Some common phrases, terms, lingo and jargons used by VCs

(Last Updated On: March 22, 2012)

Urban Dictionary won’t have it ever. So here goes…

The Golden Rule: The investor with the gold makes the rules (the same meaning as "those who bring the money drive the bus"; ie, forget whatever any previous contracts say, if you need money and only one source is willing to supply it, you’ll take the money on their terms, period.)

Cram Down: When a new funding round is done at a lower valuation than the previous one, meaning the original investors (or Founders) end up with a much smaller percentage ownership.

Dry Powder: Money held in reserve by a VC or angel in order to be able make additional investments in a company

Pay to Play: a term in VC financings that requires investors to participate in future down-valuation financings of the company, or else suffer punitive consequences (such as getting their Preferred stock converted into Common stock.) One reason why investors keep some Dry Powder on hand.

Burn Rate: The monthly negative cash flow from a pre-profitable startup.

Runway: How long a startup can survive before it goes broke; that is, the amount of cash in the bank divided by the Burn Rate.

Valley of Death: The period between the initial funding and the end of the Runway. If you get through here, you should be OK. If not.

Drip Feed: When investors fund a startup a little bit at a time instead of in a lump sum. Nerve wracking for the entrepreneur, painful for the investors.

Bootstrapping: Funding a company only by reinvesting your initial profits; from ‘pulling yourself up by your own bootstraps’.

Walking Dead: a company that isn’t bankrupt, but will never succeed, and thus can’t be sold or otherwise exited.

Dead Pool: where companies that die go.

Drive-by Deal: an investment by a VC looking for a quick exit through a short term sale; different from the current ‘Early Exit’ approach by angel groups, which is a strategic focus.

Tag Along/Drag Along: Provisions in a Shareholders Agreement that permit investors under certain defined circumstances to sell their shares if you sell yours (tag), or force you to sell your shares if they sell theirs (drag)..

Waterfall: the order in which investors (and everyone else) get their money out on an exit. Almost always this is ‘last in, first out’.

Lock Up: a period of time (typically after an IPO, or an acquisition of a startup by a public company) during which certain shareholders are not allowed to sell their stock. Often 90 or 180 days, but could be a year.

Zombie Fund: a VC firm that can’t raise a new fund, and thus can’t make new investments

Vulture Capitalist: a VC whose operating method is to deliberately take advantage of an entrepreneur’s troubles.

Spray and Pray: investing in lots of companies in the hopes that one of them will hit it big

"You can’t push a string": usually applied to marketing a product that end users won’t buy

"Bet the jockey, not the horse": invest behind great entrepreneurs, rather than a particular business plan

"Be a bull or a bear…but don’t be a pig": Be optimistic and invest, or skeptical and pass, but don’t be greedy and push for ridiculous terms

On hiring
"A players hire A players. B players hire C players."

What you get when you hire B players, who then hire C players
"The bozo explosion."

On Mergers & Acquisitions
"Tying two stones together doesn’t make them float."

On developing your VC "filter"
"Of the first 10 companies you see, you’ll like one. Of the first 100 companies you see, you’ll like one. Of the first 1,000 companies you see, you’ll like one."

On timing the market
"Be fearful when others are greedy, and greedy when others are fearful."

The "seagull VC
"He flies in unexpected, eats all the food, shits all over everything, and leaves abruptly."

A company that goes out of business in spectacular fashion, causing trouble and embarrassment for all involved.

Soft landing
Selling an underperforming company or its assets quietly at a bargain, to avert a crash-and-burn.

Smart money
Investors with inside knowledge, connections, or other personal attributes of use to the target company.

Retail investors
Angels and other outsiders who invest at full price, without any perks, quid pro quo, or other advantages.

Wave a dead chicken over it
In due diligence, a perfunctory analysis of factors unrelated to company value, designed to legitimize a faith-based investment.  Comes from a coder reference to voodoo programming.

Special sauce, black box, mojo, magic, etc.
Intellectual property of unspecified nature that may or may not exist, used to justify why a company’s product is unique, valuable, and hard to copy.

Man inside the box (or behind the curtain).
The unspecified person who will cover for the fact that there is no special sauce, black box, mojo, etc., who himself likely does not exist either.

Magical thinking.
When investors or company executives create irrational theories to justify their causal role in things that succeed by happenstance or sheer luck, or reasons why their company or product will work.  Term comes from the psychology of superstition.

Hail Mary.
A reference to the American football term, an improbably ambitious business move, funding pitch, product launch, etc., made in desperation.

Pet food wars.
The brief struggle between, petopia, petplanet,, and several other companies to dominate the fundamentally unprofitable online pet food and pet supply business.  Competitive investments by rival parties were followed by failed IPOs, retrenchment, and ultimately the brick-and-mortar company Petco buying the remaining assets several months before the wider dot com crash.  Used by analogy to refer to newer speculative bubbles in social gaming, deal-of-the-day sites, and other me-too investments.

Via David S Rose, AngelSoft and Alex Taussig,

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