More than eight years I spent in VC, I witnessed the constant challenging vocabulary created by the industry. Venture capital is an industry full of big words, from technical acronyms to long descriptions. This often means that we need to understand the builders better, and that is up to us to use less jargon.
Historically, VCs have been viewed as exclusive and cliquey, as opposed to the “founder friendliness” that all VCs strive to have. While diversity and inclusion (D&I) has rightly become more of a focus throughout the ecosystem in recent years, the language we use needs to be noticed and still serves as a barrier to entry for founders.
We’re all guilty of tech-speak, and it’s often accidental rather than malicious. But I believe this is one of the biggest blockers to making our industry more accessible. While the misuse of jargon deters outsiders, it also plagues the inside of VC firms. The reliance on jargon also reflects a lack of understanding and communication skills for VCs. High-performing investment teams minimize their use of jargon and say what they mean by cutting to the core of a founder and the strengths and weaknesses of the business.
It is in everyone’s interest to progress simply speaking. Being able to communicate ideas clearly and concisely is a core skill in any industry, but it’s a struggle for VCs to develop founders if they don’t lead by example.
Not all jargon is bad. If using it, make sure it is used for the right reasons. It can be efficient. But at its worst, it can be a way for insiders to keep outsiders out and perpetuate the elitist reputation of the VC industry.
High-performing investment teams minimize their use of jargon and say what they mean by cutting to the core of a founder and the strengths and weaknesses of the business.
I see two types of industry jargon — efficient jargon and lazy jargon. “Efficient jargon” expresses common and important concepts that eliminate difficult repetition. These are often acronyms, such as saying NDR instead of “net dollar retention.” Although these terms are effective in conveying ideas, they still place the burden on the listener to unpack the term.
For example, one confusing but completely basic metric is “ARR.” ARR can have two meanings, and it’s rare to hear anyone explain which one they mean:
- ARR — annual recurring revenue: Total contract value/number of years. This usage is the more accurate, original definition of ARR.
- ARR — annualized run rate: Monthly recurring revenue multiplied by 12. This metric is more commonly referred to today but should only be relied upon when a company has a net negative breakeven.
- ARR — annual recurring revenue: This is an attempt to use jargon to make something that isn’t ARR sound like ARR.
ChartMogul have created a helpful breakdown of ARR in all its forms, which I will direct the builders to. However, communicating their original intent is more important than interpreting these terms. When a founder cuts through that jargon and clearly labels how they define “ARR,” it shows they have a basic understanding of what they’re measuring and why it matters. Sometimes, that’s as simple as a statement: “We define ARR as monthly recurring revenue x 12.”