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Financial Terms Every Young Entrepreneur Should Know

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November 27th, 2022 11:32

Introduction

Aileen Lee, in 2013, coined the term “Unicorn” for startups that struck the 1-billion mark in their financial revenue. Since then, people have discovered an ancient concept that found its way back to the present time and became every dinner table conversation termed entrepreneurship.

However, the term had a straightforward journey. But the related terms had their tussle to go through as the trivial concepts are easy to grasp, but diving deep in for better knowledge is uneasy for everyone. Few have time to invest in such terms and concepts.

We have simplified some of those complicated terms here:

Bootstrapping

Not every idea is convincing for venture capitalists and investors. However, the sheer determination of entrepreneurs for the business plan would lead them to start the business using their personal savings or money lent from their friends and family circle without investors. Bootstrapping is when you depend on the capital out of your pocket in the initial stage without external funds.

MVP

Minimum Viable Product is the foremost face of the product a startup is offering. MVP is what one takes around when they are looking for an investment. With the help of it, they can explain to their investors the basic structure of the product and the future amendment. 

FMA

FMA is an acronym for First Movers Advantage. While many successful unicorns do not believe in the practical application of FMA, this does hold value in the startup culture. We define it as the one who finds a market and delivers a product first and will always lead the market in the future. 

In recent times, Amazon is one of the leading e-commerce websites. And it always has a higher place in e-commerce for its business model. Other e-commerce websites have tried to replicate it, but amazon has been leading it since then because of its first move toward the market.

Loss leader pricing 

There are different ways to gain profits in business with the help of Loss leader pricing. Loss leader pricing is when a startup chooses to sell a product at a price that is not profitable but leads to a loss. However, the strategy behind this is to reach a customer who will buy the same product repetitively. Thus repetitive sales will lead to profit. It has been a recently started a lot of startups have been using it lately. Startups that hold products like groceries are one such example of this strategy.

ROI (Return on Investment)

ROI is the performance measure used to evaluate the efficiency of an investment or compare it with several capitals. ROI is a financial metric used to measure the return or gain from an investment made by an investor.

Freemium

It is a combination of 2 words and concepts- free and premium. The companies give a trial of the product free of cost and create demands for the product first, then charge for the product later in the way of a subscription. Usually, OTT platforms have been using this pricing strategy lately. The most common examples are Netflix and Prime.

Customer Acquisition Cost

By the term, it means the cost for a corporation to get a customer for profit generation. In basic terms, we can understand that when a corporation spends an amount on marketing and sales for a product to be successfully placed in the market for the customers to be bought from his customer acquisition cost.

Serial entrepreneurs

This term refers to people who are not just founders of one business but have established more than one company. They keep on developing and finding new markets and products for the market.

Convertible Note

Convertible note aka Convertible bond means a debt that will turn into equity in the company finance round at a later stage. The investor sometimes, instead of getting their loan back with interest, receives a part of the equity in the Convertible Note.

With these quick basic terms, one can understand concepts related to the start-up culture and its nuances.

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