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Unicorns, Angel investors & other start up jargon simplified

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Last week there was an article in the newspapers talking about the instant messenger ‘Hike’ getting another round of funding & becoming the next Indian Unicorn.
But what exactly is a Unicorn?

So this weekend’s GK Nugget is going to simplify the start up space & Unicorns.

Originally, a unicorn is a legendary horse-like creature that has a large, pointed, spiraling horn projecting from its forehead. But the tech world uses the term to describe technology start ups which have a value of over a billion US dollars – which means if you had to buy the company, it would cost you that amount (The sales or profits of the company are not to be confused with its valuation – those are separate numbers.)

India has a total of 10 companies that are considered Unicorns: Flipkart, Snapdeal, Shopclues, MuSigma, PayTm, Zomato, Ola, Quikr, InMobi & the latest addition, Hike.

According to CB Insights (a venture capital database) there are 170 Unicorns in the world today, having a total valuation of US$ 620 Billion.

What makes a Unicorn?
Usually, these companies have a disruptive idea – something that makes you look at the industry that they are working in, from a whole new angle.

Can anyone with a disruptive idea form a start up & become a Unicorn?
Not exactly; the idea needs to usually be unique – or it should at least better what is currently being offered. (e.g. How Ola made it easier to get taxis even though Meru was already offering that). Plus you need to get investors to put in their money in your business, & you need to show consistent & quick growth in sales. Not to mention hard work, persistence & passion. And taking on a whole lot of risk – some figures state that 9 out of 10 startups fail within 2 years.

Ok, so let’s assume I have an idea. What kind of investor am I looking for? Angel, Venture capitalist, Series A funding – there are so many confusing terms!
Depending on the money required by a startup & its stage of growth, there are different ways to get funding.
Bootstrapping: When the founders use their own savings. Generally this is a small amount.
Seed funding: Mainly used to cover costs in the concept stage. Generally raised from family & friends or Angel investors.
Angel Investors: These are individual investors, who will invest their money in the start up in return for a percentage of shares (Equity). They also provide advice & help in reaching out to their connections to help the start up. The amounts are usually small; less than $ 1 million.
Series A funding: This is the 1st round of funding raised, usually in the early stages of the business.
Series B funding: This is the 2nd round of funding raised, usually after the start up has proved its potential. This is the stage at which usually Venture capitalists get in.
Venture capitalists: These are firms that collect money from multiple investors to invest in start ups in return for equity. Their business is investing in start ups & they usually ask for a seat on the start up’s board.
Series C funding (every subsequent round of funding follows the alphabet – D, E, F, etc.): As the start up expands & needs further funding, it conducts the next round of funding.

This is just a small peak into the start up universe – a space that has gained a lot of momentum thanks to a supportive ecosystem as well as govt initiatives.
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