Given that roughly 80% of tech and eCommerce startups are doomed to fail, mastering venture capital terminology can be crucial for those aiming to be among the successful 20%.
This is why, Oxford Capital has created a guide to the most misunderstood venture capital terms. With expert commentary from Mark Bower-Easton, head of distribution, this resource clarifies these terms, helping tech founders better understand them and improve their chances of success.
The most misunderstood venture capital terms:
| Rank | Venture Capital Term | Total monthly searches for the definition | Total annual searches for the definition |
| 1. | Return on Investment (ROI) | 108,000 | 1,296,000 |
| 2. | Acquisition | 76,000 | 912,000 |
| 3. | Initial Public Offering (IPO) | 45,800 | 549,600 |
| 4. | Unicorn | 25,400 | 304,800 |
| 5. | Limited Partner (LP) | 25,100 | 301,200 |
| 6. | Pivot | 22,100 | 265,200 |
| 7. | Scalability | 20,200 | 242,400 |
| 8. | Cliff / Cliff Vesting / Vesting | 20,150 | 241,800 |
| 9. | Annual Recurring Revenue (ARR) | 18,650 | 223,800 |
| 10. | Lifetime Value (LTV) | 18,050 | 216,600 |
Return on Investment (ROI) is the most misunderstood VC term
The most frequently searched venture capital term alongside its definition is “Return on Investment” (ROI), with 108,000 searches each month globally or 1,296,000 annually. Grasping ROI is crucial for new founders to navigate funding discussions and set realistic expectations for their startup’s financial performance. Mark Bower-Easton, Head of Distribution at Oxford Capital, comments:
“ROI measures the efficiency and profitability of an investment by comparing the gain or loss relative to its cost. For venture capital, understanding ROI is crucial as it helps founders and investors assess whether the returns justify the investment risk. Many founders find ROI challenging as the metric is not only about immediate financial returns but also about the long-term strategic value and potential for growth. A clear grasp of ROI allows founders to make informed decisions about resource allocation and funding, while investors can better evaluate the viability and potential success of their investments.”
The term “Acquisition” is the second most searched venture capital term alongside its meaning, with 76,000 global monthly searches or 912,000 annually. Understanding acquisitions helps founders align their growth strategies and better negotiate terms with potential acquirers.
“An acquisition involves a company purchasing another to achieve strategic goals such as market expansion or new technology acquisition. For founders, understanding the nuances of acquisitions is vital, as it can influence their startup’s valuation and exit strategy. A solid understanding of this process can prevent missed opportunities and lead to more favourable deal terms.”
Initial Public Offering (IPO) is the third most misunderstood VC term
With 45,800 searches globally per month or 549,600 annually, “Initial Public Offering (IPO)” is a term of significant interest. Familiarity with IPOs helps founders prepare for public offerings and understand the associated risks and rewards. Mark Bower-Easton clarifies:
“An IPO, or Initial Public Offering, is when a company offers its shares to the public for the first time to raise capital. This process can significantly impact a startup’s trajectory with funding opportunities and enhancing its resources and profile. Founders can sometimes struggle with the regulatory demands and strategic aspects of going public, which can affect their readiness and decision-making.”
The term “Unicorn” ranks fourth with 25,400 monthly searches and 304,800 annually. In venture capital, a unicorn is a privately-held startup valued at over $1 billion. Comprehending the unicorn status helps founders navigate expectations and manage growth pressures more effectively.
“A unicorn is a privately held startup valued at over $1 billion that achieved significant market validation. With just over 300 unicorns globally, primarily in the US and China, this status signifies significant market achievement. However, reaching unicorn status doesn’t guarantee long-term success or profitability.
Founders need to understand that while being labelled a unicorn can provide substantial media attention and investor interest, it can also create unrealistic expectations and pressure. But, Understanding this status helps founders manage growth challenges and align their strategies for long-term success.”
Why understanding venture capital terms is crucial for new founders
Familiarity with essential venture capital terms like ROI, acquisition, IPO, and unicorn is vital for startup founders as they navigate the intricate world of investment and growth. A deep understanding of these concepts equips founders to make informed decisions, negotiate confidently with investors, and strategically position their startups for long-term success. Mastery of these terms enables founders to manage expectations effectively, seize opportunities, and steer their ventures toward sustainable and scalable growth.
