The startup world comes with its own unique language packed with
jargon and acronyms. Understanding the vocabulary that drives the
startup ecosystem is like having a map in unknown waters—it shows the
road forward in the face of doubt and ambiguity. While you don’t need to
know every buzzword right away, there are some foundational startup
terms and definitions that every founder should understand. Whether
you’re a seasoned entrepreneur or taking your first steps into the startup
world, these terms would definitely help you while pitching your startup in
front of investors, understanding a pitch deck, or even understanding
various metrics of your startup.
- Due diligence: In the context of startup, due diligence refers to
the audit of the firm conducted by angel and venture capital
investors before determining whether or not to invest.
Everyone that has ever watched Shark Tank or any other show where
a millionaire investor puts in money in businesses might be familiar
with due diligence. For example, Through-out the show, investors
are introduced to several firms, along with their financials and
predicted growth. The entrepreneur’s presentation is polished and
confident, yet it ends abruptly due to withholding crucial
information. Investors typically discover a concealed debt, a pending
lawsuit with a previous partner, some type of ethical concern or
some plagiarised promises to the potential investors or with the
goods being provided. - Runway: Runway refers to how many months your business can
keep operating before it’s out of money. It’s important for
sustainability and financial planning since it shows how long the
company can run on its current level of money. It is determined by
dividing available cash by the monthly burn rate and reflects the
pace at which the startup spends money.
- Net Promoter Score (NPS): A metric called Net Promoter
Score (NPS) is used to gauge how satisfied and loyal customers are
with a business or product. “On a scale of 0 to 10, how likely are you
to recommend our product/service to a friend or colleague?” is the
basic question that forms the basis of this survey. Three groups of
respondents are identified: those who score 9–10, those who score
7-8, and those who score 0-6, or promoters.
Subtract the percentage of Detractors from the percentage of
Promoters to get the Net Promoter Score (NPS). If all respondents
are Detractors, the score can be -100; if all respondents are
Promoters, the score can be +100. NPS offers insightful data on
overall customer happiness and loyalty, which helps companies
assess their performance in comparison to rivals and pinpoint areas
for development. - Gross merchandise value (GMV): GMV stands for Gross
Merchandise Value. It refers to the total sales value of merchandise
sold through a particular platform, marketplace, or e-commerce
website over a certain period of time. GMV includes the total value
of all goods or services sold, regardless of whether the platform
retains a portion of the sales revenue as commission or fees. It is an
important metric for evaluating the scale and growth of e-commerce
businesses and online marketplaces. It’s a metric that is most
commonly used in the E-Commerce industry. - Capitalization table (Cap Table): A cap table (also called
capitalization table) is a spreadsheet for a startup company or early-stage venture that lists all the company’s securities, such as common
shares, preferred shares, warrants, who owns them, and the prices
paid by the investors for these securities. It indicates each investor’s
percentage of ownership in the company, the value of their
securities, and dilution over time. For investors, the cap table aids in
assessing founder motivation, predicting future dilution, evaluating
talent attraction, and determining investment amounts. For
founders, it facilitates effective company management, guides
employee option pool management, and ensures compliance for
audits and future financing rounds.
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