Jul28
Jargon Busting Investment Dictionary

Jargon Busting Investment Dictionary

Posted by Guest Blogger

One of the strange quirks of the Silicon Valley boom is the effect it has had on our everyday lexicon. A slew of vocabulary words or phrases that didn’t exist ten years ago outside a very niche business world—startup, bootstrap, sharing economy—are now familiar to anyone who reads a magazine or front page of a newspaper. Nowhere is this more true than when it comes to financing and investing in the startup world.

As the Wall Street Journal put it: “Talk to the entrepreneurs who populate San Francisco, Silicon Valley or New York City’s Flatiron District, and you might think you’ve landed in a foreign country. The startup world is full of jargon that can sound odd—if not downright indecipherable—to outsiders.” One of the main areas of jargon in the tech world is around the one thing that enables it all: money.

If you’re in the business of startups, that basically means you’re in the business of raising capital. By definition, a startup is one that is in the process of creating a rapidly-scalable business model; while it reaches the point of profitability, it needs investment. Being even peripheral to this world means you need to understand the basics of how fundraising works in the Silicon Valley bubble. Even if you’re not raising money yourself, you almost certainly know people who are.

Here are the top jargon busting definitions:

Y Combinator: A Y Combinator is an accelerator or incubator where startups obtain mentorship and advice while they try and build their idea. There are other accelerators, but Y Combinator is the most prolific and influential. It’s significant investment-wise because Y Combinator alums very often attract high investment. At the end of each “class” a demo-day takes place where the accelerator presents its graduates to investors.

Bootstrapping: A Bootstrapping startup is one that has decided to not seek investment. That is, it has a viable business model, and until it gets to profitability it relies on savings or the generosity of family, friends and others. A more prudent way to run a startup fiscally speaking, bootstrapping is raising in profile as profligate spending in the Valley gets more and more criticized.

Funding rounds: The stages of a startup’s funding process are thrown around often in Valley-speak, without much context. It starts with Seed funding, or the first round of funding that a startup seeks. Next, A, B, and C rounds follow. Each round usually focuses on different aspects of the business, with Seed being more on market research and product or service development, and subsequent rounds coming after the startup has developed a business model that has viable sustainability. As Investopedia put it: “Series A, B, and C funding rounds are merely stepping stones in the process of turning an ingenious idea into a revolutionary global company, ripe for an IPO.”

A-Pass: Another term that refers to early investment, A-Pass is used when an investor is interested, but not interested enough to invest in a seed round. Maybe they want to see more proof that the startup has viability, so they simply take a “pass” until the A round funding comes along.

Burn rate: A burn rate simply indicates how quickly a startup is blowing through the investment they’ve raised. A high burn rate can be troubling to investors when a company is asking for more money, as it indicates that it may not be particularly sustainable in the long term.

Hockey stick: This describes a “growth curve” which any startup founder wants to see. In practice, it means that your startup has to either double sales or users (whatever is a more relevant metric) each year that it operates, resulting in exponential growth.

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