Funding glossary - terms you need to know as a startup

Funding Glossary - terms you need to know as a startup

Starting a new business is stressful at the best of times. Not understanding the array of terms for funding doesn’t help either - there are so many options out there that it can be difficult to know where to start and what you need to be Googling in the first place.

To sort through the ins and outs of start-up speak, ESGmark® has compiled a glossary to help founders navigate new business jargon.

If there’s something we’re missing or you’re curious about please let us know. We’re here to help!

1. Pre-seed funding: In the earliest stages of starting a new company, investments are often compared to the act of planting a seed. At the pre-seed stage the company is developing its product or operations, and money is generally provided by the founders or possibly friends and family. At this stage investment is likely without any expectation for a share in the firm’s equity.

2. Seed funding: This is the first official round of funding for a company and basically covers the initial business. This could be the money needed to start production and pay salaries, for example. However, the investors are expecting a level of risk and are often more non-traditional.

3. Incubators and accelerators: These are programmes that offer support in the early stages of a start-up business, which can include training, funding, mentorship or even workspace. The main difference between programme types is duration. An accelerator generally has a finite timeline, whereas an incubator is more open-ended.

4. Crowdfunding: Financial backing for a new business or start up that is not sourced from a traditional investor. Often this funding is sought through an online platform from many individuals who make relatively smaller contributions.

5. Angel investor: An individual who uses their money to fund an entrepreneur or start up at an early stage, often in exchange for ownership in a company. This may be a family member or acquaintance, and is also known as a seed investor, private investor or informal investor.

6. VC: Venture Capital refers to firms and funds that invest in start-up businesses they believe will have substantial growth potential. These funders will invest in exchange for equity in the start-up.

7. Valuation: This looks at what your company is worth or what it might be worth in the future.

8. Validation: This is the process of showing your business or product is something the market wants or needs

9. Value Proposition: What you offer to customers

10. Mission Statement: The goal for your company

11. Burn Rate: This shows how quickly a company is spending money before it’s generating income. It can also be called negative cash flow.

12. Unicorn: A start-up business valued at more than $1 billion.

13. Series A: Typically a start-up will have established its business model and customer base before seeking this round of funding, which will be used to help scale the business. Investors tend to be venture capital firms and make much larger investments compared to earlier funders.

14. Series B: This is a second round of funding takes place once a business is past its start-up phase, has generated revenues and can demonstrate its performance. Investors could be venture capital or private equity firms, and usually pay a higher share price compared to earlier investors.

15. Series C: At this stage a company has proven its success and new investors are often more traditional, like investment banks, because there is less risk. This round of funding is often geared to expansion via new product lines or even an acquisition and attracts significant investment.