Friends and Family (and Fools) – after credit cards, this is usually the second source of financing for a startup. They approach their friends and family to support them. Although this is common and an easy source of money, it is dangerous. Make sure your F&F really can afford to make this investment. Tell them there is a VERY GOOD chance that they will lose ALL their money and see how they react. If they are nervous, don’t take their money. Remember, your startup will only last a few years, you still have to eat Thanksgiving turkey with these people for many years. It can be a real uncomfortable feast if you lost their life savings.
Founders – the original group of people that came up with the concept and contributed sweat equity to get it off the ground. Sometimes there are differing opinions down the road about who were the actual founders of the company. Usually it is just a title and ego thing, but sometimes there are special financial arrangements for founders so make sure you get it clear up front.
Finder’s Fee – Many startups are approached by brokers that want to help them raise money. They will charge a small finder’s fee (usually 5-8% of the money raised). We discourage entrepreneurs from using brokers to raise venture capital. VCs don’t like, it looks desperate, and you don’t want someone else pitching your deal on your behalf.
EII – Georgia Tech’s Enterprise Innovation Institute – this group at GT helps business and communities become more competitive through the use of science and technology. This is the parent organization of ATDC and VentureLab.
EIR – Entrepreneur in Residence – Some VC firms will have an EIR on their team. This is usually a successful, fundable, entrepreneur that is looking for their next deal. The VCs use the EIR to evaluate opportunities and hope that the EIR will join the management team of one of their deals. An EIR role is usually less than a year – an entrepreneur can’t sit on the bench too long without getting antsy.
Elevator Pitch – Can you describe your company in a clear, compelling way in 60 seconds? Many people refer to this as an "elevator pitch," because of the hypothetical situation where you may be in an elevator with an investor and you have one uninterrupted minute to tell your story before he gets off the elevator at his 80th floor penthouse. I’ve never seen this happen.
So we recommend that you prepare yourself with 60 seconds of important information about your company that you can use in various situations and timeframes. See our best practices paper for more information and tips.
Employment Agreements – A legal document that outlines your commitment to the company and vice versa. It usually contains information such as how your stock or options will vest, what happens if you leave the company, non-compete clauses, how long you must stay, termination agreements, what happens to you if the company is purchased, etc. We recommend that you draft some employment agreements among your co-founders when you start your company. If you don’t have these things on paper, then one of your co-founders might run off with a large percent of your stock and you wouldn’t be able to do anything about it.
ERC – Entrepreneurs Resource Center – Both a physical and online resource for entrepreneurs. The physical ERC is located at ATDC at Technology Square. It is open to the public and contains research materials, books, journals, magazines and videos. It has a few computers and small offices as well as some informal meeting space. The online ERC contains a wealth of links, whitepapers, and videos on topics of interest to technology entrepreneurs in Georgia.
Exit – An "exit" is how the investors will get some money back from their investment (by selling the company or going public). This term is slightly deceiving. It doesn’t mean that all the investors and founders are leaving and cashing out completely and that this is the end of the company. It just means that the investors have the opportunity to exit some of their investment. In fact, upon an exit (or liquidity event) the key team members are usually restricted from leaving the company. See employment agreements above.
Dilution — typically refers to a shrinking portion of equity. Company founders will usually start off by splitting all the equity among them (example: 2 founders each get 50% of the company). When they get outside capital and sell stock in their company, the get diluted – their portion of the company is less (example: Each founder now has 30% and the outside investor has 40%)
DLA — DLA Piper is a global law firm that recently setup an Atlanta office. They have a technology practice that specializes in venture financing and technology transfer and they are very active in the Atlanta technology community.
"Drinkin’ the kool-aid" — Term used to describe someone that really believes in your business, sometimes blindly. If you do a really good sales job and convince people that you have a definite winning business, you have them "drinkin’ the Kool-Aid". The term comes from a cult mass-suicide in 1978 when a group of people believed their charismatic leader and drank poisoned Kool-aid and died. Read more here. Similar terminology to "Choking on your own exhaust."
Due diligence — Fancy name for research. An investor will perform due diligence before making an investment in your company. This means they will look at your financials, do background checks on your management team, validate your large market numbers, review your legal contracts, and talk to some of your customers. By the way, we recommend that the entrepreneur do some due diligence on their investor too.
CEO Council - The Atlanta CEO Council is a high power group with the best networking events in Atlanta. They are selective in who gets invited, but try to get on the list.
Competition – everyone has competition. Don’t make the rookie mistake of saying you don’t. It could be direct competitors, substitutes for your product/service, or the “do nothing” alternative where your customer decides to spend their money on something else instead.
Choking On Your Own Exhaust – (aka “drinking your own kool-aid”, “sniffin your own smoke”, or “believing your own BS”) is the dangerous practice of confusing your own stories, spin, and opinions with fact or reality.
Crossing the Chasm – The Bible of high tech marketing written by Geoffrey Moore. A must read. It teaches you how to launch a high tech company by focusing your market and knowing your value proposition to that market. Read it with a highlighter in one hand.
Cap Table – (aka Capitalization Table) – This is the list of shareholders for your company and what percentage of your company they own. Investors like to see “clean” cap tables. This means that there are fewer owners with no complicated option or warrant deals. This makes it easier for investors to get shareholder approval when needed.
Bottoms up forecasting – A revenue
forecast based on price, number of units, sales cycle, number of leads,
conversion rate, etc. This is the way you should forecast your revenue as
opposed to Top-down forecasting which is… "If I just get 2% of a $100M market,
I’ll do $2M this year…"
"Boil the ocean" – A term used to
describe the impossible task of trying to take on too many markets with too many
features. Just pick a targeted market for your beachhead and own it. Don’t try
to "boil the ocean."
Burn rate – The amount of cash you
are spending (burning) each month. You use this figure to calculate how much
money you need to survive until the next cash infusion or until your "Fume date"
(the date you run out of money…)
Being a tech entrepreneur in Atlanta can be confusing. There are a lot of organizations that can help you, but it is sometimes difficult to navigate all of them. We will be starting a new series to help create a "glossary" of acronyms and terms that you should know about. We will work through the alphabet and select a few key terms each week. We welcome your suggestions.
Let‘s start with A…
ATDC – The Advanced Technology Development Center – a nationally-recognized science and technology incubator that helps Georgia entrepreneurs launch and build successful companies (www.atdc.org)
ATA – Atlanta Technology Angels – angel group that funds early stage technology startups in Georgia (www.angelatlanta.com/)
Angels – a high net-worth individual who invests his or her own money in start-up companies in exchange for an equity share of the businesses.
Anti-dilution – a clause in a term sheet that protects investors in future rounds if your valuation goes down. It basically allows investors price protection for their shares if the next round is at a lower price per share. (Link)
Accredited Investor – term used to define an investor that the SEC permits to invest in high risk deals (like yours). Make sure all your angel investors are accredited. Requirements: must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years (http://en.wikipedia.org/wiki/Accredited_investor)
ASAP – Arial Savannah Angel Partners – an angel network headquartered in Savannah, GA that invests in growth-oriented businesses in the Southeast. (www.savannahangelpartners.com)