What Is a Startup?
The term startup refers to a company in the first stages of operations. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand. These companies generally start with high costs and limited revenue, which is why they look for capital from a variety of sources such as Angel Investors, venture capitalists etc..
There are various terminologies associated with startups which are useful for pitching to potential investors and running a business and here we are taking this endeavor to explain few in our series on startups terminology:
| S. No. | Startup Term | Meaning |
| 1 | Angel Investors | They are the investors who invest in startups at the very beginning, without any business model and without any revenue. They invest based on their belief in founders of what they capable to bring into table and not on the idea that founders have. Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth. |
| 2 | ARPU | Average Revenue Per User: At the point you start your revenue and how many transacting users are there, if you devide the total revenue with transacting users you will get ARPU. ARPU can be used by any business, but it’s more relevant for those with a recurring revenue model, such as subscription companies – SaaS in particular. |
| 3 | Acqui Hited | In case startup doesn’t do well, but the talent that you have created including founder is very strong, technology is very strong then someone can Acqui Hired the talent, the people and technology from the startup. For this you will join that startup and you will be given a designation , a salary, you will build something independently. Money or Cash will not exit from startup but you will have another place to build your new idea in. |
| 4 | Aplha Testing | Your product is about to be launched, but you have released a version of your product which you have internally circulated to employees and engineers for testing. During Alpha Testing only functionality and usability are tested within the organisation. |
| 5 | Beta Testing | Beta testing can be considered “pre-release testing.” Beta testing is also sometimes referred to as user acceptance testing (UAT) or end user testing. In this phase of software development, applications are subjected to real world testing by the intended audience for the software. You will give a very basic version of your product to a few of your customers so that they can test it, so it will go outside of your company, but it will not go to the entire market. |
| 6 | Bootstraping | It means that you do not take any money from outside and will run startup from own money and which also include the contribution from friends and family. Means starting business or startup with own money or with help from friends and family. Originally most of the business are self funded and do not reply on traditional financing method. |
| 7 | Burn Rate | It means the amount that you lose every month as a loss. So if you are in early days and your revenue cannot fully compensate for your cost. So Revenue minus total cost is called as the burn rate. The burn rate is typically used to describe the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow. The burn rate is usually quoted in terms of cash spent per month. |
| 8 | Business Model | Its an Excel Sheet which clearly show that month on month, quarter on quarter, year on year how will your business do in terms of revenue, expenses, profits/loss. This is a forward looking projection but it also includes past data, so if you already have a start up then whatever monthly revenue and cost and thus profit/loss you have had in past that will be the part of the business model and how do you project it in the future is part of the entire business model. A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition. This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors. |
| 9 | Business Plan | Business Planning is done along with business model, which is what is the product strategy? Who are its customers? What is its go to market? How are we going to compete with competition? Naturally what is the business model? Based on it, how will we project what would be our valuation? How big can we become? all of that is part of business plan founder present to someone to convince them of your business. |
| 10 | Cap Table | Cap table means who are the shareholders of the company and what percentage of owndership do they have? This is important while raising investment since investors are interested in knowing what is the current ownership? And then after the investment, how will the cap table change, how will the ownership change? |
