Entrepreneur Myths (44 page)

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GLOSSARY |
TERMS

Accelerator
–
company that accelerates entrepreneur ideas into the marketplace through seed funding, education and packaging for the marketplace and future investors. I call these a “Silicon Pimp.”

Accredited Investor
– an investor who can prove they have at least $1 million in assets and meets other criteria.

Advisory Boards
– a group of successful people you list as advisors to your venture in order to appear more attractive to other investors. This might include strategic partners, investors, suppliers and customers. Basically, you’re pimping out their success to make yourself look better. Sure, they can help your company in various forms but the most important is credibility.

Angel Investor
– private individuals who invest into entrepreneurs in all stages of the company life cycle, but especially the early stages.

Black Box
– imaginary container for keeping your propriety information and know-how to yourself and for yourself.

Board of Directors
– a panel of people that make decisions regarding the general direction and guidelines of the company. In startups, the board consists typically of the management team along with early-stage investors. When you get funded by a cheetah (VC), they will request board seats in order to watch your ass.

Brand Equity
–
intangible assets on the venture’s balance sheet that can make a difference in the company’s valuation. For instance, Coca-Cola has high brand equity due to its marketing, advertising, consumer awareness and financial performance over the last 100 years.

Bubble-ish
– the quality of being similar to the Dotcom Bubble or Internet Bubble which lasted 5 years then burst in March of 2000.

Bubblepreneur
– any entrepreneur who values their venture at an incredibly large valuation, without revenue or customer acquisition traction and without any logic to back it up. They often base their company valuation on what the most successful companies in their sector, or even other sectors, or companies like Twitter or Facebook, were able to accomplish from other investors — despite it being a case of comparing an elephant to an ant.

Burn Rate
– the cash expenses every month that cannot be supported by revenues.

Candy
– propriety information and know-how. It is more confidential than even the black box data. It’s the key juice ingredient of some key part of technology. For instance, Google’s search algorithm is the key candy for Google.

Cash Flow Positive
– when cash coming into a venture is more than cash going out. More money in, less money out — a great financial formula indeed.

Chairpreneur
– an entrepreneur who funds their own idea, hires someone else to run it 24-7 and takes a chair position. They can afford to do this because they’ve already made or inherited their money and they don’t want to deal with the daily hassle of running a venture.

Cheetahs
– the author’s personal term for venture capitalists (VCs). There is no need to call a VC a vulture if you’ve read this book.

Churn and burn
– the art of starting companies, growing them and exiting quickly into an acquisition, IPO or Googlio.

Command and Control Management
– a micro-management system where most, if not all, business decisions are made at the top in the ivory tower and employees are basically treated like drones.

Discounted Cash Flow
(DCF)
– if you don’t know what this is, look it up. This is not a finance school book. But if you’re a startup entrepreneur, don’t worry about it. Just watch your burn rate and focus on the frugal rate. You don’t need DCF analysis for investors unless you’re in the later, later stages of the company life cycle and are focused on a combination of equity and debt financing or asset financing. I recommend this book:
Fundamentals of Corporate Finance
by Brealey, Myers and Marcus.

DLC
– Documentary Letter of Credit. This is a financial instrument used in trading with companies to ensure products are delivered and paid.

Domain Expert
– someone having special knowledge or skills in a particular area or topic.

Down Round
– when an early-stage company’s valuation is reduced due to various circumstances such as lower revenues, outside market conditions, management turmoil, etc. and the subsequent round is lower causing dilution for all parties involved (including earlier investors) and to the potential benefit of the new investors. A substantial number of down-rounds happened during the first Internet Bubble.

Due Diligence
– the process of conducting research and background checks on someone before deciding to do business with them. An investor may do due diligence on you, your team, business idea, financial status, etc. You don’t just shake the money from the trees on Sand Hill Road, you have to prove what you’re saying and doing is exactly what you’re saying and doing. You should also do due diligence on the investor.

EOTB
– Eye of the Beholder

Entrepreneur Venture Capital Paradox
– due to low technology infrastructure costs, this paradox questions the actual value or necessity of venture capital funds when you’ve already made a substantial amount of money from selling your previous company. What do you do as a successful entrepreneur — do you take other people’s money (OPM) or do you fund it yourself?

Equity Hit
– dilution of your share of the company when you accept capital investments from outside sources. Equity hits, on the average, happen at the venture capital stage, when you bring in the larger dollars to take your company into hyper growth.

Executive Suites
– shared rental offices for entrepreneurs from various sectors. Our recommendation is to use Starbucks for your office instead.

FCF
– Founder Clusterfuck.

Freemium
– business strategy where a company offers basic services at no charge in the hope of making money through other premium services offered separately. The objective is to grow customers quickly. For instance, Facebook used the ultimate freemium model to become a social monster it is today. Google is looking to do the same with Google+.

Frugalpreneur
– term coined by the author to describe entrepreneurs who keep a low burn rate. A furgalprenuer believes every penny saved decreases the equity dilution hit later or enables them to hit cash flow positive faster.

Frugal Rate
– term developed by the author. It’s the opposite of burn rate, where entrepreneurs wear their savings on their sleeves — and are damn proud of it.

Generally Accepted Accounting Principles (GAAP)
– the common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. (Investopedia.com)

Googlio
– to “go Googlio” means to sell your venture to Google (or possibly another high tech monster such as Facebook, Zynga, Groupon, Twitter, LinkedIn, etc.) as an exit strategy.

Hard Lender
– someone that offers financing terms that are onerous and completely lopsided in order to make the most money possible. It’s kind of like the Guido character in
Risky Business
, starring Tom Cruise.

Hockey Stick Curve
– duh, a curve on a graph that is shaped like a hockey stick. The variables, sales, members or paying customers, for example, start out slowly and then takes off in an exponential matter.

Incubator
– a company that specializes in taking startups under their wing to nurture their growth, with benefits such as office space, business expertise and money. Plug’n’Play is a great incubator in Silicon Valley.

IPO
– Initial Public Offering.

Lifestyle Venture
– a business that enables the owner(s) to make a great lifestyle income, but does not indicate or create a potential high return for investors.

Majority Control
– whoever has more than 50% of the company, controls the company. However, majority control can be reduced through the amplification of founder voting shares.

MDF
– Market Development Funds.

NDA
– Nondisclosure Agreement.

Napkin-Pitch Entrepreneurs
– entrepreneurs who are able to raise money over lunch, wine or an espresso by simply scribbling their business idea on a napkin or other scrap of paper.

Operational-Minded Investors
– applies to angels or other investors that looks at the company from a scaling perspective and what it takes to grow a venture into a billion-dollar company.

OPM
– Other People’s Money.

Power Law
– A power law is a special kind of mathematical relationship between two quantities. When the frequency of an event varies as a power of some attribute of that event (i.e., its size), the frequency is said to follow a power law. For instance, the number of cities having a certain population size is found to vary as a power of the size of the population, and hence follows a power law. There is evidence that the distributions of a wide variety of physical, biological, and man-made phenomena follow a power law, including the sizes of earthquakes, craters on the moon and of solar flares, the foraging pattern of various species, the sizes of activity patterns of neuronal populations, the frequencies of words in most languages, frequencies of family names, the sizes of power outages and wars, and many other quantities. It also underlies the "80/20 rule" or Pareto distribution governing the distribution of income or wealth within a population. (Source: Wikipedia)

PPM
– Private Placement Memorandum.

Pre-revenue
– any company that is not generating revenue, even if the product is complete and customer acquisition is accelerating.

Risk Capital
– capital deployed and considered at risk of loss if the venture fails. Risk capital will have various meaning for investors and entrepreneur. The risk is in the eye of the beholder.

ROI
– Return on Investment.

Series A, Series B
– Series A and Series B are preferred stock in the first two rounds of stock offered during the seed or early stages by a portfolio company to an investor. Series A and Series B preferred stock are convertible into common stock in certain cases such as an IPO or the sale of the company.

SEC
– Securities and Exchange Commission.

Seed Capital
– the riskiest capital in the company’s lifecycle. Basically, it’s like going gambling in Las Vegas. It’s the hardest capital to raise because nobody wants to the first sucker in.

Silicon Capitalism
– the business philosophy of creating a culture where employees feel the company is their own by giving them equity in the company. This encourages employees to work harder, and allows startup companies to attract highly-skilled investors, sometimes at lower salaries offset by stock options.

Smart Money
– money invested by domain experts or professional investors. The level of their smartness depends on their investment track record and the frequency of them reminding you about their smart money. The higher the frequency of reminders, the dumber the money.

Spousepreneurs
– entrepreneurs who partner with their spouses and have sex after a full day’s work to release the pressure of being entrepreneurs.

Starbuckspreneur
– entrepreneur who keeps costs down drastically during the startup phases by officing and holding meetings at the local Starbucks coffee shop. Every startup should be a starbuckspreneur. Starbucks is the largest coffeehouse company in the world, with 17,009 stores in 50 countries, including over 11,000 in the United States, over 1,000 in Canada, and over 700 in the United Kingdom.