Startup Ecosystem
Startups have become an important part of the Indian economy and acts as a major source of FDI. With India on the course of becoming a $5 trillion economy by FY 2026, the startup sector is set to witness rapid growth and development.
India has already surpassed UK to become the third largest startup ecosystem after USA and China as per the Economic Survey 2021-2022. As per the survey, during 2021, 555 districts in India had atleast one startup compared to 121 districts in 2016-17.
Various Indian states are coming forward to fund startups to accelerate growth and increase employment. Tamil Nadu is one among such states that has under the StartupTN scheme set aside a fund called as TN Emerging Sector Seed Fund to flood startups with much needed cash.
The startup ecosystem’s potential is still unimaginable with 2-3 startups being registered on a day to day basis. In light of the above, we would like to define certain terminologies or lingos associated with startups in order to familiarize them and make them available to the masses.
| S. No | Term | Meaning |
|---|---|---|
| 1 | Angel Investor | An angel investor is a private investor, who is a high net worth individual who is willing to fund a small startup with cash to kick start its operations usually in exchange for ownership/equity in the startup. |
| 2 | Venture Capital | Funds provided by a venture capital firm to startups in exchange for equity. |
| 3 | Venture Capitalists | Companies, wealthy individuals or institutional investors who provide money in the form of venture capital to growing startup. |
| 4 | Seed Funding | It is the first official equity funding stage. Usually seed funding takes place even before a startup acquires the ability to generate cash flow. Generally a strong business idea is adequate to attract cash in the form of seed funding. |
| 5 | Series-A Funding | For the companies that reach series A funding, the investors ask for more than a business idea, they demand a long term strategy. Series-A funding is provided to companies to help them scale their product offerings. |
| 6 | Series-B Funding | Companies requiring Series-B funding are assumed to have crossed the development phase and now require cash to cater to the demand of their product or service offering. Cash for such purposes are raised by way of Series-B funding. |
| 7 | Series-C Funding | Companies that have already created a successful product, acquired a loyal customer base usually go for Series-C funding in order to expand or diversify. The companies at this stage have already proven their potential and exhibit considerably lower risk. |
| 8 | Stages of startup funding | 1. Self-Financing |
| 2. Seed Capital | ||
| 3. Venture Capital | ||
| 4. Series-A funding | ||
| 5. Series-B funding | ||
| 6. Series-C funding | ||
| 7. More Series funding, if required | ||
| 8. IPO (Initial Public Offering) | ||
| 9. FPO (Further Public Offering) | ||
| 9 | Going public or IPO – Initial Public Offering | A company can raise funds from the general public by way of listing its shares in a recognized stock exchange and allowing the public to subscribe to the shares in exchange for money. Typically startups prefer IPO only after their business is well established and is credit worthy. |
| 10 | FPO – Further Public Offering | It is also a method of raising money from the public by way of issue of shares. The only difference being, the shares of the company are already listed in the stock exchange at the time of a further public offering. |
| 11 | Crowd Funding | It is a modern day practice of raising funds by seeking small amounts of money from a large number of people typically via the internet. It is considered as an alternate type of financing. |
| 12 | Acquisition | Where one entity acquires or purchases a controlling interest in another entity often through an agreement – friendly acquisition or by acquiring shares of the entity from other investors in the open market – hostile takeover. |
| 13 | Benchmarks | Short term goals that a startup tries to achieve as a sign of growing business and as a measure of their current success. Generally investors set benchmarks for a startup to achieve to ensure that the startup is travelling in the destined path with the correct strategies. |
| 14 | Bootstrapped | A company is said to be bootstrapped if it is funded by the founder’s personal resources or the company’s own revenue. An individual is said to be bootstrapping when they attempt to establish and run a company out of their own funds. |
| 15 | Business Plan | A documented process for running a business. It includes the objectives, strategies, process flow and financial forecasts of the business. This is a static document outlining how a business will run. |
| 16 | Business Model | The process of generating and sustaining revenue. This is a dynamic document that how a company creates, delivers and captures value. |
| 17 | Burn Rate | It is the rate at which the startup is using its raised capital to fund its overheads before generating any positive cash flow/sales. |
| 18 | Debt Financing | A company can raise funds by issue of bonds, bills or debentures to investors instead of equity. This type of financing is called as debt financing. In the view point of an investor, debt financing is less risky when compared to equity financing. |
| 19 | Due Diligence | Due diligence is nothing but a detailed investigation on the affairs of the company. An investor would like to know everything about a company before investing his/her money in order to mitigate risks and uncertainties. During the due diligence process the startups’ management must exercise complete transparency and disclose all material facts regarding the affairs of the company including, pending lawsuits, patent disputes, mistakes in strategies, flaws in the business model etc. |
| 20 | Elevator Pitch | In order to attract funding, the founders of a startup must be able to impress the investors. An elevator pitch is a concise, carefully planned short description about the business idea that must be formulated in a way that a layman can understand in the time it would take to ride up an elevator. |
| 21 | Ground Floor | It refers to the very early stage in the life of a startup, it is generally considered to be the most appropriate time to invest in a startup. |
| 22 | Startup Incubator/Accelerator | Basically an incubator acts as a mentor for new startups. Incubators help entrepreneurs solve some of the problems commonly associated with running a startup by providing workspace, seed funding, mentoring, and training. Typically, startup incubators are not for profit organizations but some of them offer their services in exchange for equity. |
| 23 | Buyout | The ownership of the startup changes hands by way of purchase of equity/ownership. |
| 24 | Leveraged Buyout | A buyout becomes a leveraged buyout if the company is purchased with a strategic combination of equity and borrowed money. |
| 25 | Liquidation | The process by which the company ceases to undertake any business activities with the ultimate objective of closing the business and winding up the operations. |
| 26 | Non-Disclosure Agreement | It is an agreement wherein the parties decide not to share any sensitive or confidential information as mentioned in the agreement. |
| 27 | Proof of Concept | It is the demonstration of the feasibility of an idea or concept that a startup is based on. Typically, it is the result of an exercise to demonstrate that an idea can be turned into a real and functioning business model. |
| 28 | ROI (Return on Investment) | It is the rate at which the investors will get back their investment. Usually as a percentage of the money invested by them. It can also be defined as a financial ratio used to calculate the benefit an investor will receive in relation their investment cost. |
| 29 | Round | Round is a term used to indicate the stages of a financing activity. For example, the first stage of raising finance is general called as the seed round followed by series A, B or C rounds. |
| 30 | SaaS (Software as a Service) | It is a type of a cloud computing service model wherein a software product is hosted remotely usually over the internet so that it can used anywhere anytime by people having access. |
| 31 | Term Sheet | A term sheet is essentially a shortened version of an investment agreement. It essentially sets out the groundwork for ensuring that the parties involved in a business transaction agree on most important aspects of the deal. It is basically a very important document that is mandatory for raising funds. |
| 32 | Valuation | It is essentially a process of valuing the net worth of the business which can be done by various methods, popular among them being discounted cash flow method. However, a startup’s value can be ascertained easily using its last funding round. For eg. if a startup is prepared to offer 10% of its equity for Rs. 1,00,000. 100% of its equity will be valued at Rs. 10,00,000. (1,00,000/10%) therefore the value of the startup will be Rs.10,00,000. Investors use this method most often to determine the valuation of a startup if detailed parameters for an accurate valuation are not available. |
| 33 | B2B, B2C | They are business models signifying the nature of transaction the business will predominantly engage in. In a B2B business model, the business will offer its services or products to another business and not the end consumer. In a B2C business model, the business will offer its services or products to the end consumer. |
| 34 | Cash Flow Positive | Cash flow positive is a term that it is used to denote that the company is earning more than it is spending. i.e. the amount of money coming in is more than the amount of money going out. |
| 35 | Cash Flow Negative | Cash flow negative is a term that is used to denote that the company is spending more than it is earning. i.e. the amount of money going out is more than the amount of money coming in. |
| 36 | Pivot | It is a term used to denote a change in direction or strategy. A course correction for startups based on findings in various areas such as user testing and analysis. |
| 37 | Founder | The first person to execute an idea |
| 38 | Wantrepreneur | Wantrepreneur is a person who has an idea and wishes to act upon it. A budding entrepreneur. |
| 39 | Scalability | The ability of a business to grow with an increase in resources |
| 40 | Unicorn | Startup valued at over $ 1 billion/100 crores |
| 41 | Dragon | A startup that raises over $ 1 billion/100 crores in a single finding round |
| 42 | Iteration | Each repetition of a process is a single iteration, it basically means creating something new by altering some components of an already existing process |
| 43 | Disruption | Radical change to an existing industry or market due to technological innovation |
| 44 | Lean | Lean manufacturing is a production method aimed primarily at reducing times within the production system as well as response times from suppliers and to customers. |
| 45 | Agile | Agile software development refers to software development methodologies centered around the idea of iterative development, where requirements and solutions evolve through collaboration between self-organizing cross-functional teams. |
| 46 | Exit | An exit occurs when an owner decides to end his involvement with a business |
| 47 | Aqui-hire | It means acquisition of a business primarily for its employees or workforce |
| 48 | Alpha Release | Releasing an incomplete product or service for testing. Alpha testing is usually carried out by the employees of the company. |
| 49 | Beta Release | Releasing an incomplete product or service for testing and feedback. Beta testing is usually carried out by the public opting to beta test. |
| 50 | Board of Directors | Group of people belonging to the leadership committee who oversee the activities and business of the organization. |
| 51 | Business Development | The activity of pursuing strategic opportunities for a particular business or organization. |
| 52 | BM Canvas | Business model canvas is a method for determining a company’s business model in a visual, straightforward way |
| 53 | Hockey Stick | A hockey stick is a term used to denote a sharp increase in a graphical chart. |
| 54 | Pitch Deck | A pitch deck is usually a 10-20 slide presentation designed to give a short summary of your company, your business plan and your startup vision |
| 55 | Freemium | A pricing strategy where products or services are free. It is the most commonly used entry strategy. |
| 56 | Value Proposition | A value proposition refers to the value a company promises to deliver to customers should they choose to buy their product or service. |
| 57 | Consumer Products | Products or services that are offered for sale to the end customers. |
| 58 | Enterprise Products | Products or services that are offered for sale to other enterprises or businesses. |
| 59 | Competitive Advantage | A competitive advantage is an attribute that enables a company to outperform its competitors. Competitive advantage refers to the factors or attributes that allow a given company to produce more affordable or higher quality services or products than its rivals. |
| 60 | The Hacker Way | It is an approach to building a product or service that involves continuous improvement and iteration. |
| 61 | Intellectual Property | Intellectual property is a term that is used to define intangible assets that are not physical in nature, Intellectual property is a category of property that includes intangible creations of the human intellect. |
| 62 | Customer Development | Customer development is the formal process of identifying potential customers and figuring out how to meet their needs |
| 63 | P/M Fit | Product/Market Fit describes a scenario in which a company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s growth and profitability |
| 64 | Growth Hacking | Growth hacking is an out of the box marketing strategy used to get the maximum number of users with minimal spend. |
| 65 | Evangelists | Evangelists are person who use the product or service for the first and share their feedback. |
| 66 | The Chasm | The transition period in between the version of the product used by the early users and the version meant for the mainstream consumers. |
| 67 | SEO | Search engine optimization is a process to increase the search engine ranking of the website so that the search engine will be able to rely on the company’s website for search results. |
| 68 | Target Market | The group of customers that the business is targeting for sales. |
| 69 | Traction | Traction is proof of your concept and business idea. It also means that the customers are believing in the product and are recommending the same to others. |
| 70 | Inbound | Inbound is the idea of attracting customers through effective and valuable content where the customer takes notice and drops in an order based on what he sees or observes. |
| 71 | Outbound | Outbound is the idea of pushing customers to purchase by calling or targeted advertisements. |
| 72 | KPI | Key performance indicators are measures of short term success |
| 73 | A/B Testing | It is a method of comparing two versions of a webpage or app against each other to determine which one performs better. |
| 74 | LTV | Life time value – life term return per customer |
| 75 | CAC | Cost to acquire a customer |
| 76 | LTV:CAC | LTV: CAC is a tool for measuring the efficiency of a crucial part of the business, the sales and marketing funnel. It does this by asking a simple question: is a customer worth more (LTV – Lifetime Value) than what it costs to sell to them (CAC – Cost to Acquire a Customer)? |
| 77 | Churn | Churn rate is the percentage of customers who cancel their subscription to your product or service within a given time |
| 78 | Retention | it is the ratio at which the startup is able to retain its customer. It is also a measure of customer loyalty |
| 79 | Activation | User activation is what actually activates your users and makes them use your product. It’s actually the process when the user completes the action of converting from trial to the premium user account. |
| 80 | Brand Activation | he phrase essentially refers to the process of making your brand known to people, increasing awareness and engagement through some kind of brand experience. |
| 81 | Cash Flow | The amount of money flowing into the company and the amount of money flowing out of the company |
| 82 | Pre-money valuation | It is the value of a startup before a investing/funding round |
| 83 | Post-money valuation | It is the value of a startup after a investing/funding round |
| 84 | Cap Table | a cap table is a spreadsheet that shows, who owns how much of your company. Each row may list a shareholder, their ownership percentage, the number of shares that percentage represents, the value of each share and a total value |
| 85 | Sweat Equity or ESOP (Employee stock option) | Equity shares of the company allotted to the employees as a gratitude for their efforts and time. |
| 86 | Revenue | Money earned before deduction of expenses |
| 87 | Income | The actual money earned by the startup after deducting expenses incurred for carrying out the business. |
| 88 | Vesting | it is commonly referred to as the mandatory time taken for completion of an event. It is more relevant during the ESOP option where the employee has to wait for a predetermined amount of time to become the actual owner of the shares allotted to him/her. |
| 89 | Cliff | Cliff vesting is when an employee becomes fully vested on a specified date rather than becoming partially vested in increasing amounts over an extended period |
| 90 | Front End | it is the part of the website or the app that the user interacts with directly. Also, front end hardware means the devices that can be directly accessed by the users. |
| 91 | Back End | The back end refers to parts of a computer application or a program’s code that allows it to operate and that cannot be accessed by a user. Most data and operating syntax are stored and accessed in the back end of a computer system. Back end hardware means the devices that a user cannot access but are essential to the functioning of the front end devices. |
| 92 | Compilers | Compilers convert the code to machine level language |
| 93 | API | Application Programming interface is a software intermediary that allows two application to talk to each other |
| 94 | Open Source | Open source programmes are the programmes or application whose underlying code is available on the open market for everyone to use for free. |
| 95 | Framework | A framework in programming is a tool that provides ready-made components or solutions that are customized in order to speed up development. It can also be referred to as a collection of reusable codes. |
| 96 | Concurrency | Concurrency means multiple computations are happening at the same time. It is the ability to run several programs or different parts of a program in parallel. |
| 97 | CRUD | Create/Read/Update/Delete – these are the four basic functions of persistent storage. |
| 98 | Database | A software application that has the ability to store and analyze data using various inbuilt tools. |
| 99 | Cache | supplementary memory system that temporarily stores frequently used instructions and data for quicker processing by the central processing unit (CPU) of a computer |
| 100 | Operating System | An operating system is the most important software that runs on a computer. It manages the computer’s memory, processes, software and hardware. It acts as a bridge between the software and hardware resources for effective and efficient functioning. |
| 101 | User Interface | User interface is everything that the user can see and interact with. |
| 102 | User Experience | It is how the customer feels after using the product or service. |
| 103 | Usability | Usability is a way to measure how easy a product is to use. |
| 104 | Accessibility | Accessibility is the practice of making your websites usable by as many people as possible. |
| 105 | Wire Framing | A wireframe is a schematic or blueprint that is useful for programmers and designers to think and communicate about the structure of the software or website they are planning to build. It can also be defined as a static, low-fidelity representation of the different screens and pages that form a website. |
| 106 | Interaction Design | the practice of designing interactive digital products, environments, systems, and services. |