Breaking Down the Terminology of the Investing World: A Guide for Beginners by Stephanie McKinney originally posted on LinkedIn
Do you want to start investing or to seek investment but don’t know where to begin? This comprehensive guide will help you understand the different terms used in the investing world.
When it comes to investment, there are a lot of terms that get thrown around. And if you’re new to the game, it can all be very overwhelming. But don’t worry – I’m here to help! In this blog post, I’ll break down some of the most common terms used in the investing world. By understanding these terms, you will be able to feel more confident when talking to financial professionals and make more informed investment decisions.
One term you might hear a lot is “female founder.” This term refers to a woman who has started her own company. female founders are often underestimated and have to work twice as hard to prove themselves in the business world. But despite the challenges, female founders are making waves in the startup scene. In fact, female-founded startups have seen more success than male-founded startups in recent years!
So what does this term mean for you? If you’re a female founder seeking investment, don’t be discouraged – there are plenty of investors out there who are interested in supporting female entrepreneurs. Supporting female founders is a key driver behind River VC and Navigating the Waters which was established to support female entrepreneurs to gain the skills, support and confidence to grow their business.
Investment terms can seem like a foreign language, but they don’t have to be! In my latest episode of Navigating the Water’s Podcast, I start to demystify the jargon of investors by breaking down what each term means and why it’s important.
Chatting with Kim-Adele Randall we discuss:
– What are some of the common terms you will hear from investors
– What Investors really mean when they say these terms
– How you can make them can work for your own business
Through this series, I will have aspiring guests that will help understand the terminology so that when somebody mentions something like “IPO” or “ARR” you will understand what they are talking about and won’t feel blindsided at the next business meeting.
As we discussed in our chat we are only just getting started, and in the next episode, we will continue to unpack the terminology to help you build your knowledge and your confidence. please subscribe to ensure you don’t miss out.
Here are some of the common terms we discussed today in more detail:
An MVP is a minimum viable product. In other words, it’s the bare-bones version of a product or service that you can offer to customers in order to get feedback and validate your idea. When it comes to startups, an MVP is often used as a way to test the market before investing too much time and money into developing a full-fledged product.
A pitch deck is a presentation that entrepreneurs use to give investors an overview of their business. A typical pitch deck includes slides on the problem that the startup is solving, the market opportunity, the team, the business model, traction (i.e., user growth or revenue), and the financials.
Seed Funding/Angel Investor
Seed funding is the initial round of funding that a startup receives from investors. This money is used to help the startup get off the ground and build its product or service. Angel investors are individuals who invest their own money in early-stage startups in exchange for ownership stakes in those companies.
An IPO (initial public offering) is when a company sells shares of its stock to the general public for the first time. When a company goes public, it becomes listed on a stock exchange and its shares can be traded freely.
ARR stands for annual recurring revenue, which is a metric often used by startups to measure how healthy their business is. ARR measures how much revenue a company generates each year from customers who are billed on a recurring basis.
MRR stands for monthly recurring revenue, which is a metric often used by startups to measure how healthy their business is. MRR measures how much revenue a company generates each month from customers who are billed on a recurring basis.
ROI stands for return on investment, which is a measure of how profitable an investment is. ROI is calculated by dividing the profit generated by an investment over the amount of money that was invested.
LLC stands for limited liability company, which is a type of business structure that offers some protection to its owners from personal financial losses. LLCs are popular among startups because they are relatively easy to set up and maintain.
VC stands for venture capital, which is a type of investment funding typically used by early-stage startups. Venture capitalists are individuals or firms who invest money in young companies in exchange for an ownership stake in those companies.
S Inc. is a type of business structure that offers some protection to its owners from personal financial losses. S Incs are popular among startups because they are relatively easy to set up and maintain.
A C corporation is a type of business structure that offers its owners limited liability protection from the debts and liabilities of the company. C corporations are required to pay taxes on their profits, but they can also deduct certain expenses, like employee salaries and benefits, from their taxable income.
Pre-seed funding is the initial round of funding that a startup receives from investors before it has generated any revenue. This money is typically used to help the startup build its product or service.
Bootstrapping is the process of funding a business by using only the resources that are available to you. Bootstrapping can be a difficult way to start a company, but it can also be very rewarding if you’re able to succeed without outside investment.
A seed is a small amount of money that is used to help a startup get off the ground. Seed funding is typically provided by angel investors or venture capitalists, and it is usually used to help a startup build its product or service.
Burn rate is the rate at which a startup is spending its money. Burn rate is typically measured in cash, and it can be used to assess how long a startup will last before it runs out of money.
Due diligence is the process of investigating a potential investment in order to reduce risk. Due diligence typically includes reviewing financial statements, speaking with references, and visiting the company
That’s just a few of the most common terms used in the investing world. By understanding what they mean, you’ll be able to communicate more effectively with financial professionals and make better investment decisions. Stay tuned for future episodes of the Navigating the Waters Podcast, where I will continue to break down these terms and help you build your knowledge and confidence in the investing world!
I would love to hear your thoughts about this blog post in the comments below! Do you have any questions about investing terminology? Let me know and I’ll be sure to answer them in future posts.