People don’t invest in ideas, they invest in ideas that have existing momentum. Ideas with momentum are deeply validated, they have pre-registrations, partnerships, hype, and a strong story. When you have momentum it’s a lot easier to raise your Pre-Seed investment round.
Once your product is out in the market you need to hit a few key milestones to raise your Seed round of investment. Traction isn’t about having a huge volume of users, customers, or revenue...it’s about how your ratios and numbers stack up.
Target Market or ‘Tribe’
We call it a tribe because it makes more sense. Your tribe is the audience you are targeting for your product or service.
When any product launches, there is always a segment of the tribe who will embrace the solution as early adopters. These people are the ‘trendsetters’ that love to be the first to use cool new things.
The graphical interpretation of a fast growing revenue line as forecast with many internet start-up's.
Also known as disruptive innovation. An innovation or technology is disruptive when it "disrupts" an existing market by doing things such as: challenging the prices in the market, displacing an old technology, or changing the market audience.
Losing a customer or user e.g. “our churn rate is 20% per month”.
Adapting your product based on customer feedback.
A huge change in direction for your product or business model.
MVP or Minimum Viable Product
When you launch a product it should be as lean and simple as possible. This is called your MVP. Then after launch you will iterate based on customer’s feedback.
B2B or Business To Business
When a company’s core product or service is only offered to other businesses it is categorised as B2B.
B2C or Business to Consumer
When a company’s core product or service is only offered to consumers it is categorised as B2C.
This is how startup founders get rich. It's the method by which an investor and/or entrepreneur intends to "exit" their investment in a company. Commons options are an IPO or buyout from another company. Entrepreneurs and VCs often develop an "exit strategy" while the company is still growing.
When an employee of a company gains rights to stock options and contributions provided by the employer. The rights typically gain value (vest) over time until they reach their full value after a pre-determined amount of time. For example, if an employee was offered 200 stock units over 10 years, 20 units would vest each year. This gives employees an incentive to perform well and stay with the company for a longer period of time.
When two companies join forces to become a joint entity.
SaaS or ‘Software as a Service’
A business model where a company sells access to their software as their core service. SaaS products use monthly subscription models unlike old-school software solutions that have large upfront costs.
Doing a lot with little. ‘Bootstrapping’ is running your business without getting investment. It only works well if you have a full team executing all the functions.
A business model that offers a free plus a premium option for the product. Spotify is a good example of this model.
A business model where a software platform facilitates two parties transacting with each other. Generally a marketplace platform takes a percentage of the transactions.
Product Market Fit or PMF
When you have iterated your product to the point that you have built a sustainable, scalable, and repeatable model. Put simply, your target tribe loves your thing.
Your first round of investment, often used to build your product and pay yourself a small wage as the founder. A Pre-Seed round is often around the $200-300K amount. You raise Pre-Seed once your idea has momentum.
Your second round of investment that you raise once you have traction with your product. Seed rounds are typically over $1M and startups will use this cash to hire a decent sized in-house team.
Series A Round
Your third round of investment (unless you do a ‘Seed B’ round). You raise Series A after you reach product market fit. For this round, it’s normal to raise $7-8M+ and you’ll use this money to expand a model that is already working well in a smaller geographical location.
A trendy way of saying “valuation” so you don’t have to say two unnecessary syllables. You valuation is simply how much your company is worth.
The valuation of your company prior to an investment. Your company will have different valuations before and after each investment round.
The valuation of your company after an investment round.
The presentation slides you’ll use when pitching investors. Your pitch deck should be visual, simple, and include roughly 15 pages.
IM or Information Memorandum
This is the document you give to investors after you've nailed your pitch. It contains more in depth information about your startup, including the problem and solution, the product, your traction so far, the financials, and your team.
A table you put in your IM to show how your company is split up across the current shareholders. You’ll also show the amount of shares available for purchase in that particular round.
DD or Due Diligence
The process that begins when an investor has agreed in principle to invest in your startup. They don’t say yes and immediately transfer all the money to you in one hit. Investors check that everything you’ve said is true. For this process you create an online ‘DD Pack’ which is a bunch of documents you store in Google Drive or Dropbox to share with your investors.
A simple document outlining the terms of the investment you are seeking.
ROI or Return On Investment
Investors only care about one thing: when they get their money back. So you need to present their ROI clearly in your investment materials.
The rate you spend (lose) money in your startup. For example, “We are burning $30K per month.” Startups usually take at least a couple of years to become cashflow positive, so it’s normal to be burning money in the early days. Though startups often make the mistake of being over-resourced in the early days and their burn-rate is too high.
Capex or Capital Expenditure
The funds you use to build your product.
Opex or Operational Expenditure
The funds used ongoing to maintain and run your product.
Pre-Product & Post-Product
Investors will take note of whether or not you have made your product or not in considering your valuation.
Pre-Revenue & Post-Revenue
Investors will take note of whether or not you have made revenue or not in considering your valuation.
Amount of time you have left until you run out of cash, based on your burn rate. For example, if you have $1M and your burn rate is $100K per month, you have a 10 month runway.
IPO or Initial Public Offering
A private company becomes public by selling their stock shares. Young companies usually do this to expand and gain capital. Also referred to as "going public".
Copywriting (not to be mistaken with copyright) is the fancy term for writing. A copywriter will typically write the content for websites, blogs, advertisements, and so on.
A one-page website that has very few clickable options, meaning it will have a high conversion rate from visitors to leads or sales.
A/B Split Testing
A/B testing is a way of comparing two or more versions of your website or app to determine which one your customers prefer.
Marketing ROI or Return on Investment
When you spend a dollar on marketing, you’d want to make back $5. This is called your return on investment.
CTR or Click Through Rate
The percentage of people who click on your ad versus the total people who have viewed your ad (views are called ‘impressions’). Use this data to gauge how well your ad is performing.
CPC or Cost Per Click & CPL or Cost Per Lead
The total amount you pay per click and per lead in your marketing efforts. For example, if you spend $100 on a Facebook marketing campaign and get 1000 clicks on the ad and then 50 leads from your landing page, your CPC was 10c, and overall your CPL was $2.
CPA or Cost Per Acquisition
The total cost for you to acquire a user or a customer. Your CPA will include any marketing spend used plus the cost of any physical time spent (wages) to convert the lead to a user or customer. For example, if your CPL is $10 and your sales guy converts 1 lead out of every 4, and you pay him $100 per converted sale, then your CPA is $140.
EDM or Electronic Direct Mail
This is a bulk email you send to your customers for a newsletter, special offer, or any other type of campaign.
A philosophy of software development that promotes incremental development and emphasizes adaptability and collaboration.
API or Application Programming Interface
If we explain in detail what an API is, you probably won’t understand it. It’s kinda confusing for a non-tech nerd. But picture the API as the brain of a software product, it’s what everything connects to. It’s what creates the rules. If it breaks, everything breaks.
UX or User Experience Design
UX design is about creating the experience a user has when they use your product. For software, UX is all about reducing the ‘friction’ in the workflows to make the product simple and intuitive to use.
UI or User Interface Design
The UI of a software product is simply the interface the user interacts with. Great UI designers understand the current design trends in the market that are working well in other products and they integrate these trends into their own designs. Cutting-edge UI will always feel modern and be aesthetically pleasing.
AR or Augmented Reality
AR connects real world experiences with software. Picture a mirror in a shopping centre where you can digitally try on clothes without actually trying them on. Snapchat’s interactive filters and Pokemon Go are other good examples of AR.
VR or Virtual Reality
A completely virtual environment made by coders that a user can interact with by using certain devices. For example, The Matrix...but less creepy.
IoT or the Internet Of Things
This one can get complex if we go too deep. An easy way of explain IoT is connecting non-obvious things to the internet so it can automatically do stuff. Think a fridge that orders your groceries, or a bed that warms and cools automatically based on your temperature as you sleep and sends this data to an app on your phone.
When someone views your website, regardless of whether it’s on laptop, mobile, or tablet it needs to look killer. A responsive website automatically scales to be easy to use on any device. Having a non-responsive website these days is a big problem.
A revision of the code base that is released to the public. Releases are usually tagged with a version number which is used for a number of things, including bug reporting, roadmapping, and issue tracking.