If you’ve ever watched Shark Tank, you’ve likely been fascinated by the passionate pitches, dramatic negotiations, and high-stakes deals. But between all the excitement, the business jargon can sometimes make you feel confused. Terms like equity, valuation, and venture capital are thrown around effortlessly by the Sharks, leaving many viewers scratching their heads.
Don’t worry, I’ve got you covered! Whether you’re an aspiring entrepreneur or simply curious about how businesses secure investments, this guide will break down key Shark Tank terms in an easy-to-understand way, with examples from real-world businesses. In this blog, I have covered all the key investment terms, and in future blogs, I will cover terms related to sales, marketing, operations, etc.
Key Investment Terms Explained
1. Equity – Owning a Piece of the Business
What it means: Equity refers to ownership in a company. If you own 25% equity, you own 25% of the business and its profits.
Example: Imagine you and a friend launch a tech startup in India, investing ₹50,000 each. You both own 50% equity, meaning equal ownership in the company.
2. Valuation – What the Business is Worth
What it means: Valuation is the estimated worth of a business based on factors like revenue, growth potential, and market trends.
Example: Indian ed-tech giant Byju has reached a valuation of over $10 billion, reflecting investor confidence in its growth. This means that if someone wants to buy the entire company, they need to pay around this valuation.
3. Capital – The Money to Run a Business
What it means: Capital is the money a business needs for operations, expansion, and survival.
Example: A new restaurant in Bengaluru requires ₹20 lakh to cover rent, staff salaries, and kitchen equipment. The owner gathers capital through loans and investments.
4. Seed Funding – The First Investment
What it means: This is the initial money used to launch a startup, often coming from angel investors.
Example: A health-tech startup in India secures ₹30 lakh in seed funding to develop a mental health-tracking app.
5. Venture Capital – Big Money for Growth
What it means: Venture capital (VC) is funding provided by professional investors to startups with high growth potential.
Example: Ride-hailing service Ola received venture capital from SoftBank, helping it expand and compete with Uber.
6. Angel Investor – Early-Stage Supporters
What it means: Angel investors are individuals who provide early funding in exchange for equity or convertible debt.
Example: Ratan Tata invested in startups like Ola and Paytm, helping them grow in their early stages.
7. Convertible Note – Loan That Becomes Equity
What it means: A convertible note is a short-term loan that later converts into equity during a future funding round.
Example: A Bengaluru-based AI startup raises funds through a convertible note, allowing investors to own shares later.
8. Syndicate – Teaming Up to Invest
What it means: A syndicate is a group of investors pooling money to invest in a business together.
Example: On AngelList India, investors form a syndicate to support a fintech startup, reducing risk and increasing investment power.
9. Leverage – Using Borrowed Money for Bigger Gains
What it means: Leverage is when businesses use loans or borrowed funds to amplify their returns.
Example: A real estate developer in Mumbai buys a property with a loan, hoping to sell it at a higher price to make a profit.
10. ROI (Return on Investment) – Measuring Profitability
What it means: ROI is a percentage that tells you how much profit you’ve made compared to your initial investment.
Example: Investing ₹1,00,000 in Reliance shares, which later increase to ₹1,10,000, gives you a 10% ROI.
Final Thoughts
Understanding these business terms can help you better understand the world of entrepreneurship and investments. If you wish to build a business that becomes a brand, please remember that learning is a contentious process, and you should read and watch more to understand these terms better. Whether you dream of pitching your startup on Shark Tank or want to follow the show more easily, mastering these concepts is a great first step.