Startup Dictionary: Terms that everyone should know

The startup world requires certain qualities in an entrepreneur. Passion and courage are the prime ones. Without them, nobody can survive in such cut-throat competition. However, we cannot forget the role of research and knowledge. Without these two, one cannot even begin the journey. This world of startups is unique as it has some embellished with some terms that you won’t find anywhere else. These terms are not directly linked to the knowledge or research part buy they ease the journey if you know
the meaning of them beforehand. So, here we are with the most basic concepts of startups that everyone should know of:

1. Crowd Sourcing: It is the collection of work, information, opinions, and views from a large group of people who submit their data via surveys conducted online or offline. Many businesses use crowdsourcing to get a better idea about their products and services. This cuts the costs and saves time and increases the speed. Through crowdsourcing, companies can outsource work to expert individuals
   as well that can help them in avoiding in-house employee costs, thereby saving money and ensuring quality.
2. Deck: Deck or the pitch deck is a presentation that founders or entrepreneurs form to pitch their idea to the investors while seeking funding. It entails the details of the product, the company, its team, its financial projections, etc. It covers all the aspects of the business so that investors get a proper idea of where they are investing,
3. Demographic: Demographic is a general expression that is used to describe the characteristics of the target market. The characteristics include age, gender, income, tastes and preferences, location, education, occupation, etc. of the targeted consumer market. This helps in market research to design the product in a better manner.
4. Escrow: It is a concept where an asset is held by a third party on the behalf of the transacting parties until the transaction is completed or some specified conditions are met. It is operated by the parties to cover the risk of default by one party. The company managing escrow generally charges the fees. This kind of security is desirable in high-value transactions exclusively in startups, where high-value investments are frequent.
5. Exit Strategy: Exit strategy is the plan to dissolve the existing stake in the startup. On the part of investor, any investor can simply exit the startup by selling the stake to any other investor or back to the company itself. On the part of startup, exit strategy can involve selling a startup to another company for a profit to founder and the investor. It can also involve taking the startup to public through listing i.e. launching an IPO.
6. Moats: Moat is generally a line of defense to secure the fortress by digging a trench and filling it with water. Similarly, a moat, in business and economics, means developing and maintaining competitive advantages by the companies over their rivals. Such advantages are crucial to preserving long-term profits and market share. In startups, distinctive advantages (cost or product) must be attained and sustained otherwise the startup can collapse.
7. Pro-rata rights: It is a legal right that is being given to the shareholders to maintain the same percentage of ownership after every round of financing. It is a right, an opportunity, not an obligation. If the concerned investor does not wish to avail of the opportunity, it is completely alright. This is generally given to investors to maintain the same level of ownership, thereby, decision-making power.
8. Runway: It is a time period that shows that with the current level of revenues and expenses, how long a startup is going to survive. Usually, a startup has a runaway of 6 to 18 months. The runway is important to understand the startup financial condition. It is not under acceptable limits, then it can be problematic for both investors and the startup.
9. ‘Testing the Waters’: It means gouging the investors’ interest before completing legal compliance work or disclosing material information. It is usually done by the founders to see whether it is worth the efforts to go ahead with the fundraising process at all.

These terms do not cover everything but they are enough to get you going in the startup universe, be it you are an investor or an entrepreneur as far as knowledge is concerned. For more details, keep checking our space and reach out to us at [email protected]. We will be more than happy to help you out.