There are a lot of tech buzzwords you think you know but don’t. I should know because I’ve had to learn some of them too.
Before now, I thought I knew all these tech buzzwords because I read them in news and articles. But I really don’t. In the first few months of working at a fintech startup, I’ve had to learn these terms and understand them.
I’ve seen a lot of people ask for the meaning of these terms or pretend to understand what they mean. So, in this post, I explain some of the tech buzzwords I’ve come to understand.
Why do you need to know these tech buzzwords? These terms are like the patois of the tech ecosystem. And it is important you understand them if you’re a tech enthusiast, techpreneur, or tech professional. Like language, they enable you to communicate and better understand the tech ecosystem.
Top 10 tech buzzwords you should know
I pair some terms which are often erroneously used interchangeably to show how they are different. These are some tech jargons you should know:
- Accelerator and incubator
- Private equity and venture capital
- Debt financing and equity financing
- Growth equity and sweat equity
- Term sheet
- Lean startup
- Bootstrapping and blitzscaling
- First-mover advantage
- Burn rate
1. Accelerator vs Incubator
Accelerators are cohort-based programmes. They include mentorship and educational components and culminate in a pitch event or demo(-nstration) day. Accelerators focus on a number of sectors, biotech, fintech, healthtech, edtech and other emerging technologies.
Accelerators and incubators are two tech buzzwords often used interchangeably. But they are slightly different. As the name implies, the aim of accelerators is to boost the growth of an existing startup. In short, accelerator programmes focus on scaling a business.
Accelerators typically have a duration of between 3 to 12 months. During this period, startups in the accelerator programme have access to business support, mentorship and sometimes funding. The startups are essentially being prepared to receive high investment and gain traction in their niche sector.
Examples of accelerator programmes include Y Combinator, Techstars, Africa Fintech Foundry, Google for Startups Accelerator, Spark Accelerator and Facebook Accelerator.
Incubators, however, do not operate on a routine schedule. They mostly work with entrepreneurs to develop an idea into a company.
Within an incubator, ideas are refined, a business plan is developed, product-market fit is sorted and intellectual property issues are addressed. Examples of accelerators are Wennovation Hub, IDEA Innovation Centre, and Meltwater Entrepreneurial School of Technology.
2. Private Equity (PE) and Venture Capital (VC)
Private Equity encompasses different strategies used in providing money to companies at different stages. PE funds invest in and have a stake in private companies. But they do not invest in publicly traded companies.
PE is different from venture capital in that VC is one of the investment strategies PE deploy. Other strategies PE funds use include buyouts, distressed debt and growth equity.
Venture Capital is an investment made in startups with little or no track record of profitability. Sometimes, venture capitalists might invest in a startup at an idea stage because of the entrepreneur.
VCs focus on identifying and investing in startups and entrepreneurs they believe will succeed and give good returns on their investment. Hence, VC is the riskiest type of private equity investment strategy because many companies fail.
3. Debt financing and equity financing
Debt financing involves raising capital through loans or selling convertible debt instrument to investors. The company or individual in this situation becomes a debtor and the lender becomes a creditor. They agree to pay back the principal and interest to investors on an agreed schedule.
Companies use debt financing to raise funds because it does not dilute the ownership of the business. Creditors do not own any stake in the company; the debtors retain full ownership and control of the business.
However, investors consider a company with high debt profile a risky company. Because, should they default on the loan payment, creditors could liquidate the company.
Equity financing is the process of raising capital through the sale of shares in a company. With equity financing, investors become shareholders. In this case, investors receive dividends or look for an exit to recoup their investment. (An exit can happen through acquisition, an initial public offering (IPO), or another funding round.)
4. Growth equity and sweat equity
Growth equity, as I mentioned earlier, is a private equity investment strategy. It provides financing for companies with proven business model and positive cash flow or profit.
These companies often have growth opportunities but lack sufficient capital to fund their growth plan. Growth equity investors provide capital for these companies to grow in exchange for shares and return on investment. Most times, this funding is raised as a bellwether for IPO.
Sweat Equity is not monetary. In most cases, it is physical labour, mental effort and time. Sweat equity is the unpaid labour that employees and cash-strapped entrepreneurs put into a project.
In cash-strapped startups, employees typically accept salaries that are below their market values in return for a stake in the company.
It means financing a business with nothing but personal savings. And sometimes, capital crowdsourced from friends and families. By bootstrapping their startups, entrepreneurs retain total control of the business.
6. Scale or scalability
This is a popular tech buzzword. It means the ability of an organization, model or system to increase performance and expand in scope.
7. Burn Rate
This is also a popular tech buzzword. It is the rate at which a company is losing money. It typically describes the rate at which a company is spending investors’ funds to finance overhead before generating positive cash flow. Burn rate is a measure of negative cash flow.
Burn rate is usually quoted in terms of cash spent per month. Startups and investors use the burn rate to track the amount of cash they are spending.
8. Lean startup
A lean startup is a method used to establish a new company or launch a new product. This method advocates developing products or providing services consumers have already demonstrated interest in. It is antithetical of developing a product and then hope there will be demand for it.
Also, the hiring strategy of a lean startup involves recruiting workers who can learn, adapt, and work quickly. Rather than the traditional method of employing staff based on their qualification and work experience.
9. Term sheet
A term sheet is a non-binding agreement that highlights the terms and conditions of an investment.
Some of the key items highlighted in a term sheet are the company’s valuation, liquidation preference, anti-dilutive provisions, voting rights and size of the investment. The term sheet becomes biding once all the parties agree to the conditions.
10. First Movers Advantage (FMA)
The first-mover advantage is the edge of any company that first introduces a product or service to the market. The first-mover advantage allows a company to establish strong brand recognition and product/service loyalty before other entrants or competitors.
FMA usually presents a catch-22 scenario. While it gives a company a runway of monopoly, it also presents other problems. For instance, you may have to educate your users and investors about the new and untapped market.