Founding-FAQ

Business Angel, Pitch-Deck, SWOT- analysis… with all this vocabulary it is easy to get lost. Our Start-up-FAQ explains the most important terms and helps you navigate the start-up jungle.
Bild mit einem Papierstreifen mit der Aufschrift "Startup Business". Der Streifen wird von einer Hand gehalten.
Learn all the important terms related to start-ups (Photo: Colourbox)

Unicorn

A start-up which has a market value over one billion US-Dollar before going public or an exit (investors plan to withdraw from their investment).

Entrepreneur

Businesswoman or Businessman who is willing to take on high responsibilities and risks.

Start-up

A recently founded company with an innovative business idea and high growth potential, which is usually between 3 and 6 years old.

 

Pre-Seed-Stage

The stage before the company is founded. At this stage, a team is assembled, who develops the business model with the help of a business plan or business canvas. Initial contacts are made with investors or cooperation partners.

Seed Stage (or Early Stage)

At this stage, the company is founded. The business plan and product are being developed continuously; employees are hired, initial steps to launch the product are carried out, the marketing and sales departments are expanded. The first round of financing is provided by e. g. public funding or business angels.

Growth phase (or Expansion Stage)

This phase describes the growth phase of a start-up. The focus here is on rapid market penetration. New customers should be acquired steadily and revenues should also increase so that at least the break-even point is reached. Often an expansion of production and sales is necessary, as well as the hiring of additional employees.

Exit

The founders sell their shares to another company or cooperation and therefore leave the company. Some of the original founders may still work in the company for a transitional period, but it is no longer theirs.

Rounds of financing

Financing rounds offer external investors the opportunity to invest money in a start-up. In return, they receive shares in the company, for example.

 

Business model canvas

Method for systematic analysis of business models

Business plan

Description of the entrepreneurial project in which the entrepreneurial goals, planned strategies and measures are presented.

Letter of intent

A written declaration of the intent of two parties declaring their interest in carrying out a transaction.

MVP

MVP stands for Minimum Viable Product. It is the smallest feasible product. The idea originates from the Lean Start-Up method and is based on the motto KISS (Keep It Short & Simple). The product is to be launched as quickly as possible. Initially, a small but functioning and complete product is launched, which is practicable and viable on its own. After the launch, the product is continuously improved and developed with the help of customer feedback.

Pitch

Very short presentation of the business idea to a potential investor.

Pitchdeck

The presentation of the structured content from the pitch in e. g. a power point.

Value proposition canvas

The value proposition canvas identifies the value promises for specific customer groups; therefore, it must be considered which customer needs the product or service aims to fulfill.

 

Competition analysis

The strengths and weaknesses of the competitors are analyzed in order to highlight the own unique selling point and competitive advantage.

Market analysis

Through analyzing the characteristics of the relevant market, the market structure can be determined. Among other things, the market analysis includes the target group and competition analysis, which can for example be used to decide on a marketing strategy.

SWOT- Analysis

Strengths, Weaknesses, Opportunities and Threats are analyzed to develop strategic planning and evaluate a company’s competitive position in comparison to their competitors.

Target group analysis

Analysis of the target group by evaluating certain characteristics such as age, gender, interests, and values.

 

Bootstrapping

The start-up is founded without external financing, but exclusively from own financial resources.

Business angel

Experienced businesswoman or businessman who supports the prospective entrepreneur with financial resources and practical experience.

Crowdfunding

Form of financing by donations via the internet.

Start-up grant

It is paid by the Federal Employment Agency to recipients of unemployment benefit II to promote business start-ups. One of the preconditions is that the self-employment is practiced as a full-time occupation and thereby the unemployment is thereby ended.

Return on investment

Indicator that describes the percentage ratio between the invested capital and the generated profit.

Seed investor

Investor who provides capital in a very early stage of a start-up. For that reason, the capital is associated with a particularly high risk. Seed investors contribute in-depth knowledge about the industry. If a business angel invests particularly early, they are equivalent to a seed investor.

Scholarships and funding programmes

Especially in the early stages of a start-up, it is worth applying for scholarships and funding programs. A scholarship offers financial support and usually a network, which makes it easier to start entrepreneurship. Accelerators and incubators provide a good starting point.

See also Start-up/funding programs.

Venture capital

Investment that is used to finance a young company with a high risk of loss.

 

 

Financing rounds can basically be carried out by private investors, business angels or venture capitalists. Professional investor groups typically divide capital investments into series. In most cases, financing rounds range from Series-A to Series-E, sometimes further.

Series-A

Initial round of funding. Once a startup has developed a track record, it may opt for Series A funding. This is where venture capital plays a major role. This round is already about a large amount to be invested for further growth. The company has already been founded and has started its activities or is now entering the market. It can be guessed whether there is market acceptance for the product/service.

Series-B

After the Series A funding round, additional funding rounds may follow. These are called Series-B, -C, -D, etc. The Series B round is about the growth of the startup. It is to be taken beyond the development stage. Investors help startups do this by expanding market reach, among other things.

Series-C

Companies that reach the Series C funding round are already quite successful. They are now seeking additional funding, for example, to help them develop new products or expand into new markets. Series C aims to scale companies to grow as quickly and successfully as possible. Most companies end external equity financing with Series C financing.

Series D and E

However, companies can still enter Series-D and even Series-E financing rounds. This may be the case, for example, if they have not yet reached their Series-C financing targets or are looking for a boost before an IPO.

 

Accelerator

Program where startups receive knowledge and resources to greatly accelerate and advance the development process

EXIST – Transfer of Research

EXIST-Transfer of Research supports outstanding research-based start-ups, which involve complex and risky development work.

EXIST Business Start-up Grant

The scholarship supports students, graduates and scientists from universities and research institutes who want to turn their business idea into a business plan. The start-up projects should be innovative technology or knowledge-based projects with unique features and good commercial prospects of success. The funding period is 12 months.

Gründerstipendium NRW / start-up grant provided by the state of North Rhine-Westphalia

This scholarship supports prospective founders who have an innovative business idea. It provides a monthly grant of € 1,000 for a maximum of one year. In addition, there is the opportunity for exchange in start-up networks and to be accompanied by individual coaching.

Incubator

Accompanies and supports founders on their way to a start-up. In contrast to the accelerator, the incubator supports start-ups in the earliest stages and focuses on innovation and idea development.

 

Stock corporation

The stock corporation is a capital company with its own legal personality (legal entity). Shareholders are liable for the debts of the company with the company’s assets only. A corporation can be founded by just one person, but a minimum share capital of €50,000 is required.

Civil law partnership

The civil law partnership is formed as soon as two or more people join forces to pursue a common purpose. This form is ideal for any uncomplicated form of business partnership: no special formalities are necessary and an oral agreement between shareholders is sufficient. However, a written record of the contract is recommended. A minimum capital is not required. Shareholders have unlimited liability with their private assets for the company’s debts.

Limited liability company

The limited liability company is a corporation that can be founded by one person. Normally shareholders are only liable for company’s debts with company’s assets. The limited liability company must be entered in the commercial register.

Entrepreneur vs. Merchant

An entrepreneur (§14 BGB) is a natural or legal person who acts in exercise of his trade, business, or profession. The regulations of the BGB (German Civil Code) apply to him. A merchant (§1 HGB) is a person who carries on a commercial business. To be classified as a commercial business, certain criteria must be met, e.g. certain sales volume, number of employees, etc. To the merchant the regulations of the HGB (German Commercial Code) apply. Every merchant is also an entrepreneur, but not every entrepreneur is a merchant.

Partly limited partnership

To establish a partly limited partnership at least 2 people are required. A partly limited partnership always needs at least one partner who has unlimited liability, referred to as unlimited partner, and at least one partner who has only limited liability, referred to as limited partner. The limited partner does not participate in the management. The partly limited partnership must be entered in the commercial register.

General partnership

A general partnership can be established by only two people. It is a legal form for merchants and must be entered in the commercial register. The partners have unlimited liability with their private assets for the company's debts.

 

General standard terms and conditions

Pre-formulated terms of contract, according to § 305 Abs. 1 BGB (German Civil Code). They are intended to simplify and standardize mass contracts and therefore apply to a large number of contracts or rather to all contractual parties of the company.

General data protection regulation

A series of laws that uniformly regulate the processing and collection of personal data by companies, authorities and associations that are based within the European Union.

Trade regulations act

Part of the trade law. Includes regulations for practicing a trade.

Imprint

A legally required table of contents in a publication for the person responsible for the content. It contains, among other things, information about the author, the publisher, the editor or the editorial team. Internet pages also have an imprint.

IP

Stands for Intellectual Property (IP). The World Intellectual Property Organization (WIPO) defines the term as intellectual creations - i.e. inventions, literature or art, symbols, names, images and designs - that are used in a commercial environment. For example, it can include business ideas, know-how, business relationships, naming rights, patents, trademarks, designs, copyrights, and copyrighted works (e.g., software), among others.

Patents

Officially guaranteed right for the sole use and commercial exploitation of an invention.

 

Equity

A company's share of capital that is composed of its own financial resources and has not been financed by loans or other means. Together with borrowed capital, it represents the company's total capital.

Borrowed capital

The opposite of equity. It is a company’s share of capital that comes from other investors (creditors). Borrowed capital must be paid back, usually with interest.

Private equity

Investment for unlisted companies, often in the form of equity. Also referred to as off-market or private equity.

 

Business liability insurance

Covers all liability risks of entrepreneurs arising from the business activity.

Profits tax

All types of taxes levied on profit. It is the generic term for income, corporation and trade tax.

Trade tax

Local tax that has to be paid to the local authorities. It is based on the objective profitability of a commercial enterprise.

Property tax

Levied on land as well as development of a site.

Wage tax

Taxation of wages received by the employee. It is deducted directly from the wages by the employer and transferred to the tax office.

Sales tax

Taxation of a company’s turnover, which has to be paid by the company to the tax office. The company passes the tax on to customers through increased prices. The standard tax rate in Germany is 19%. Food and selected basic necessities are taxed with 7%.

Input tax

Tax that companies have to pay for purchases or other services. The tax office reimburses the companies for the input tax they have paid.

 

Professional liability insurance

If financial losses occur due to incorrect advice from, e.g., lawyers, tax consultants or architects, they are covered by professional liability insurance.

Business liability insurance

The business liability insurance does not apply to individuals, but to the company. The insurance covers financial losses resulting from property damage or personal injury.

D&O-Insurances

Directors and Officers insurance (D&O insurance) is taken out for executive bodies and senior executives to cover financial losses against third parties.

Legal expenses insurance

Legal expenses insurance mainly covers attorney and court costs up to the contractually tied sum. Among other things, it is useful for tax law matters or disputes in labor law.

 

Key Visual von SUPRA; Logo des Auftraggeber des SUPRA-Projektes: Bundesministerium für Wirtschaft und Energie, EXIST, Europäischer Sozialfonds, Europäische Union
The Start-up-Manufaktur is part of the Start-up Programm Rheinbach Sankt Augustin (short: SUPRA), a project funded by the Federal Ministry for Economic Affairs and Energy as part of the EXIST program (logos: Exist.de)