Startup terminologies explained in layman’s terms
Why is it that at every street corner where there is a cute lady selling corn, there is always some dude buying too much corn just because he wants to date her?
Even though there are other corn sellers down the road, she is the only one he keeps buying from. What do you call that? CUSTOMER LOYALTY.
He is able to finally collect her number and they chat late in the evenings. Every morning, she reminds him to come around to buy corn from her. What do you call that? MAILING LIST.
Every time he comes to buy corn, she convinces him to buy other things she sells such as pear, coconut etc.
What do you call that? SALES FUNNEL.
She makes money daily from the corn selling but not enough to pay her school fees, build her mum a house and send her dad abroad for treatment. She complains to the guy, the guy shows up next evening, moving from door-to-door in the street, telling everyone to come buy corn.
What do you call that? MARKETING.
Soon a lot of people started visiting her stand to buy corn, it was good at first until she realized she was no longer able to fry enough corn to sell to all the customers coming. She needs a way to produce as much corn as possible without over stressing herself, what do you call that? SCALABILITY
The guy has an idea to solve this problem, but will only provide it if the girl agrees that he will own part of the business too. So they register the business with the Corporate Affairs Commission. What do you call that? INCORPORATION.
Now they both own the business, which they named CORNSeller , they also split their ownership 50-50. What do you call that? CO-FOUNDERs
But what is the best way they can show that they each own 50% of the company? They decided to create 8 million shares in the company during registration. The guy owned 4 million shares and the lady owned the other 4 million shares. That means they own 50% each. For instance, instead of telling someone "You own half of this auditorium", you can fill the auditorium with 8 million chairs, then tell the person "You own 4 million chairs in this auditorium". What do you call that? ISSUING OF SHARES.
Now that is sorted, the guy brings an idea: he gets the numbers of all the other corn sellers in all the other neighboring streets. So when there is a high demand for corn from the girl, I have a great course on businesses on Braintem . org , visit it to get great business courses, he simply calls to find out which corn seller has extra corn to sell, he picks and brings it to the customer. What do you call that? DELIVERY
The guy sets up social media accounts of their new startup CornSeller, posts everyday on it and takes a small percentage of their daily profit to pay for online adverts. What do you call it?
Why didn't he use his own money? Because he is broke. But the lady agreed to give him 50% of the business because of the personal effort and hustle he brings to the table.
So what do you call that? SWEAT EQUITY
Business is going well once again, people start ordering their corn online, they process the orders, run the delivery and use their sales funnel to convince their customers to buy pear and coconut. This Article was authored by Dave Partner. Using their mailing list they are able to get their customers to buy over and over again.
3 months have passed, it all looks great, but they want more. They believe they can replicate their formula throughout their city and the country at large, but they don't have the money to do so.
So they decided to go talk to the girl's rich uncle who retired from NNPC.
He got interested, and gave them 10 million naira in exchange for 10% of the company. What do you call that uncle? ANGEL INVESTOR.
This early investment is high-risk because it is coming at a time the business hasn’t really proven itself. But then, it is also high-reward, because he got a huge part of the company for a relatively small amount of money.
What do you call the 10 million naira he gave them? SEED INVESTMENT
To represent that their uncle now owns 10% of the company, they sign some documents which simply state that they have now created an extra 2 million shares in their company. And that 2 million shares now belongs to their uncle.
Again, what do you call that? ISSUING OF SHARES
The fact that they created new shares, reduced the value of the 4million shares they used to have each. Before, the guy's 4 million shares was worth 50% of the company, but now, it is worth 40% even though it is still the same 4 million shares. The value of the girl's shares was reduced to 40% too. This Article was authored by Dave Partner. In the future, as they take more investments and issue new shares, their percentage ownership will keep dropping but their number of shares stays the same.
What do you call that?
The co-founders use the 10 million naira to hire and furnish an office for CornSeller, higher 2 staff members, pay a developer to build an app for CornSeller to facilitate sales and delivery and pay for website servers. Before the end of the year, the 10 million naira has finished, now they need more money.
This time around, they want to go big and take over the whole corn market in the region. They reach out to professional investors whose job is to invest in startups in exchange for equity. These people have 100s of startups they have already invested in.
What do you call them? VENTURE CAPITALISTS (VC)
On my site Braintem . org I have compiled a list of contacts of these people that support small businesses with millions of naira to succeed. Go get it there.
After talking to a number of potential investors 2 of them make an interesting offer:
The first one, a VC team, offers to give them 500 million naira for 15% of the company. The second one is just a rich lady in lekki offers them 250 million naira for 10% of the company. She is not part of any VC firm, she just invests in businesses she feels are ok.
Again, What do you call her? ANGEL INVESTOR
The VC offer looks great because they are offering more money for less equity compared to the percentage of the company the lady is asking for for the smaller money she is offering. Join my startup class https://www.subscribepage.com/cornseller
The co-founders accept the VC offer because it is good, but also accept the woman's offer because she has connections in the industry and can link them up to company's that will be buying their raw corns in bulk for use in the manufacturing of beverages.
What do you call that connection? SMART MONEY
Together the woman and the VC are offered 15% + 10% of CornSeller, new shares are issued to this effect. In exchange, the guy and the girl now have 750 million naira to grow their business.
And this is happening only at the end of the first year. What do you call this? SERIES A FUNDING
Within the next 3 years, they raised more funding from more investors, that is, they concluded Series B, Series C, and Series D.
It is the end of the 4th year, now their business is worth billions of naira, CornSeller also makes profit for the first quarter in the 4 years they started it! The guy and the girl are now married and expecting a child, they no longer want to keep running the business.
They want to sell it, take their money and go. What do you call that? EXIT
Now they need a strategy to sell the company. What do you call that? EXIT STRATEGY
The guy suggests that they open up the buying of shares to the public instead of just specific investors. That way, they can sell off all their shares and go home richer. This means they will have to have the company listed on the stock market.
What do you call that? INITIAL PUBLIC OFFERING (IPO).
They start working on this strategy, visit government offices to get the required approval, etc. Their uncle suggested something interesting: since they will be selling their shares to the public, why don't they all increase the total number of shares they have in the company so they can sell more during their IPO?
They agreed and multiplied everyone's shares by 2. This increased their shares but didn't change the percentage they each own. Hmmm, smart. What do you call this? STOCK SPLIT
Their VCs then suggested that instead of going through an IPO, they should instead sell off CornSeller to a big company. Everyone agreed, VCs contacted UAC, a big agricultural company in Nigeria, UAC buys CornSeller for 35 billion naira!
The VCs and the Angel Investors including their uncle sell off their shares and walk away with their own share of the billion of naira.
What do you call it? AN EXIT
But UAC is smart, in the contract, UAC mentioned that the 2 original co-founders can't just sell off their shares and walk away. The reason is that UAC needs the founders to stay back and run the business for some time so that the business will not die. Join my startup class https://www.subscribepage.com/cornseller
So what do they do? They tell the co-founders that their CornSeller stocks have now been converted to UAC stocks. Secondly, the shares will now be given to them on a monthly basis over the period of 4 years. If they quit before 4 years, they can only take the ones they have been able to get.
What do you call that? STOCK VESTING.
Another 4 years have passed, the guy and the girl who now have 4 children resign with their full benefits. Just like the two co-founders of Whatsapp resigned, and the other 2 co-founders of Instagram resigned after stock vesting too.
The guy and the girl are now multi-billionaires and looking for smaller companies to invest in. Again, what do you call that? VCs
Most VCs are people who once ran their own startups like CornSeller and made a lot of money selling it.
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