Glossary of Startup Terms
All the jargon and all the confusing Startup terms, explained and put into plain English!
A Glossary of Startup Terms…
Accelerator:
(see: Do your Research / Incubators and Accelerators)
Angel / Angel Groups:
A high net-worth individual or group of individuals who have raised a fund(s) which they wish to invest in startup or early-stage companies.
Articles of Association:
This is the main document each and every company has to complete and submit as part of the incorporation process in the UK. The document outlines how a company’s internal matters will be governed.
Cap Table:
A capitalisation table describes the ownership (capitalisation) of a company, by each person or organisation involved. Names and number of shares owned by each stakeholder – founder, investor etc. are all detailed and laid out. The cap table will develop and evolve as the company goes through different rounds of funding during its lifetime.
Dividend:
Dividends are payments made by a company, to its shareholders. Dividends are paid from a company’s profits, and usually in proportion to the number of shares held by each shareholder.
Due Diligence:
Due diligence is the process of vetting and validating a company as a potential investment. Typically this involves numerous background, legal, financial and credit checks, along with benchmarking a company against its market competitors.
Equity:
Equity is the ownership of an interest (stake) in a company. Most commonly equity is represented by shares or share options.
Exit / Exit Strategy:
An exit event may be a later-stage round of fund raising, a sale or an IPO. In any exit event, shareholders (founders or investors) will have agreed to sell their shares with a view to making a return on their initial investment. Exit Strategy simple refers to the plan any given shareholder has, for when they will sell all/part of their shares and ‘exit’ the company.
Founder(s):
A founder is a person who founded a company. This implies they were an initial shareholder in the company also.
Incorporation / Formation:
Incorporation is the process of registering a company (in the UK this has to be done via Companies House, the governing body).
Incubator:
(see: “Do your Research / Incubators and Accelerators”: link)
Intellectual Property (IP):
Any rights or non-physical resources that are presumed to give your company an advantage over other competitors in the marketplace. IP can include trade secrets, trademarks, patents, copyrights and licences.
Initial Public Offering (IPO):
An IPO is the process of taking a privately held company, and opening up its shares for sale to the general public. This is known as ‘going public’, and is a well regulated and formal process. In the UK, companies can ‘go public’ via either the FTSE or AIM markets, both are run and administered by the London Stock Exchange.
Investment Bankers:
Representatives from banking institutions who will invest in new business ventures, and have with an active interest in trading and distributing shares.
Investor(s):
Catch-all term for any person or company (other than a founder or existing employee) who purchases shares in a company.
Issued Shares:
The number of shares a company has issued and that are now held by its shareholders.
(Licensed) Intellectual Property:
Any intellectual property which a company has licenced out for use by other persons or companies.
Limited Liability Partnership (LLP):
A particular form of business incorporation. A business entity which is owned by ‘Limited Partners’ who either manage the company themselves, or employ other managers. All members and managers of an LLP enjoy the benefits of limited liability and typically are taxed as a general partnership, whereby the business entity is not subject to tax, just the members.
Mergers and Acquisitions (M&A):
Buying, selling, merging, and breaking-apart are all transactions that may take place as part of a corporate strategy. These are typically referred to as ‘M&A’ processes, and will often be managed by a dedicated ‘M&A’ team.
Non-Disclosure Agreement (NDA):
A contractual agreement to not disclose private or commercially sensitive information about a company (or persons), to a third party. The NDA will exist between one party, and those who they have disclosed the information to, and will usually exist for a fixed term.
Ordinary Shares:
The most basic and common share type. Typically within a startup, all shares owned by founders and employees will be ordinary shares.
(Owned) Intellectual Property:
Any intellectual property which is owned (or developed) by a given company.
Seed Funding / Financing:
Seed funding is the initial capital used to start up a business. Typically seed funding will come from personal savings of the founders, friends and family, or external parties such as business angels. Follow on rounds/stages of funding are commonly known as Series A, Series B, Series C etc.
Startup Funding / Financing:
This is the general term for early stage funding which is typically spent on product development and early marketing. Companies will usually not have started trading or selling their product(s) at this stage.
Term Sheet:
A term sheet is a document used to outline the key terms of an investment in a company, the current valuation agreed at the time of investment, and the capitalization table – the breakdown of shares and ownership between each shareholder. It will also outline any key financial and legal terms, along with rights of the different shareholders.
Venture Capitalist (VC):
Venture Capitalists are financial organisations which specialise in providing equity (or other long-term capital) to developing businesses. The businesses they invest in typically don’t have an extensive history of trading and may not yet be revenue generating, but will represent a significant expectation of growth and return on investment. Two of the modern day superstars of the VC ecosystem are Sequoia capital, and Andreessen Horowitz. In both cases, these VCs provide not just funding, but managerial advice, access to influential support networks etc.
