you some leverage while negotiating an investment or dealing with a lawyer. To quote Francis Bacon, “knowledge is power.”