Tongues of Fun
A buzzword free primer to useful startup terms
Like any industry, culture, or weird little club, the startup world is full of lingo. But we sifted through the blustery buzzwords – we did let one slip through – and boiled it down to the terms anyone in startups should know.
1. VC – Venture Capitalist, of course. But specifically this refers to someone who is investing on behalf of a substantial pool of capital that has been raised from other investors (typically pension funds, insurance companies, university endowments and the like). As opposed to an angel investor.
2. Angel – These folks are investing their own money in smaller amounts, and usually in the earliest funding rounds secured by a startup. They usually have fewer official rights as compared to a VC, but often can double as advisors or simply bring legitimacy to a startup, based on their track record. The best resource for finding them is Angel List.
3. EIR – “Entrepreneur” is kind of an annoying term all by itself. Coupled with “in-Residence”, it’s unbearable sounding. That aside, an EIR is someone who’s built a successful company who’s now at a VC firm, usually helping it evaluate new investments and often while working on his or her next thing – from the comforts of the VC’s well-appointed office.
4. Vesting – It comes from the Medieval Latin word “vestire” which means “to put into possession” and refers to the structure of stock or stock options granted to an employee. You earn the ownership of your options over time, with such “vesting” occurring over 4 to 7 years. If you have a five year vesting schedule, and you leave after two years, typically this means you own two-fifths of your total shares of stock (or can exercise two-fifths of the options you were granted).
5. Agile – There’s more nuance here than meets the eye. “Agile” was originally a specific methodology of software development, which emphasized constant feedback and quick technical and design iterations in developing your product. The term has been more broadly applied to startups that can react quickly to the market on all fronts, not just in terms of programming.
6. Brogramming – Perhaps obviously, it’s “Programming” + “Bro”. A term for the (sickening) rise of fraternity culture in the male engineering ranks of Silicon Valley. We would be fine if this was never uttered again until the end of time.
7. Convertible Debt – Commonly used fundraising structure for startups. Where equity means ownership at the time of fund raising (i.e. the investor owns 10% in exchange for her $100,000), convertible debt is actually a loan that turns into ownership later. Startups use it because it’s easier to legally document and because it is “founder-friendly” if valuation increases down the road, versus where it is today.
8. Standup – Having its roots in agile software development culture, the standup is a daily status meeting, conducted while standing up in a circle. To the uninitiated, it looks like new-agey hippie ritual. It sort of is – but has the very redeeming feature of being short in length (encouraged by the fact that your standing) as opposed to the long, torturous meetings favored in corporate culture. Each person says what they accomplished in the last day, what they’re now working on, and what are their obstacles to progress.
9. KPIs – Key Performance Indicators are metrics – bundled in an overly fancy name – designed to evaluate success and drive long-term results. Far more common at large startups and established tech firms, the goal-tracking system involves setting targets, measuring results against those targets a process to recover if said indicators are off-target.
10. ROI – This is Return on Investment. For investors, it’s just that – in dollar terms: you invest X, you get back Y. More generally, people will refer to the “ROI” of doing something. This is to gauge the positive benefit of investing time in resources in something, usually as compared to doing something else.
11. Saas – “Software As A Service”. t’s selling a software service to another company (as opposed to selling it to consumers). People now think of Saas as a cloud computing term, but it really has its roots in the 1960s when IBM and others began to sell centralized computing business services.
12. Lifetime Customer Value – The amount of money you expect an average customer to spend with you. To calculate it, you need to know much a customer spends with you with each transaction and how many transactions they make over time before they cease being a customer. It’s critical because it tells you how much you should spend to get a new customer.
13. Purchase Pretzel – A play on the term Purchase Funnel, used to describe the actually erratic path customers take en route to purchase, as opposed to the orderly process conjured up the funnel theory. This is bordering on a buzzword, but it’s probably not yet used widely enough to qualify – and plus it offers perfectly useful imagery.
14. Pivot – This is the only indisputable buzzword on the list. Use it only if you must. But it does have an interesting theory behind it. The Lean Startup author Eric Ries coined it – and it is well-suited to describe the moment when a lean startup halts what they were doing in order to test a brand new hypothesis. If it works, the business is then built around this new hypothesis. The most famous of them includes instagram, which was once Bourbn, a check-in based social network, and Groupon which was originally an ad network called Point.
15. Burn Rate – It sounds torturous – because it is. This is the net amount of cash (the net cash loss) a company burns each month. If there’s $1,000 in revenue and $15,000 in monthly costs and revenue, then the burn rate is $14,000. This term was the talk of the town (Silicon Valley) in the dot-com days because it was so expensive to start companies then and huge amounts were burned monthly. But it’s still a useful measure to figure how long your money will last or how much you need to raise.
16. Data Scientist – Startups have a bothersome, self-aggrandizing, tendency to tend to put a new name on an old concept and then get all excited about it like it never existed before. This seems like it could be one of those terms (do we really think Proctor & Gamble hasn’t been splicing their own data every way imaginable for the last century?). But it’s not. The real definition of a Data Scientist is one who can not only make sense of user data, but also can code tools and solutions on top of those data sets, using the modern programming environments that startups favor.
17. Ruby on Rails. There’s enough subtle confusion among non-programmers here to warrant inclusion. While it sounds like a Coney Island rollercoaster, Ruby on Rails is actually is both an open source web application framework (Rails) and a programming language (Ruby). Rails is Ruby’s killer application and the two are used in concert so frequently, that it’s assumed that when someone refers to a “Rails app” they mean something made in Ruby on Rails. But you can actually write Ruby code in a non-rails framework (like Merb).
18. Lifestyle Business. Hearing this about your business is like a dagger in the heart for any entrepreneur. It’s meant to suggest that the business sort of runs itself and doesn’t have the potential to be a huge company. The implication is that you get a nice lifestyle out of it – go to the beach, not worry about too much. We’re pretty sure this was coined by an investor who’d never tried to start a company. Because the lifestyle is really rough, any way you cut it. If you want to strain a friendship, tell your friend the business they’re building is a “lifestyle business” – then call us and let us know how that went.
19. Inbound Marketing. This is not startup-specific, but startups have gleefully glommed on. Inbound marketing is an approach to online marketing that replaced the earlier methods of simply buying display ads elsewhere. It involves creating quality content designed to drive people back to your site, where they hopefully will convert to customers.
20. Liquidation Preference. Another investor term. It’s where VCs (and angels) get paid out first, before anyone else gets in on the action. If a VC has a “1X” liquidation preference and they invest $10 million, and the business is sold for $11 million, the VC gets paid $10 million and then everyone else splits the remaining $1 million. Ouch.
21. NDA. It’s short for Non-Disclosure Agreement – a brief contract where parties agree to not to share non-public information. If you ever pitch a VC, don’t ask them to sign it. They won’t – not because they want to steal your idea – but because they see so many ideas, it’s impractical for them to sign off on not talking about any of them.
If you haven’t had your fill, this thing –StartupDefinition.com – from RJMetrics is the best resource we’ve seen for looking up terms.
Now go forth (and disrupt yourself).
21 Jump Street: 80s crime drama that sparked Johnny Depp’s career
21: Disappointing 2008 heist-thriller starring Kevin Spacey and Kate Bosworth (it scored 36% on Rotten Tomatoes)
1984: Year the National Drinking Age Act passed, punishing states that didn’t enforce 21+ drinking laws
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