This glossary defines key terms frequently used in the startup ecosystem, empowering you to navigate the exciting world of entrepreneurship.

A

• Acquisition: When a larger company purchases a smaller startup. This can be an exit strategy for founders and investors.
• Annual Contract Value (ACV): The total amount of business committed in a one-year contract.
• Annual Recurring Revenue (ARR): A metric that measures the total revenue a company expects to generate from subscriptions or recurring payments over a one-year period.
• Angel Investor: A wealthy individual who invests their own money in startups at an early stage, often in exchange for convertible notes or equity.

B

• Burn Rate: The rate at which a startup spends its cash reserves.
• Burn Rate Efficiency: A metric that measures the rate at which a startup spends cash relative to the value it creates. A lower burn rate efficiency indicates a company is spending more cash than it's generating.
• Business Model Canvas: A visual tool to map out the core components of your business, including value proposition, customer segments, and revenue streams.

C

• Capitalization Table (Cap Table): A document that outlines the ownership structure of a company, specifying the number of shares outstanding and ownership percentages for founders, investors, and employees with stock options.
• Churn: The rate at which customers stop using a company's product or service. Customer churn can be measured by metrics like MRR churn or customer churn rate.
• Cliff (in Stock Options): A period of time after an employee is granted stock options where they cannot exercise their right to purchase the shares.
• Convertible Note: A short-term debt instrument issued by a startup to investors that can be converted into equity (shares) at a later date, typically during a future funding round. The conversion terms, such as interest rate and discount rate, are specified in the note.
• Crowdfunding: Raising capital from a large number of individuals through online platforms.
• Customer Acquisition Cost (CAC): The total cost associated with acquiring a new customer.
• Customer Lifetime Value (CLTV): The total revenue a customer is expected to generate for your business throughout their relationship with you.

D

• Daily Active Users (DAU): The number of unique users who are actively engaged with a product or service in a given day.
• Dilution: The decrease in ownership percentage that existing shareholders experience when a company issues new shares. This can happen through funding rounds, stock option grants to employees, or other means of equity issuance.
• Discounted Cash Flow (DCF): A valuation method that estimates the present value of a company based on its projected future cash flows.
• Drag-Along Right: A provision in a shareholder agreement that allows a majority shareholder to force minority shareholders to sell their shares along with them in a company acquisition.
• Due Diligence: The process by which an investor investigates a startup before making an investment. This involves reviewing financial records, business plans, and the management team.

E

• Earnout: A performance-based clause in an acquisition agreement where the acquiring company pays additional funds to the founders or shareholders of the acquired startup based on achieving certain milestones post-acquisition.
• Escrow: A legal arrangement where a neutral third party holds onto assets or documents until certain conditions are met. In startup fundraising, escrow can be used to hold onto investor funds until the company achieves specific milestones.
• Exit Strategy: A plan for investors to realize a return on their investment in a startup, such as through acquisition, IPO (Initial Public Offering), or secondary sale.

F

• First Right of Refusal: A right granted to a shareholder that gives them the first opportunity to buy additional shares of stock or another shareholder's stake before it's offered to outside investors.
• Founder-Market Fit: The alignment between the founders' skills, experience, and passion with the needs of the target market.
• Founding Team: The core group of individuals who launch and manage a startup. Their experience, skills, and passion are crucial for success.
• Funding Round: A stage in a startup's development where it raises capital from investors. Seed funding, Series A, B, and C are common funding rounds.

G

• GO TO MARKET (GTM) Strategy: A plan outlining how a startup will launch its product or service into the target market, including pricing, marketing channels, and sales strategies.
• Growth Hacking: Marketing strategies focused on rapid user acquisition and growth through unconventional and low-cost methods.

I

• Initial Public Offering (IPO): The first public offering of a company's stock on a stock exchange.
• Intellectual Property (IP): Intangible creations of the human mind, such as inventions, literary and artistic works, designs, and symbols. Patents, copyrights, and trademarks are all forms of IP that can be valuable assets for startups.

L

• Lead Investor: The investor who takes the lead role in a funding round, often conducting most of the due diligence and setting the terms for other investors.
• Liquidation Preference: A provision in some investment agreements that grants preferred shareholders the right to receive a certain amount of money or assets before common shareholders in the event of a company liquidation (closure or sale).

M

• Management Team: The group of individuals responsible for the day-to-day operations of a startup. This typically includes the CEO, COO, CFO, and other key executives.
• Mezzanine Financing: A hybrid form of financing that combines aspects of debt and equity. Mezzanine financing typically involves a loan with a higher interest rate than traditional debt, but with some warrants or equity stake attached.
• Minimum Viable Product (MVP): A basic version of a product or service released to early customers to gather feedback and validate market demand.
• Moat: A competitive advantage that a company has over its rivals, making it difficult for them to enter the market or compete effectively.
• Monthly Active Users (MAU): The number of unique users who are actively engaged with a product or service in a given month.
• Monthly Recurring Revenue (MRR): The same concept as ARR but calculated on a monthly basis.

P

• Pitch Deck: A concise presentation used by startups to introduce their business to investors or potential partners.
• Post-money Valuation: The valuation of a startup after a funding round has been completed, taking into account the new investment capital.
• Pre-money Valuation: The valuation of a startup before it receives any external investment.
• Pre-revenue Startup: A startup that has not yet generated any significant revenue.
• Product-Market Fit: Achieving a balance between having a product that meets a clear customer need and having a target market that is willing to pay for it.

R

• Ratchet (Anti-Dilution Provision): A provision in a convertible note or investment agreement that prevents the conversion price from decreasing if the company raises additional capital at a lower valuation.
• Run Rate: A measure of a startup's current revenue growth trajectory, often expressed as annualized recurring revenue (ARR).
• Runway: The amount of time a startup has left to operate based on its current cash reserves and burn rate.

S

• SAAS (Software as a Service): A model for delivering software applications over the internet on a subscription basis.
• SAFE (Simple Agreement for Future Equity): A simplified form of convertible note with standardized terms, often used by angel investors.
• Scalability: The ability of a business to accommodate growth without a significant increase in resources or costs.
• Secondary Sale: The sale of existing shares in a privately held company by an investor to another investor. This can be a way for early investors to cash out on their investment before an IPO.
• Seed Funding: The earliest stage of startup financing, typically provided by angel investors or incubators. Seed funding helps startups develop their initial idea and build an MVP.
• Series A, B, C Funding Rounds: Subsequent rounds of funding after seed funding, typically led by venture capital (VC) firms. Each series represents a stage of growth for the startup, with increasing funding amounts and investor expectations.
• Serviceable Available Market (SAM): A more specific segment of the TAM that a startup realistically has the potential to reach and serve.
• Serviceable Obtainable Market (SOM): The portion of the SAM that the startup can realistically capture within a specific timeframe.
• Startup Ecosystem: The network of individuals, organizations, and resources that support and connect startups.
• Stock Options: The right, but not the obligation, to purchase shares of a company's stock at a predetermined price within a certain timeframe. Stock options are often used to attract and retain employees by giving them a stake in the company's ownership.
• Sweat Equity: The ownership stake given to a founder or employee in exchange for their work and contribution to the company, rather than a cash investment.

T

• Tag-Along Right: A provision in a shareholder agreement that allows minority shareholders to sell their shares to a buyer alongside a majority shareholder who is selling their stake.
• Term Sheet: A non-binding document that outlines the key terms of a potential investment deal between a startup and an investor. This may include details like the investment amount, valuation, liquidation preferences, and board representation.
• Total Addressable Market (TAM): The entire potential customer base for a product or service.
• Traction: Evidence that a startup's product or service is gaining traction and attracting customers. This could include metrics like user base growth, sales figures, or engagement data.

U

• Unicorn: A privately held startup company valued at over $1 billion.

V

• Valuation: The process of determining the fair market value of a startup.
• Valuation Cap: A limit on the valuation at which a convertible note or warrant can be converted into shares of stock. This protects investors from dilution if the company's valuation drops before the conversion.
• Venture Capital (VC): A type of investment firm that provides funding to high-growth startups in exchange for equity ownership.

W

• Warrants: Securities that give the holder the right, but not the obligation, to purchase shares of a company's stock at a predetermined price within a certain timeframe. Warrants are often issued to investors alongside convertible notes or as part of a funding round.
• Working Capital: The difference between a company's current assets (such as cash and inventory) and its current liabilities (such as accounts payable). Working capital is essential for a startup to cover its day-to-day operating expenses.

Y

• Y Combinator: A well-known startup accelerator program that provides seed funding, mentorship, and workspace to early-stage startups. There are many other accelerators and incubators that play a role in the startup ecosystem.

We hope this expanded Startup Dictionary provides even more valuable insights for your entrepreneurial journey! Note: This glossary is not exhaustive and new terms emerge frequently in the dynamic world of startups. Stay curious, keep learning, and Valufy will be here to support you on your path to success.