VC Jargon & Technical Terms

Key Takeaways:?Jargon is formal slang. Jargon uses technical terms but its primary purpose is to show status. The more jargon someone uses, the lower their status and credibility.

What is jargon?

Let's start with a formal definition:

Jargon is (1) socially learned words or expressions used by a particular profession or specialized group, (2) which are used in place of more broadly accessible and less formal alternatives, and (3) are difficult for outsiders to understand.1

What if we compare that definition to slang?

Slang is?“very informal words and expressions typically restricted to a particular group of people.”2

Jargon Is Formal Slang

Jargon is basically formal slang. It's socially learned language that’s difficult for outsiders to understand. Jargon is used by professionals and workers in fields such as law, military, and venture capital. And like slang, jargon sends us social signals.

For example, if I say “clean up your cap table” or “did you diligence this?” it has surface-level meaning, but it also sends a signal to insiders in the venture industry.

What kind of a signal does jargon send?

• First, jargon establishes group identity:

• Second, jargon can signal a person’s status. That is, does this speaker have respect, prestige, pedigree, or social standing in their community?

The Nobel Laureate economist John Harsanyi said “apart from economic payoffs, social status seems to be the most important incentive and motivating force of social behavior.”3 ?

Higher status individuals generally have more credibility. For many people, it matters less about what is said and more about who said it.

However, unlike slang, jargon incorporates an additional element: Formal industry speak, what researchers call “technical terms.”

Jargon Incorporates Technical Terms

Technical terms refers to specialized language used by a particular field or profession. Terms of art make it difficult for outsiders to understand but provide a practical way for insiders to communicate efficiently with each other.

• Examples of Jargon

?? Military terms like “10-4” or “COPY THAT”

?? Buzzwords like “infra” or “tech stack”

?? Legalese or industry terms like “cram down” or “pay-to-play”

?? Acronyms like “MM” for million. “$10 million” is $10m or $10M, not $10MM

Acronyms can often be a form of jargon or technical terms.

For example, is this tweet “VC jargon” or just technical terms?

This has 32 technical terms packed into 260 characters. Let’s define them:

1. GPs: “General partners” are the fund’s managers/managing directors
2. LPs: “Limited partners” are the fund’s investors
3. 506B: “Rule 506(b)” of Regulation D, which requires funds to raise privately
4. 506C: “Rule 506(c)” of Regulation D, which allows funds to raise publicly
5. Form D: A form required to be submitted with the SEC in reliance on Reg. D
6. Schedule K-1: An IRS tax form issued every year by the fund to its investors
7. SEC: “Securities and Exchange Commission,” US?securities ?agency
8. LPA: “Limited Partnership Agreement,” the fund’s investment agreement
9. IRA: “Investors’ Rights Agreement,” part of the?NVCA Venture Forms
10. AUM: “Assets under management,” the amount of capital managed by the GPs
11. MF: “Management fees,” an annual fixed fee paid by investors for fund operations
12. 2/20: The industry standard fee structure of 2% management fee/year, 20% carry
13. DD: “Due diligence,” the process of verifying a potential investment
14. DR: “Data room,” files and folders uploaded for due diligence
15. SPV: “Special purpose vehicle,” entity setup to invest in 1+ companies or 1+ assets
16. Recycling: Money returned from an early exit and re-allocated to a new company
17. Reserves: Capital set aside for additional investments such as pro rata allocations
18. Carry: “Carried interest,” the percentage of profit paid to the General Partner
19. Drag: “Cash drag",” refers to cash on hand that’s not being invested in startups
20. Hold: “Cash hold",” refers to cash being held to pay for fees or expenses
21. Inflows: Cash coming into a company
22. Outflows: Cash going out of a company
23. Target IRR: “Internal Rate of Return” the fund aims to achieve
24. Gross IRR: “Internal Rate of Return” on the total return of investments
25. Net IRR: Gross IRR after subtracting fees and expenses
26. MOIC: “Multiple of invested capital,” value of investment relative to its cost
27. NPV: “Net Present Value,” a finance method to compare deal profitability
28. RVPI: “Realized Value Per Investment” exit value ($) / # number of investments
29. DPI: “Distribution to Paid-In Capital,” the realization multiple for returns to investors.?1.67x DPI = investors receive 1.67 times their total investment in the fund (!)
30. TVPI: “Total Value of Paid-in Capital,” the same as MOIC after capital calls met, but before, TVPI will be greater than MOIC (Total Value / Paid in Capital)
31. RoI: “Return on Investment,” a measure of of profitability of an investment expressed as a percentage: (Net Profit / Total Investment) x 100 = %
32. CoC: “Cost of Capital,” minimum returns investors expect for providing capital

Jargon Is Slang + Technical Terms

Technical terms are a way to communicate information efficiently, while jargon incorporates elements of slang and technical terms:

If jargon overlaps with technical terms, how can you tell the difference between jargon and technical terms?

• Jargon's primary purpose is not to convey information or express knowledge, but to flaunt status

Why should we care if someone is showing off or how certain words or phrases are seen as either “jargon” or “technical terms”?

Jargon Indicates Lack of Credibility

Overusing jargon has negative consequences. People who lack status are more likely to use jargon to compensate for their insecurities.

Jargon isn't a sign of expertise; it's a sign of insecurity. —Adam Grant

In 2020, Columbia Business School published a research paper which found that individuals with low status use jargon, acronyms, and legalese at higher rates than high-status individuals because they are more insecure about how they will be read. Individuals recognized as having higher status are less likely to use jargon because they are motivated primarily by effective communication and not just bolstering their public image.

The research paper reviewed nine studies total from over 64,000 dissertations and found that authors from lower-ranked schools used more jargon and acronyms in their Ph.D. dissertations and master's theses than those at higher-ranked schools. It also surveyed 1,100 participants finding that low-status individuals use more jargon because they want to impress their readers rather than make their words easier to understand.

“Jargon is like a suit, a car, or a watch – it’s a status symbol. Those who are insecure ‘dress up’ their words, believing it will make them appear smarter or cause others to take them more seriously… It’s ironic though, because the reality is that people secure in their high status use?less?jargon, acronyms, and legalese. They prioritize clear communication, rather than concerning themselves with status or public perception.” —Adam Galinsky , the Paul Calello Professor of Leadership and Ethics at Columbia Business School.

As the research shows, the more jargon you use, the more likely that people will perceive you as having lower status, meaning your words are less credible. Which is probably why jargon-heavy tweets are so cringe.

For example, is this VC jargon or technical terms?

?? ?? ?? ?? ?? “EMs, Fund I-III (IV), Seed+, high var perf %”

It has all the hallmarks of jargon.

What are the common hallmarks of jargon?

The Five Hallmarks of Jargon

1. ?? Using terms without fully understanding their meanings or concepts
2. ?? Using difficult terms without concrete examples or good explanations
3. ?? Using complex language to make simple concepts sound more sophisticated than they actually are
4. ?? Using buzzwords to impress others without providing any real value or insight
5. ?? Using terms to create the illusion of expertise or authority without having it

What about avoiding jargon?

Five Ways to Avoid Jargon

1. Understand the meaning and concepts behind terms before using them
2. Provide concrete examples and clear explanations for difficult terms
3. Keep language simple
4. Avoid buzzwords
5. Never use terms to show off—your words should add value

On my next article I will publish 10 key fund terms without the use of jargon.

Please reply if you have any fund formation terms you would like me to add to the list.

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Thanks,

Chris Harvey