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Startup 101: Understanding the Startup World

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Startup 101: Understanding the Startup World

For those who are just getting started in the tech startup world, it can get a bit confusing. With a lot of terms tossed around during conversations, you may find yourself often searching for meanings of various words so you’re not lost.

Well if you we’re like me a couple of months ago when I was still trying to find my way around the conversations at CoLab, here are some of the terms that you should be familiar with.

startupStartup

Maybe you know what this means or maybe you don’t but in today’s world, expect this word to be tossed around about a hundred times a day. Okay, I may be exaggerating. But this is common not just from those in the industry but also random people you come across who may be interested in sharing their ideas with you.

A startup is a business often having technology as its basis which has the ability to scale. In this article, I shared a bit more about startups and some of the differences between SMEs. You should check it out.

Incubator

An incubator is an enterprise that is set up to provide office space, equipment, and sometimes mentoring assistance and capital to businesses that are just getting started. The incubator helps move one from the idea stage to prototype stage. When you’ve got startup idea and need help getting started, the incubator is the right place for you to begin.

There are a number of incubators scattered across the country. With most of them concentrated in Lagos, there are still a few in Northern Nigeria with the latest addition of civic innovation lab. The Southern part of the country is not left out although there is still a lot of catching up to do at that side.

Accelerator

There’s also the accelerator. Likened to what the accelerator in a car does, it basically speeds/quickens the processes startups go through.  An accelerator takes single-digit chunks of equity in externally developed ideas in return for small amounts of capital and mentorship. They’re generally truncated into a three to four month program at the end of which the start-ups graduate.

The startups must “graduate” by a given deadline, typically after 3 months. During this time, they receive intensive mentoring and training, and they are expected to iterate rapidly. Virtually all accelerators end their programs with a “Demo Day”, where the startups present to investors.

fund moneySeed funding

Funding! Funding!! Funding!!! Sometimes that may be the only thing you hear or even the only thing you may be saying. Many startups often need a lot of funding to kickoff operations or even scale. So what is seed funding?

Seed funding is  the earliest funding that you’re be able to attract into your startup. It is the fund needed to start the business. It often comes from the company founders’ personal assets, from friends and family or other investors. The amount of money is usually relatively small because the business is still in the idea or conceptual stage.

Seed funding allows a startup to develop a prototype product and generate sufficient investor interest for successive financing rounds.

Early Stage Funding

You’re probably wondering, “Which is this again and what is the difference between seed funding and early stage funding?”. Early-stage funding usually consists of two parts, commonly known as Series A and Series B financing and allows additional operational flexibility over the medium to long term.

A “series A round” is the name typically given to a company’s first significant round of venture capital financing. “Series B financing” is the second round of financing for a business through any type of investment including private equity investors and venture capitalists.

lagos angel networkAngel investor

The various fundings do come from investors and not all investors are the same. Some invest individually and others may do so as a group such as venture capitalists. The angel investor is one of such individual investors.

The angel investor provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.

Angel investors invest in small startups or entrepreneurs. Often, angel investors are among an entrepreneur’s family and friends. The capital angel investors provide may be a one-time investment to help the business propel or an ongoing injection of money to support and carry the company through its difficult early stages.

Here in Nigeria, we presently have the Lagos Angel Network.

Venture Capitalist

A venture capitalist is an investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities markets.

Venture capital funds pool investors’ cash and loan it to startup firms and small businesses with perceived, long-term growth potential. This is a very important source of funding startups that do not have access to other capital and it typically entails high risk (and potentially high returns) for the investor.

Valuation

Enhe! Valuation right? Is it worth a billion Naira dollars yet? Are you going to ever make it to be part of the Fortune 500 companies? Have the ‘180 million potential customers’ subscribed, purchased or made use of your product?

Well there is pre-money valuation and post-money valuation. There has been a few debates here at CoLab to figure out whether this is right or wrong. Pre-money valuation refers to the value of a company not including external funding or the latest round of funding. Post-money valuation, then, includes outside financing or the latest injection. It is important to know which is being referred to as they are critical concepts in valuation. I think this article does a pretty good job at breaking down the process used at arriving at a valuation.

Are there any other terms you come across regularly? Let us know in the comments

A sports and nature lover, art enthusiast and rookie globe trotter. I'm also in love with Africa, tech and politics.

1 Comment

1 Comment

  1. Adamu

    October 4, 2017 at 2:42 pm

    Great article,should set us unfamiliar with the growing startup ecosystem straight on just what the heck it is

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