“So, can you tell me your burn rate at the moment?” A potential investor threw the question at a promising startup, only to be returned with blank looks on the founders’ faces. And many of us have, for sure, faced such situations during our startup journey!
In an initiative to save you from such embarrassing situations, we have started this series of some really important terms that every startup needs to know before diving into the sea of the startup world! We hope, the last one was enjoyed by our readers and thus, we bring you the next five terms –
- Angel – Angel (or an angel investor or a business angel) is usually a High Net-worth Individual who provides the starting capital to a startup, mostly in exchange of equity. Much as the name suggests, such people prove to be angels for an entrepreneur who are generally high on ideas, but low on capital. Angels are the best source of funds for an early stage of a startup, when of course, a VC would not show interest in the business.
- Burn Rate – In the simplest words, this is the rate at which you are burning your cash. Before a startup becomes cash flow positive, burn rate is the measure of how much a startup is spending its initial capital.
- Acqui-hired – A relatively new trend on the block, this is a twisted form of acquisition. A little complicated in terms and conditions, acqui-hiring can be best explained as a situation where comparatively small (or rather failing) company is purchased or acquired by a bigger startup solely for the intellectual capabilities of its staff and not for its products. This term has become relatively important because of the current scenario where Indian startups seem to be on an acqui-hiring spree! UrbanLadder acqui-hiring BuynBrag, Commonfloor acqui-hiring Bakfy, Freecharge acqui-hiring Preburn, are just very few of the recent examples!
- Incubators – In the last series, we touched upon Accelerators who fuel the growth and scalability of a startup. Now we come to Incubators, who have in recent times started to replace Business schools to some extent. Incubators provide a working space to startups along with regular mentorship sessions at every step and funding in some cases, in exchange of equity stake. Incubators are highly structured and usually transform startups from angel stage into VC-ready stage.
- Crowdfunding – A very common term these days, very few people have understood crowdfunding in the right sense. It refers to a startup raising funds from the crowd, i.e. raising small amounts of money from a large number of people usually through Internet.
Many musicians, filmmakers and Youtube artists have taken to this source of funds to raise money for their projects which would otherwise not be funded by an angel or a VC. Crowdfunding expands the definition of investors and creates investors out of normal people, beyond the traditional VCs and HNIs.
We will be back with the next five terms that a startup should know before stepping into the ecosystem. Till then, let us know in the Comment section if we can help you better!