Translating VC: A pocket guide to venture capital keywords

Venture capital can be a mysterious space to outsiders. Discovering your route into the industry, or trying to decode the path to fundraising as a founder, can often feel challenging. Without a base level of familiarity, understanding the tangled web of relationships, norms, and practices that make VC tick can seem almost impossible.

What can make this even more difficult is getting to grips with some of the language used in the venture ecosystem. Even for those relatively familiar with the space, the VC phrasebook is always evolving, and it’s easy to be caught off guard when you hear people in the industry casually slip in new catchphrases you’ve never heard before.

With that in mind, I’ve put together a little pocket guide of five industry terms, some new, some not so new, to help you feel a bit more confident in ‘speaking VC’.

1. Signals: Beyond tangible metrics of startup progress such as revenue or number of customers, “signals” are subtler indicators that VCs use to decide which startups to back.

Far from being an exact science, these are breadcrumb-like cues that suggest a company has real potential, things like having founding team members who’ve previously worked for other high-growth startups, or receiving support from a renowned startup accelerator. (This list is non-exhaustive, of course, as there are many other signals one can consider.) None of these factors guarantees success, but they act as shortcuts for time-poor investors to quickly decide which startups to look into more deeply. For founders, understanding and emitting these signals can make the difference between getting lost in a sea of pitch decks and standing out in a crowded market. For VCs, it’s important to be mindful of the right signals that correlate to founder success and resist the urge to rely on vanity signals that might look good on the surface but have little bearing on future company performance.

2. Pattern-matching: Based on these signals, VCs ultimately have to make a judgment on whether or not a startup is worthy of investment (and even before that, whether or not to take the time to evaluate it as a potential investment). That’s where pattern matching comes in. At its core, the idea is simple: investors use previous experience to guide their decision-making.

For example, when weighing up a potential investment, they may be drawn to founders who have worked or studied at the same institutions as previous successful founders in their portfolio. Beyond this, VCs often lean on their own experience and network within a startup’s target market to assess its likelihood of success.

While there’s nothing revolutionary about this idea, it’s easy to see how relying on subjective, informal judgements can create conditions for various cognitive biases to play out. A seasoned and skilled venture investor will regularly break from their usual decision-making patterns and lean into contrarian bets.

3. Moat: So, you’ve established a top team and built a great product. But what stops the next business down the road from replicating exactly what you’re doing? That’s where “moats” come in.

These are a company’s built-in shields, the competitive advantages that make products hard to replicate and allow startups to stay ahead of their competitors over time. With advances in AI and no-code tools making it easier than ever for developers to build “bolt-ons” or even clone new products, tech founders must find ways to hold on to what makes them unique.

For investors, being able to see this defensibility is critical. Whether it’s fostering communities that encourage users to keep coming back (think Strava’s competitive social platform) or harnessing proprietary data to build something unique (think Spotify’s Wrapped campaign), moats are what make a startup sustainable over time in the face of competitive pressure.

4. Thoroughbred: You might be familiar with the term “unicorn”, used to refer to startups that have reached a $1 billion valuation. This simple signal of high growth potential is often held up as the holy grail for founders and VCs. Along similar lines, tech heavyweight and Phoenix Court co-founder Saul Klein recently coined the term “thoroughbred” as a new way to assess startups’ potential.

Instead of looking at valuation, “thoroughbred” refers to any company with annual revenues of $100 million or more. In his view, focusing on revenues is a stronger indicator of success and will encourage more policymakers and large investors to support those in the “innovation economy”.

5. Colt: Alongside thoroughbreds, Klein coined the term “colt” to refer to companies with annual revenues of $25 to 100 million.

While these companies may not have the same impressive track records as their thoroughbred counterparts, the idea is similar. High revenues sustained over time suggest a strong customer base and product–market fit, both of which are essential to growth and signal high potential to investors.

To sum up, the best route to learning VC lingo, as with any new language, is through immersion. If you truly want to understand the ecosystem and its rhythms, you need to learn from others who are fluent in the language. This could mean attending organised networking events for industry newcomers, building and maintaining relationships with contacts who already have experience in VC, taking an online training course for beginners, or subscribing to industry podcasts or newsletters.

As daunting as it may seem at first, exposing yourself to this language as often as possible is the quickest way to bring yourself up to speed, and once you are adept at speaking it, your arc of development will be poised for exponential growth. Before long, you won’t just be speaking the language, you’ll be shaping the conversation.

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