Published in UT San Diego, June 22, 2015
You gotta walk the walk and talk the talk. Today, we are going to work on the talk. For the first time, I am going to explain the true meaning of certain words, so that as you, the intrepid entrepreneur, attempt to navigate the minefield known as startup-ville, you will be armed and dangerous.
Agile software development: It was Bear Bryant, football coach at Alabama, who said it best — “I want my boys to be agile, mobile and hostile.”
Angel investor: The entrepreneur tells you, “We want a value-add investor,” but what they are really thinking is “dumber than a pile of rocks.” You are considered an angel because you know better, but you do it anyway.
Bootstrapping: We have no money and we are down to flip-flops.
Bridge loan: We are almost there, just another month or so. This type of loan is often a bridge to nowhere (see Alaska and Palin).
Cash flow: Often referred to in the Bible as a mirage. Also known as a hallucination.
Convertible debt: I have a 12-year-old T-bird. The top does not go up. In other words, it will never convert.
Due diligence: This usually entails one lunch followed by “he seems like a really nice guy.” Most investors spend more time buying a shirt.
Early adopter: I will try anything for free. And it may help me pick up girls at the bar.
Exit: There isn’t one. Refer to Jean Paul Sartre.
First mover advantage: This gives the next guy a clear target to put an arrow in your back. Study Northern Light and Alta Vista — then Google Google.
Founder: As Jack Kennedy once said about the rules playing touch football with him — “because it is my ball.” And your mother can explain that founder is just as good as doctor or lawyer.
Gross margin: What’s left after paying all the bills. If it is non-existent, you tell the investor that it will get better when we scale.
Ground floor: The floor just above the basement — which is the next stop.
Incubator: Only applicable if you are a baby chick.
IPO: In your dreams.
Liquidation preference: You have a small chance of getting some of your money back when the company tanks. You can always list the desks for resale on e-Bay.
NDA: This is a non-disclosure statement. It is basically worthless but getting it signed makes you feel like you actually have something worth disclosing.
Pivot: This is code for we had one idea, it failed, so we thought up another idea, but instead of saying we are hoping to find something new to bail us out of this mess, we say we are pivoting because it makes us sound like mechanical engineers from MIT.
Pro-forma: We took a class and to raise money, we needed to show that we get to $50 million in sales in year five.
Recapitalization: All the first investors get crammed down to zero.
SaaS: Usually refers to attitude from entrepreneurs under the age of 22.
Seed Round: The idea here is to align yourself with the idea of Jack and the Beanstalk growing large and tall. Unfortunately, magic seeds are now GMO.
Scale: We lose a little money on each sale, but we are making it up on volume.
Shareholder: Someone who used to be a friend and now is considering either burning your house down or having two of his friends from Brooklyn visit you with a lead pipe.
Term Sheet: The outline for hopes and dreams — only to be dashed when on page 3 you see that it has a 5X liquidation preference.
Valuation: I bruised my ribs recently and it hurts when I laugh. Magicians often say, “Pick a number, any number.” Again, refer to P.T. Barnum.
Venture capital: No link found.
Vesting: This refers to the years you labor in a miserable job hoping to get the stock they offered at the beginning, only to find that at the end of the game, there is no exit. (Sartre again).
But, let’s end on a hopeful note. It is a wonderful game. It is the stuff that dreams are made of. But only do it because you love it — otherwise it is a fool’s errand.
Rule No. 148