Whether you’ve launched your startup, you’re planning to, or have already been working at one for some time, there are many startup terms you need to know to grow. Or as startup jargon goes, ‘scale.’
Startup terminology ranges from the basics, which are terms every startup founder needs to know regardless of niche or field, to funding-focused terms, metrics, and other miscellaneous terms.
We’ll be covering all of these startup terms along with the top startup metrics you need to know and measure.
Let’s dive into startup terminology and metrics every entrepreneur, business owner, and co-founder needs to know.
Startup vs corporation vs small business
Before we look at startup terminology, let’s first cover a few important distinctions.
If you’re just starting out, you might have a few misconceptions about the main differences between a startup, a large corporation, and a small business.
Let’s explore the differences between them.
What is a startup?
A startup is a venture or a small company created by one or more entrepreneurs, known as co-founders.
The purpose of a startup is to bring a certain product or service to the market. Usually this product or service is either unavailable in the market or there’s a high demand for it.
Startups tend to be smaller in size than a corporation or the traditional definition of a company. They are also more focused on fast-paced innovation and scaling than large corporations.
The startup’s founders often begin by investing their money in the company and then look to attract funding from angel investors and venture capital (VC) firms to scale their business.
Startups “generally start with high costs and limited revenue, which is why they look for capital from a variety of sources such as venture capitalists.” (Investopedia)
What is a corporation?
A corporation, on the other hand, is a large and much more stable company.
“A corporation is a legal entity that is separate and distinct from its owners.” (Investopedia)
As per law, corporations are treated as individuals and have the same responsibilities. This means that a corporation can sign contracts, borrow or loan money, hire employees, sue or be sued, pay taxes, and own assets.
Microsoft Corp, Toyota Motor Corp. and the Coca-Cola Company are all considered corporations.
What is a small business?
A small business can be many things and can vary in niches.
Small business examples include beauty salons, fashion boutiques, small cafés and restaurants, among others.
Startup terms: Basic business terminology
Now let’s explore the basic business startup terms every startup founder needs to know regardless of industry or sector.
- Acquisition
An acquisition is when one company buys another. Acquisitions aren’t startup-only terms. There are acquisitions in all areas and fields of business.
Large corporations can acquire startups and startups can acquire other startups. Corporations and startups acquire others for various reasons including but not limited to acquiring competitors, growing synergies, increasing market share, and complementing services.
For example, Uber acquired its competitor Careem in January 2020.
The main aspect of an acquisition is that the company that’s making the purchase buys a majority stake in the startup. If it buys a small portion of the company, like 10% or up to 49%, that’s not considered an acquisition.
In 2021, US-based Bevy acquired Egypt-based Eventtus, while Saudi Tamer Group acquired a majority stake in UAE-based leading mother-and-baby e-commerce platform Mumzworld. In 2019, US-based Match Group, which owns Tinder, acquired Cairo-based Harmonica, the mobile matchmaking app for Muslims.
- Exit
In most cases, startup founders seek to grow their business to a point where it’s either acquired by another company or it goes through an IPO on a stock exchange.
In the case of the acquisition, founders make an exit after investors or the acquiring company buys their shares. In some cases, like Bevy’s acquisition of Eventtus and Amazon’s acquisition of Souq, founders get senior positions in the acquiring company.
In the MENA region, Q3 2021 marked the largest number of startup exits with 23 exits. This included Jordan-based mobile gaming studio Jawaker, which was acquired by Stillfront Group for $205 million.
- Pitch deck
A pitch deck is a fancy term for an investor presentation. The purpose of a pitch deck is to help a startup attract investors and get the funding it’s looking for.
Pitch decks provide investors with startup-related information such as the product, the target market, and the business plan.
An effective pitch deck needs to be clear and short but informative. It should show investors how the startup operates, its growth plans, and why investing in it will provide a high return on investment.
- Pivot
Used as both a verb and a noun, pivoting is a startup term that refers to a “quick, radical shift” in a startup’s business model.
This shift can be a change in their main product, service, target audience, or how they make money.
A smaller shift is called an Iteration.
- Scaling
Unfortunately not all startup terms are to the point. Scaling or scalability is startup jargon for ‘grow.’ Scaling covers any form of growth including customer base, revenues, among others.
Scalability often refers to a startup’s sustainability and growth potential.
- Minimum viable product (MVP)
One of the biggest problems startups face early on is wanting to test their ideas without spending too much time or money. They want to know if the market wants their product or not.
So instead of spending lots of effort and money on a product that may or may not work, founders and entrepreneurs create a minimum viable product (MVP).
The MVP acts as the first version of a product with the main features. Entrepreneurs use the MVP to “test their riskiest assumptions before building the next versions with more advanced features.” (VisionX Partners)
- Value proposition
A value proposition is what sets your solution, product, or service apart from your competition.
Often referred to as a unique value proposition (UVP), this statement communicates the benefit you offer. It’s what makes you stand apart and why your customer should use your product or service instead of your competitor’s.
“Every value proposition should speak to a customer’s challenge and make the case for your company as the problem-solver.” (HelpScout)
Here are a few value proposition examples from some of the world’s biggest brands:
Uber: The smartest way to get around
Slack: Make work life simpler, more pleasant and more productive.
- Product-market fit
A product-market fit is “finding a good market with a product capable of satisfying that market.” (Product Plan)
A more-extensive definition means a company’s target customers are buying and using its product and are telling others about it. This large number of people buying this product is enough to sustain the product’s growth and profitability.
Meanwhile, VisionX Partner describes product-market fit or p/m fit as “when your customer acquisition cost (CAC) is lower than the life-time value of your customers and existing customers are referring buyers like them therefore lowering your acquisition cost and increasing your net promoter score.”
Startup jargon: Startup investment and funding terms
Now let’s look at the top startup funding terms that matter for every startup founder and entrepreneur.
- Accelerator
Startup founders often don’t have all the know-how needed to grow their business. And that’s where accelerators come in.
An accelerator is a public or private entity that provides short-term mentorship programs including resources and sometimes funding opportunities to help startups grow.
Egypt-based Falak Startups and Flat6Labs are both well-known accelerators supporting Egyptian and Middle Eastern startups. Accelerators can offer funding for startups in exchange for equity in the startup.
- Incubator
Like an accelerator, an incubator provides startups with mentorship and resources. However, unlike an accelerator, an incubator is a long-term program.
Incubators often provide their mentorship and resources in exchange for equity in the startup.
Further reading: What Is Financial Mentorship? When & Why Do You Need It?
- Angel investor
An angel investor is someone who helps startups and entrepreneurs by providing financial support usually in exchange for equity in the business.
As high-net-worth individuals, angel investors tend to invest in startups and entrepreneurs in their early stages.
For many entrepreneurs, angel investing is a better alternative to venture funding. That’s why many rely on angel investing in the early stages of launching their business.
In addition to funding, angel investors can offer knowledge, advice and counseling, and can support startups and entrepreneurs through connections.
One of the top benefits of having an angel investor on board is their large network of strategists, lawyers, accountants, financial advisors, and more.
Angel investors are also known as private investors, angel funders, and seed investors. Their financial investment may come in the form of a one-time injection or several financial injections.
In some cases, angel investors can be friends or family members of one or more of the startup’s founders.
- Bootstrapping
Most startups begin as bootstrapped endeavors. This means that the founders finance the early stage of the business until they can start attracting investors and raise funding.
In other words, a bootstrapped startup is a self-funded one.
One of the benefits of bootstrapping is that startup founders have more decision-making freedom. However, bootstrapping also means the startup is bound by how much its co-founders can invest in it and can have a significantly slower growth pace compared to a VC-funded startup.
- Bridge loan
A type of short-term loan, a bridge loan provides startups with funding in-between their funding rounds. Bridge loans can range from two weeks to three years.
- Crowdfunding
Unlike other types of financing, crowdfunding relies on getting small funds from a crowd of people. Using a vast network of people via crowdfunding sites and social media, startup founders are able to raise sufficient funds to drive their business forward.
Often used in the early stages of business, crowdfunding sites act as a middleman connecting entrepreneurs with a large pool of investors who aren’t family members.
They help investors invest as little as $10 in hundreds of projects from around the world. That said, crowdfunding sites include restrictions on who can fund new businesses and how much they can invest
Indiegogo, Kickstarter, Patreon, and GoFundMe are among the world’s top crowdfunding platforms. Their revenue comes in the form of a percentage of the funds raised.
One of the largest Kickstarter crowdfunding campaigns was in 2015, when smartwatch-maker Pebble Time raised $20.34 million to launch a new series of watches. Meanwhile, Indiegogo reported that Canada-based LOMI marked the largest crowdfunding campaign of 2021 after raising $7.24 million for its biodegradable home-compost device.
- Venture capital
Venture capital (VC) is a type of private financing where investment firms and funds and financial institutions provide funding to startups with high-growth potential.
VC isn’t limited to financial investments but can include technical or managerial expertise and mentorship.
“Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.”
(Investopedia)
VC financing is becoming popular among startups, which are often unable to get bank loans and require funding to grow.
The main disadvantage of VC funding is that VCs get a percentage in the startup and accordingly become part of future decisions.
Some of the most popular VCs in the MENA region include: 500 Startups (operating under 500 Falcons), Middle East Venture Partners (MEVP), Wa’ed Ventures (the entrepreneurship arm of Saudi Aramco), Wamda Capital, Beco Capital, and Flat6Labs.
- Vesting
Vesting is a process or mechanism that allows founders and employees to earn ownership in the form of shares in exchange for working at the company for a period of time.
Often used to guarantee a long-term commitment from investors and employees, vesting offers stock options for employees provided they continue working for the company for a specific period of time.
This period, known as cliff vesting or a vesting schedule, often begins at one year and can last up to four years.
“Both vesting and cliff periods help employers align employees’ interests with startup performance,”explains VisionX Partners.
- Convertible notes
“A convertible note is a way for seed investors to invest in a startup that isn’t ready for valuation,” explains EquityEffect.com.
Convertible notes begin as short-term debt that’s converted into equity in the company that issued the notes. This means that investors who provide financing to a startup through convertible notes are repaid with equity in that startup instead of principal or interest.
The convertible note changes into equity based on a specific time frame or once the startup reaches a certain milestone.
- Term sheet
Once startup founders find interested investors, they create a term sheet to outline the terms of the investment.
Also referred to as letters of intent, term sheets indicate interest but don’t count as binding contracts. They are considered a stepping stone for negotiations but don’t guarantee an investment.
- IPO
An initial public offering (IPO) is when a company offers its shares on the stock exchange for the first time. When a private company embarks on an IPO, it becomes a publicly traded company.
An IPO can include listing all the shares of a company or a portion of it.
There haven’t been many startups in the MENA region that launched IPOs. However, the most notable one has been Egypt’s fintech Fawry.
- SPAC
A special purpose acquisition company (SPAC) is a company that does not have a business plan or commercial operations.
SPACs are formed in order to raise capital through an IPO, acquire or merge with an existing company or startup, and then help it list on an international stock exchange.
Also called blank check companies, SPACs have a short lifespan of two years. During those two years, a SPAC needs to merge with or acquire a company and help it go public through an IPO.
The most popular SPAC deal in the Middle East was Swvl’s merger with Queen’s Gambit Growth Capital. Following the acquisition, Swvl’s valuation jumped to $1.5 billion.
Similarly, Anghami, which entered into a SPAC merger with Vistas Media Acquisition Company in March 2021, was valued at $200 million at the time of the merger. On 4 February 2022, Anghami was listed on the NASDAQ, where its shares surged 80% on the first day.
Further reading: SPACs: The Pros and Cons of This New Exit Strategy
- Sweat equity
Despite its name, sweat equity is a non-monetary investment in a company. It involves giving value to physical and mental effort and time invested in an early-stage startup.
“In cash-strapped startups, owners and employees typically accept salaries that are below their market values in return for a stake in the company, which they hope to profit from when the business is eventually sold,” explains Investopedia.
Startup terminology: Finance terms and metrics
We’ve covered the basics and funding-focused terms for startups, now let’s look at financial terms and metrics.
Some of these terms are basics for any business, while others maybe related to certain types of startups over others.
- Cash flow
Cash flow is the money that goes in and out of a business. Companies and startups often show the in-and-out of money in their cash flow statement.
Cash flow planning helps entrepreneurs estimate their spending and how much they need to generate in revenue to be successful.
Free cash flow, which is a profitability measure, indicates the amount of money left after a business pays its expenses.
- ROI
Return on investment (ROI) is a common performance metric businesses use to “evaluate the efficiency or profitability of an investment…ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.” (Investopedia)
Companies can use ROI to compare investments in terms of efficiency and profitability.
To calculate the ROI of an investment, you’ll need to divide the return of the investment by the cost of that investment. The result is a percentage or ratio.
- Business model
A business model is how a startup – or any kind of business – plans to generate money and turn a profit.
The business model indicates who the company’s target audience is and how the selling process works.
Subscription and freemium models are common business models used by SaaS (software-as-a-service) startups.
- Freemium
Freemium is a type of business model where a startup offers a free tool or app for customers to use.
But in order to get better benefits, customers have to pay for additional features.
Canva, Spotify, and LinkedIn are among the top global businesses that use the freemium model. You can sign up for free and access a large number of features. But if you’d like to get more, you have to pay for them.
- Valuation
A startup valuation is an attempt to determine the startup’s value by providing insights such as the startup’s ability to use new capital wisely, meet investor and customer expectations, and its ability to grow.
It’s worth mentioning that a startup valuation does not mean the money a startup has in the bank.
There are two types of valuations: pre-money valuation and post-money valuation.
A pre-money valuation estimates a company’s worth before it receives funding. This helps investors decide if the company is worth investing in or not.
A post-money valuation is an estimate of how much the startup is worth after it receives a funding round. This usually involves the pre-money valuation along with the value of the funding round.
Startups uncover their value by using valuation methods, which vary based on the startup’s stage and whether it’s revenue-generating or not.
- Run rate
An important metric for startups is their run rate, which forecasts a startup’s future performance based on current data.
To calculate the run rate, you’ll need to multiply the amount generated per quarter by 4.
So, if a startup generates $50,000 in the first quarter, it’s 12-month run rate is $50,000 x 4 = $200,000.
- Total addressable market (TAM)
The total addressable market or total available market (TAM) is an attempt to uncover the size of a market. This helps businesses estimate how much revenue they can make if they offer their product or service in that market.
Startups use the TAM to determine how much effort and funding they need to grow or create a new business line. This, in turn, helps them prioritize products, business opportunities, and customer segments.
- Business types: B2B/B2C/B2B2C/DTC
Every startup has to decide what kind of customers it will serve. These customers can be:
B2B, which stands for business-to-business and means that the startup’s customers are other businesses.
B2C means business-to-consumer. This means that the target audience or customers are individuals or consumers.
B2B2C stands for business-to-business-to-consumer. This means that the startup’s target audience is businesses and those businesses’ target audience is consumers. This distinction often plays a role in the marketing efforts undertaken by a startup.
DTC or D2C stands for direct-to-consumer, which means a company or business can sell its products directly to its customers without a third-party wholesaler or retailer.
For example, many businesses sell their products through supermarkets and grocery stores. In a direct-to-consumer model, the company can sell directly to its customer without the supermarket acting as a middle man.
- Business burn rate
The burn rate indicates how fast a company spends its money (or venture capital) compared to its capital during a specific time frame, usually a month, and before it begins generating its own positive cash flow.
A startup business term, the business burn rate includes the startup’s various expenses including rent, salaries, and marketing.
Since startups raise money across funding rounds, the burn rate indicates when a startup will need more funding.
The business burn rate is often referred to as negative cash flow.
“Two of the most important variables that play into most startups’ burn rates are cost of growth and unit economics. In this context, cost of growth refers to the costs that go into those operational expenses.” (HubSpot)
The number of months left for a company to ‘burn’ all its cash is called a ‘runway.’
- Revenue
Revenue is the money your business generates from its day-to-day activities and operations, before deducting expenses.
To calculate revenue, you’ll need to multiply your average sale price by the number of units sold.
Also known as sales, top line, and gross income, revenue is used to calculate the net income. To do so, you’ll need to subtract your costs from your revenues.
- Gross Merchandise Value (GMV)
Gross Merchandise Value (GMV) is the volume of goods sold via an e-commerce platform or a customer-to-customer platform.
Companies can calculate their GMV on a month-on-month or year-on-year basis to see their growth trajectory and overall health. However, GMV should not be confused with revenues, because with GMV a portion of the company’s revenues go to the seller.
“A retail business can calculate the gross value of all completed sales, though merchandise returns may need to be removed from this number to provide an accurate calculation,” notes Investopedia.
GMV is sometimes referred to as gross merchandise volume.
- Gross profit
Gross profit or gross income is the profit after subtracting the cost of making and selling products or the cost of providing services.
To calculate gross profit, you’ll need to subtract the cost of goods sold (COGS) from your revenues or sales.
Your gross profit appears in your income statement.
- Lifetime value
Customer lifetime value (CLV or LTV) is a business metric indicating the value of the relationship between a customer and a business.
Also known as lifetime value, CLV helps businesses forecast the average value of a business relationship, that is how much the business will make during its relationship with a customer.
CLV needs to account for customer acquisition cost, marketing expenses, ongoing sales, operating expenses, along with product manufacturing costs.
To calculate CLV, you’ll first need to calculate lifetime value which involves multiplying the average value per sale with the number of transactions and the average customer retention period.
Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period
- Deferred revenue
Deferred revenue, also called unearned revenue, is revenue that a company has not earned yet. It refers to products and services that were paid – or prepaid – by customers but have not yet been delivered.
When the company begins delivering its products or services, the revenue begins appearing in its income statement.
Deferred revenue is considered a liability because a customer may cancel their order or the product or service may not be delivered. In one or both of these cases, the company would have to pay the customer back.
- Customer acquisition cost (CAC)
When a company launches a marketing campaign with the purpose of acquiring a new customer, the metric used is called customer acquisition cost (CAC).
Startups just commencing operations need to invest in marketing and customer acquisition. To know how well they are spending and performing, startups need to calculate their CAC.
CAC is often referred to as cost per acquisition (CPA).
“CAC is a metric that measures the cost incurred by a business to attract and acquire a new customer. Not only does CAC involve money spent on advertising but also how much you spend on manufacturing, producing, storing, and shipping your products.”
(Converted.in)
- Monthly Active Users (MAU)
The number of monthly active users is a monthly metric that’s important to a startup’s product team.
So while MRR is the focus of the business team, including the marketing team, the MAU is a metric for the product team.
“Strong MRR growth paired with MAU growth is one of the best indicators of a strong business model. This can also be the sign of a strong viral coefficient and growing network effects.”
(CleverTap)
A similar metric is the daily active users (DAU), which indicates the number of users or customers using the product or service on a daily basis.
- Conversion rate
A conversion is when a customer or visitor lands on your website and completes an action such as making a purchase, filling a form, reviewing a product, and so on.
The percentage of people who complete the action you want and therefore conversion is called conversion rate.
To calculate your conversion rate, you’ll need to divide the number of conversions by the total number of ad interactions during the same period.
For example, if your ad got 1,000 interactions and 50 conversions, then your conversion rate is 50 ÷ 1,000 = 5%.
Conversions don’t have to involve purchases. To measure your conversions, you’ll need to include a kind of conversion tracking such as the Facebook Pixel or Google Analytics among others.
- Compound annual growth rate (CAGR)
The compounded annual growth rate (CAGR) is an accurate method for calculating returns for any type of investment whose value may rise or fall over time.
In addition, the CAGR helps investors simultaneously compare two investments or stocks and evaluate their performance against other investments or stocks in a similar group.
However, it’s worth mentioning that the CAGR doesn’t reflect or indicate investment risk.
- Churn rate
One of the most commonly-used startup terms and an important metric for businesses and investors alike is churn.
The churn rate is the percentage of paying customers who cancel their service or subscription with your business.
SaaS and subscription-based businesses are the ones most affected by churn.
The opposite of the churn rate is the Retention Rate.
The Retention Rate indicates the percentage of retained or repeat customers. Retained customers are those who keep coming back or keep buying from you or those who have purchased a lifetime deal from you.
Startups regardless of industry need to maintain a high retention rate because retained customers offer higher returns and revenues.
To calculate the retention rate, you’ll need to
- Subtract the number of new customers within a time period from the number of existing customers at the beginning of that time period
- Then divide the result by the total number of customers at the end of the time period.
- You’ll then need to multiply the result by 100 to get a percentage.
Startup terms: SaaS terminology
In this section, we’ll focus on terms and metrics used by software-as-a-service (SaaS) startups. Subscription-based startups are considered SaaS startups.
- Monthly recurring revenue (MRR)
Monthly recurring revenue (MRR) indicates predictable revenue generated by a startup from active subscriptions each month.
MRR includes “recurring charges from discounts, coupons, and recurring add-ons, but excludes one-time fees,” according to Zoho.
By calculating your startup’s MRR, you can assess your company’s “present financial health” and forecast its future earnings.
To calculate your MRR, you’ll need to multiply the number of monthly subscribers by the average revenue per user (ARPU).
MRR = Number of subscribers within a monthly plan x ARPU
For example, if you have a monthly plan worth $50 and 100 subscribers registered to this plan, then your MRR will be 100 x $50 = $5,000.
If you have multiple subscription plans or levels, you’ll need to calculate the MRR for each plan separately before adding them together in the end.
- Annual recurring revenue (ARR)
Similar to MRR, annual recurring revenue indicates predictable revenue that your startup generates on an annual basis.
The annual recurring revenue is an important metric for a startup’s management and current and potential investors.
It’s used to indicate the startup’s stability and predictability in terms of revenue-generation. ARR also helps investors compare a startup against its peers, while supporting its long-term business strategies.
While MRR and ARR are for subscription-based models, MRR is a short-term metric, while ARR is a long-term one.42
- ARPA and ARPU
The average revenue per account (ARPA) is a measure of profitability that assesses the startup’s revenue per customer account.
To calculate ARPA, you’ll need to divide your revenue for a specific period by the number of accounts you’ve had during that period.
Often used interchangeably with average revenue per user (ARPU), ARPA is a common metric for subscription-based business models.
Startup jargon part 5: Miscellaneous terms
Last but certainly not least are some commonly-used startup terms that do not fall under a specific category but are all startup-related.
While these terms aren’t newly-coined, their use has grown significantly in recent years both globally and in the MENA region.
- Unicorn
The MENA region has seen the emergence of unicorns in the past few years. These include ride-sharing startup Swvl, Dubai-based Yalla Group, and Emerging Market Property Group (EMPG).
A unicorn, not the mythical creature, is a startup whose valuation surpassed the $1 billion mark.
Egypt-based-and-listed fintech firm Fawry also achieved unicorn status after its valuation increased to $1 billion on the Egyptian Exchange (EGX).
As of April 2021, North America registered the highest number of unicorns with 292, representing 49% of a total 591 unicorns. (Statista)
- Decacorn
In startup jargon, a decacorn is a startup whose valuation exceeds $10 billion.
Examples of decacorns include Stripe ($95 billion), Canva ($40 billion), and Grammarly ($13 billion).
There have not been any decacorns in the Middle East but it’s not far-fetched to expect to see one quite soon.
- Dragon
If unicorns are uncommon, dragons are even rarer.
A dragon is a rare kind of startup that manages to raise $1 billion (or more) in a single funding round.
Examples of dragon startups include US-based aerospace manufacturer SpaceX which raised a $1.9 billion funding round – the largest in the world – in 2021.
Other examples include enterprise software company Databricks which raised $1.6 billion in funding last year, and ride-hailing startup Uber.
Final words
We’ve tackled the most widely-used terms you’ll use if you’re launching or joining a startup. While there are definitely more terms, and some terms that aren’t startup specific, it’s worth mentioning that new terms emerge almost every day.
We’ll continue to update this blog post with relevant terms and metrics as new ones arise.
If you’ve come across a startup term or metric that you don’t see in this list, let us know and we’ll add it.
