As a startup founder or investor, it's important to understand the language of business. This jargon-filled glossary will help you decode the most commonly used terms and phrases in the startup world. From "angel investors" to "different stages of funding," we've got you covered! By understanding these key concepts, you'll be on your way to becoming a savvy startup CEO or board member. So what are you waiting for? Start browsing!
Advance Assurance: Advance assurance is a process startups need to go through to ensure they are eligible for EIS or SEIS. It involves a simple online application to HMRC, which most startups should complete themselves.
Advanced Subscription Agreement: An advanced subscription agreement is an investment agreement used by startups to receive funding as soon as each investor is ready to commit, rather than waiting until the whole round is completed and the terms are finalised. It is designed to be EIS-eligible.
Angel Investing / Angel Investors: Angel investors are individuals who invest their own money into exciting new companies. Their criteria are as diverse as they are, but they are more prevalent in the earliest funding stages. They can generally benefit from [SEIS and EIS] relief in the UK.
Angel Syndicate: Angel syndicates manage deal flow, due diligence, and transactions on behalf of their angel investor membership. They bring deals to their members, who then decide if they will invest their own money in the companies. Some operate their funds to invest alongside their angels as well. They often utilise live pitching sessions or monthly/quarterly events to connect startups with investors. Some will have a specific sector or geographic focus.
Bootstrapping: Bootstrapping is a common term in startup land which means building a business through the efforts of the founders alone, with no third party investment. Founders are often advised to “bootstrap” for as long as possible before seeking investment to maximise the credibility of the business proposition and to minimise dilution.
Different stages of funding: Companies go through different stages of development, throughout which they need different stages of funding. Companies and investors have different expectations at each funding stage, although these can vary depending on the business model, technology, and geography.
EIS and SEIS: EIS is the Enterprise Investment Scheme, and SEIS is the Seed Enterprise Investment Scheme. They are UK Government schemes to encourage investors to make high-risk investments in early-stage businesses by offering significant tax incentives.
Executability: Investors want to see a team that they’re confident will make the right business decisions to grow the company and, also, have the ability to execute on those decisions. This is the area which is most variable from investor to investor but assessing your own team from the perspective of technical, business and domain expertise and filling any gaps will help!
GTM strategy: GTM or Go-To-Market strategy is the strategy for addressing and penetrating a startup’s target market. GTM strategy should be a key component of a startup’s investor proposition, and is different from marketing strategy, as it describes the order in which sub-sectors of the target market will be addressed, and the specific business proposition and tactics to be used to generate take-up.
Market Opportunity: Investors want to know that your business’ total addressable market (TAM) will be large enough to accommodate a scaling business and that there is an opportunity for a new company to win market share.
MVP: MVP is Minimum Viable Product. Under lean startup methodology founders develop the simplest possible working prototype (MVP) of their product or service so that it can be demonstrated and tested in the market, to assess demand and identify modifications as quickly and cost-effectively as possible.
Product market fit: Product Market Fit is the stage in a startup’s evolution where there is clear evidence that the product or service meets the demands of its target market, evidenced by sales and testimonials. Investors use product market fit as a way to judge the risks and rewards or a potential investment, but what exactly constitutes product market fit can be a matter of subjective opinion.
SAM: SAM or Serviceable Available Market is the portion of the TAM within reach and can be acquired based on the business model. SAM is a subset of TAM and is typically used to scope the shorter-term opportunity by quantifying the available market demand within a specific geographical boundary.
SOM: SOM or Serviceable Obtainable Market is a portion of the SAM which the startup can actually acquire. It refers to a realistic percentage of the SAM, assuming that it is almost impossible to capture 100% of the market, which the startup can capture immediately. In other words, how many clients can benefit from your products and services today!
Sophisticated investor: A sophisticated investor is one who has sufficient experience and investible capital to engage in higher risk investment classes, such as startup investment. Securities regulators such as the UK’s FCA use classifications like this to prevent inappropriate securities being marketed to inexperienced investors.
Scalable Business Model / Scalability: A company’s scalable business model, or scalability, measures its ability to scale. Our assessors assess the degree of operating leverage and possible barriers to scaling (such as regulatory risk or difficulties in entering new territories) to determine a startup’s scalability. Scalability is essential to investors because it measures a business’ ability to grow quickly as demand increases.
TAM: TAM or Total Addressable Market is the total potential market demand for a product or service. It refers to the maximum available market and is often used to estimate its growth potential. It typically indicates the maximum revenue potential if every client were to be captured by the startup.
TAM/SAM/SOM: TAM/SAM/SOM are acronyms for the three commonly used terms to define the market size and ultimately scope the startups' opportunity.
Venture Capital: Venture capital is an investment into an early-stage, private company. As a founder of an ambitious startup, if you raise money, this would be considered venture capital. Venture capital can come from a range of sources. One of which is venture capitalists, private equity investors who provide capital to companies with high growth potential in exchange for an equity stake.