Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Whether you are an early-stage business owner, or an investor in one, it helps to have a strong grasp of the jargon you’re likely to encounter at each funding stage. Below, our investment team at Bure Valley group offers this short guide on essential startup investing terms for 2022.
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This refers to the whole process of coming up with a startup idea – e.g. sketching, mind mapping and testing prototypes. Here, the team discusses consumer problems that need fixing and offer solutions to address them.
Typically shortened to VC, a venture capitalist is a special type of investor who provides funding to a company in exchange for an equity stake. VCs often take the form of a limited partnership which holds a fund (where investors place their capital).
The governing committee then vetts a range of early-stage opportunities to invest in, on the investors’ behalf. VCs do not typically put their money into startups at the initial stages, but rather once the startup shows commercial viability.
Many companies get bloated very quickly – taking on too many staff, using overly-complex processes and letting overheads eat excessively into profits. A lean startup is an early-stage company which rapidly builds a minimum viable product (MVP) and uses data to continually make refinements to business efficiency, product quality and return on investment.
After the business founder(s) get their idea(s) to solve their consumers’ problems, it is now time to acquire funds to start building the business. Startup capital is the official name for this money. It is usually acquired from investors and can be deployed for a range of purposes including staff wages, equipment, licenses and inventory.
Key performance indicator
Typically short-handed to the term KPI, a key performance indicator is a measure of a crucial metric in business performance – showing progress towards a defined goal. For instance, a KPI could be the number of leads generated each month from a website, social media and other marketing channels. These are different from “vanity metrics” which can make the business owner feel good, but which do not ultimately affect the bottom line (e.g. social media “Likes”).
If a startup operates a subscription based business model, then it is inevitable that at least some subscribers will eventually leave the service after initial sign-up. The official term for this is the “churn rate”. Naturally, a startup will want to reduce this as much as possible and demonstrate to investors that their product/service has high “sticking power” for customers. This makes it far easier to build a loyal customer base and expand business revenues.
Proof of concept
As an investor, how can you be confident that a startup’s product or service will resonate well with the target market – leading to high sales volumes? Perhaps the best indicator is past proof of concept, where the startup has already shown some success in selling with a small customer base. Or, perhaps the business founder(s) can demonstrate high likelihood of consumer interest through market research – such as surveys.
Even the best-laid startup plans can go awry due to unforeseen circumstances (e.g. COVID-19). Here, a business may need to “pivot” in a new direction quickly to remain viable. Perhaps this requires selling an entirely new product or service to a completely new market. Regardless, an investor should consider the built-in flexibility of given startup opportunity before investing in it.
Alpha & beta test
Alpha comes before beta in the Greek alphabet, and refers to the first stage of testing a product within the confines of the startup’s team. This might involve developers running simulations of a SaaS product (software as a service) on the company’s computers, to ensure the programme works properly. Later, the product can move to the “beta” stage where it is tested on users within a production environment. This is typically where crucial feedback can be given on functionality and user experience before the product is released to the wider marketplace.
Business founders do not always need to turn immediately to outside investors for funding. They can first turn to their own pockets – and those of friends and family members – to get the idea off the ground. This is called bootstrapping, and whilst funds are typically more limited here, there is less pressure to meet investor expectations – giving founders more freedom to experiment.
Think of a baby in its first few days of life. It requires constant care and may even need to be put in an incubator to keep nurturing it to survival. An early-stage company is often similar to this, and a fixed-term programme can be helpful in helping the business get through the difficult initial months and years to become more self-sustaining. An accelerator can play a crucial role here – often helping a company “speed up” its development after an initial incubation period.
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