Grégoire Vigroux is a French Serial Entrepreneur and Business Angel, based in Romania since 2006. He co-founded and invested in 21 businesses across Eastern Europe and had 4 exits. The French entrepreneur believes entrepreneurs have an increasing role to play in shaping a meaningful world. He thinks success, in business, must come with responsibility. Profits with purpose. Growth with progress. Prosperity with philanthropy. Connect with Grégoire on Linkedin.
Entering the world of entrepreneurship is like moving to a new country. You have to learn a new language. You need to understand and respect the culture, in order to fit in and project yourself in this new world.
The language may seem hard to comprehend at start if you are a beginner and your business experience is limited to an awesome idea. So let’s review the glossary of terms that might ease up your accommodation in the business world!
Angel Investor/Venture Capitalist
Sounds heavenly, right? An angel investor or a business investor or a private investor is a person who provides capital in the initial moments of startups, usually in exchange for convertible debt or ownership equity in the company. Their trust and their investment can make the difference between a great idea that never had a chance and a successful company. Besides the capital, their time and knowledge can also be highly valuable assets.
There is also the Venture Capitalist (VC), a private equity investor providing capital to young companies with high growth potential in exchange for an equity stake. The risks are high, because of the uncertainties brought by startups, so failure is a big part of venture capitalists’ experiences, but for those that do pan out, the rewards can be substantial. To minimize the risk, they usually target strong management teams.
Bootstrapping refers to the early days of a startup when an entrepreneur is using their personal funds or money coming from family or friends to sustain the business. It’s when you literally put everything you have on the table, to get things moving, using your garage as a workshop, your own car, buying supplies with your savings, and asking for help and loans from everybody you know. At this stage, you are validating your business — you are not ready yet to look for investors. But if you attract customers, that time might come and your startup will flourish. All the effort and the personal investment might be paid in full.
Now, there is a rate you do not want to be too high in your startup! It is a red flag… Churn rate is the percentage of clients who stop doing business with your company, like, for example, not renewing a subscription and coming back with a reservation, over a given period of time. When your churn rate is high, it means that there is something wrong with your service or product. You need to start asking your clients about the reasons they are abandoning you. Churn rate also refers to the rate employees leave their jobs within a given time. In both cases, you must find out why this is happening, and why people are choosing to leave your business.
We all aim for the stars when we start a business, but success could mean many things. Sometimes it is all about having as many clients, sales, and profits, but in other situations, your home run is an exit strategy. That means transitioning the ownership of a company to another company, through a merger or acquisition, or to investors, through an initial public offering. An exit strategy could also mean management buyouts and employee buyouts. Although it may sound like you are thinking of an ending before the startup even sets off, a smart entrepreneur has to anticipate various scenarios and make a plan for each of them. Always ask yourself what would your competitors want to buy your at one point company, so that you can “habiller la mariée”, like we say in French – which means “dress the bride”! The startup owner can make a substantial profit and maybe look for a new business area, after an exit. As an investor, I am currently involved in 21 startups and have made 4 successful exits. Each experience has taught me something and I have always been a step forward.
Key Performance Indicators
Entrepreneurs follow their gut feelings in many situations and that is the reason why their businesses can grow at an incredible pace. Risk and agility can be valuable, but in most cases, reason and calculus save the day. Key Performance Indicators (KPIs) are a set of clear measurements that shows a company’s performance. By tracking them, you can determine your failures and achievements, and always keep your goals in mind. You should keep an eye on macro-indicators, but also KPIs for each department. As an example, a few HR KPIs that could give you an interesting overview of your business could be: absenteeism rate, internal mobility rate, time of productivity, training ROI or Worker composition by gender, experience, and tenure. If you are looking at the IT department, the KPIs could be: IT Costs vs Revenue, server downtime, ticket resolution time. No matter what you are measuring, always remember that KPIs should be SMART: Specific, Measurable, Attainable, Realistic, and Time-bound.
The idea behind an incubator is very similar to those hatching devices that transform simple eggs into cute little birds. An incubator for startups is like a co-working space with a twist. The extra twist comes from the knowledge that a startup entrepreneur receives in the form of training and mentoring. In addition, there are very useful services that incubators also offer: marketing assistance or help with financial management. In short, an incubator is a nice workspace where you can plan the development of the company after receiving very useful feedback and tips.
The startup runway is like the ticking of a bomb. It translates into the number of months the business can operate with the current expenses before it runs out of money. Investors or VCs will ask about this, so there is no way of avoiding the math! The number should help you in budgeting, strategizing, forecasting, or fundraising. The runway is your current cash balance divided to cash burn rate. The net burn rate measures how much cash you lose each month when you consider both income and expenses and your gross burn rate doesn’t take income or positive cash flow into account. Is there a right answer to the question about a startup runway? Yes, there are recommendations, based on the average time between fundraising stages, usually between 12 and 18 months.
Skin in the Game
The expression refers to business owners who invest and risk their own money in the company. In many cases, all the funds have, and the ones they borrow from theirs friends and family. In my case, I invested 100 000 EUR in my first company, putting all the money I had, plus borrowing money from my father, as well as little brother and sister. For many investors, the fact that you put “your skin in the game” means that your company is trustworthy. It sends out a clear message about your confidence and commitment. If you ask me, putting your “skin in the game” is the best way to reassure your business partners and future investors. I would even push the term further, saying that to be successful, not only you need to put your skin in the game, but all your heart, too.
You could call a term sheet the beginning of a beautiful friendship. It is that first formal document that sits on the table, between an investor and a startup. It is a non-binding agreement. What can be put on a term sheet? Well, you can write down investor commitment, percentage stake, or the company value on the market, but also voting rights, liquidation preference, and many, many more aspects. The important thing is that, after the negotiation, like that important walk down the aisle, you feel you are with the right person and the answer is “I do”. Was that too cheesy?
A lean startup refers to founding a company or creating a product for a market that already exists. Sure, you need a good selling proposition, something new, something fresh, but you already know that there is demand and you do not have to educate the public in order to create it. “The lean startup” is also the name of a best-selling book. The author, American entrepreneur Eric Ries, Founder and CEO of the Long-Term Stock Exchange (LTSE), fully explains the method in his volume which has been translated into 30 languages.
After reading this ABC of startups, please take a test. I will see if you paid enough attention. I am kidding, of course! The only test you have to take is the “trial by fire” of entrepreneurship… So, work hard. Think big. Believe in yourself. Be perseverant. Do not give up on your dreams. And use the right terms!