General list of Startup and VC Terms
The Innovation/Market Map
X-Axis: Product Innovation
- Gimmick: A gimmick is the application of a known technology that is used in a trivial way that won’t lead to a large scale business. Gimmicks often ride on short-term trends or fads since they don’t fundamentally change technology or create a lasting shift in consumer behavior.
- Incremental: Incremental innovation builds on innovation that has come before but does not introduce something fundamentally new, and adoption of this technology is relatively easy. This type of innovation is frequently applied to established markets.
- Radical: Radical innovation consists of meaningful technical progress, which introduces new customer behaviors.
- Disruptive: Disruptive innovation consists of highly transformative technology breakthroughs that have the potential to create new markets, redefine existing industries, and challenge established norms, but initial adoption may take time.
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Y-Axis: Market Maturity
- Speculative: Speculative markets are not well-defined at all as customer demand is often non-existent since technology is being applied in a completely new way. While the desired behavior has a low likelihood to exist, it has the potential to be huge and transformative if it catches on.
- Known: Known markets are moderately defined. There is evidence of customer demand, but market participants are more limited, and business models are in flux.
- Existing: Existing markets are well-defined, and there is a large number of customers in the market that seek to transact. Existing markets are highly competitive and usually, have a “category king” in place. These category kings usually create moats that prevent new entrants from gaining market share.
Circle of Competence & the Venture Capital Investment Triangle
- Circle of Competence: Set of investment opportunities that an investor is qualified to understand and predict the probability of future success. Based off the investor’s knowledge, exposure, and experience.
- Mistake of Commission: Making an unwise investment that you should not have made or knew enough to avoid because it was outside your circle of competence.
- Mistake of Omission: Not making an investment that was within your circle of competence. Often memorialized in VC firms as “Anti-Portfolios”, which frequently include startups not invested in that have gone on to become billion dollar companies.
- VC Investment Triangle: Area of greatest venture returns. Outside the circle of competence, where innovation shifts from incremental to radical/disruptive, and markets shift from existing to known/speculative.
- Triangle Point 1: Top point of the triangle where incremental technology gets applied to a speculative market. In other words, a product has the opportunity to create a new market.
- Triangle Point 2: Far right point of the triangle where the market is known but the technology is disruptive. In other words, the customer pain point is defined but there are questions around whether the product can solve that pain point.
- Adjacent Possible: Lives between point 2 and point 3. Best venture opportunities typically arise here. When radical technology combines with the known market.
- Triangle Point 3: Bottom left point of the triangle where incremental technology meets an existing market. This is often where a technology reaches the mass market, product price points have been driven low enough and the experience is well-accepted enough for the average person to buy a product.
- Frontier Technology: Where innovation is disruptive and the market is undefined. This area is quite risky, as these investments will require longer time horizons and significant amounts of capital to sustain themselves until the markets and value propositions catch up. For investors to win in this area, they must make several concentrated investments in Frontier Technology to account for the outsized risk of this category.