innovation: Article- Get that Gazelle Out of My Space!

Every industry without exception employs words and phrases that might be slightly foreign to those who have the misfortune to be employed outside that particular industry. These excretions are known variously as terms of art, lingo, argot, buzzwords, jargon and that old standby, gobbledygook. In the investing, entrepreneurial and technology sectors—we are reluctant to call them “spaces”—odd words and phrases abound, which more often than not inhibit clear communication, which is usually the point of any conversation.

When chatting with colleagues who’ve got the jargon down, communication isn’t a problem and an otherwise strange word or phrase may serve as a serviceable shortcut. But speaking hip-hop to members of the clergy, for example, or clergy-speak to hip-hoppers, may not have the desired effect—if, of course, the desired effect to communicate easily and effectively.

With all of that in mind, following is a collection of terms that could mean different things to different people but are in general use among members of the financial, investment and technology fraternities. Use them at your peril.

Barriers to Entry
The existence of high startup costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry benefit existing companies already operating in an industry, since barriers will protect their revenues and profits from being whittled away by new competitors.

Burn Rate
The rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. In other words, it's a measure of negative cash flow.

Carry
A percentage of the profits the firm makes. Carry is the Holy Grail of venture capital. Typically, the general partners receive a combined 20 percent of the profit from investing. For instance, if a firm receives $100 million in capital for its fund, and over 10 years returns $400 million, the profit was $300 million. The investors, or limited partners, receive 80 percent, or $240 million, and the general partners split 20 percent, or $60 million among themselves.

Crater
A company that received venture capital that went bankrupt.

Exit Strategy
The method by which a venture capitalist or business owner intends to get out of an investment that he or she has made in the past. In other words, the exit strategy is a way of "cashing out" an investment. Examples include an initial public offering (IPO) or being bought out by a larger player in the industry. Also referred to as a "harvest strategy" or "liquidity event."

Gazelle Company
A company growing at an annual rate of 20 percent or more.

Keiretsu
A Japanese term describing a loose conglomeration of firms sharing one or more common denominators. The companies don't necessarily need to own equity in each other. This term has been in the news every now and then, especially when they talk about Silicon Valley. One example would be the close relationship between AOL and Sun Micro. The two firms don't have ownership in each other, but they work closely on various projects.

Dog
A company that received venture capital but is failing or going nowhere. "You can combine a dog with another dog, but you're still going to have a dog."

Due Diligence
This is the process of investigating a company before investing in it. It typically includes calling references, calling customers, investigating competitors, validating legal contracts, visiting remote locations, coordinating with other investors, interviewing the entire management team, testing the technology, building spreadsheets, and running sensitivity analyses on the projections to see if they make sense, etc.

IRR
Internal Rate of Return. This is a calculation that determines what the rate of return is on a portfolio investment or on the total venture fund. One way to think about it is, if you put your money in a bank account that gives you 5.5 percent interest annually, you could say your IRR on that investment would be roughly 5.5 percent (not accounting for taxes or service fees). IRR is the most important measure of performance for a VC fund.

DTB
Drop the bomb - to resign at the worst possible time.

Exploding Offer
A job offer with an expiration date. Often the value of the offer (usually the bonus portion) decreases slowly until that date.

KSA
Knowledge, Skills and Abilities. Instead of writing chronological resumes, many seasoned workers are concentrating on these three key terms.

Low-hanging Fruit
The market that is presumably the easiest to secure for your product. Getting a bit shopworn.

MTBOO
Mean Time Between Other Offers. It is commonly held that MTBOO for software engineers is 9 months.

Discounted Net Present Value
Project a value out for three years, discount it back to the present. Way of establishing value of something that can’t be valued at its present. Got that?

Space
The sector or industry in which you are involved, or would like to be involved; e.g., the aerospace space.

Sweet Spot
The area of technology or the market preferred by investors.

Twitch Speed
A term used to describe how young people absorb and use information. (refers to how fast your thumbs move when you're playing a video game). Marc Prensky, a VP at Bankers Trust, developed "twitch-speed" training games designed to keep young hires interested during training courses.

Long Tail
The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of "hits" (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly targeted goods and services can be as economically attractive as mainstream fare.

One example of this is the prediction that demand for products not available in traditional bricks and mortar stores is potentially as big as for those that are. But the same is true for video not available on broadcast TV on any given day, and songs not played on radio. In other words, the potential aggregate size of the many small markets in goods that don't individually sell well enough for traditional retail and broadcast distribution may rival that of the existing large market in goods that do cross that economic bar.

Traditional retail economics dictate that stores only stock the likely hits, because shelf space is expensive. But online retailers (from Amazon to iTunes) can stock virtually everything and the number of available niche products outnumber the hits by several orders of magnitude. Those millions of niches are the Long Tail. Coined by Chris Anderson, editor of Wired magazine. Gaining in currency.

Elliot Redmond is a freelance writer based in Raton, N.M.

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