This entrepreneur dictionary (glossary) for startups contains terms and definitions commonly used by entrepreneurs, investors, accelerators, and others who interact with startup ventures and startup financing.
A private legal entity, for profit, that supplies its portfolio companies with the following: work environment, administrative services, technological & business guidance, and legal & regulatory assistance, in exchange for equity in the company
An accredited or sophisticated investor is an investor with a high income net worth. The definition of an accredited investor, and the consequences of being classified as such, vary between countries. Generally, accredited investors include high-net-worth individuals, banks, financial institutions and other large corporations, who have access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.
Accrued interest is any interest that has built up, but not yet been paid, since the last successful payment by the borrower. Interest is accrued at the end of each day and once a borrower makes a payment to you it becomes earned interest available for lending.
An Acqui-hire is the process of acquiring a company to recruit its employees, not necessarily the products or services they developed. The term stems from a combination of “acquisition” and “hire” and has also been referred to as a “talent acquisition”. As an exit, an acqui-hire gives employees the prestige of being bought by a larger company though there may not be much financial reward in the sale.
A process under which a company acquires the controlling interest of another company.
An Add-on Service is a type of Service that cannot stand alone and can only be added to an existing Service. For example, an Add-On Service for a hairstylist might be a shampoo. Add-On Services might also be products offered to customers
An adventure capitalist is another word for “venture capitalist,” or someone who invests in start-up companies. The term is also a specific type of a venture capitalist who is more accessible, but who may be harder to find and whose pockets are not as deep as a traditional venture capitalist. This can also refer to a specific type of venture capitalist who is willing to invest in endeavors that would be considered too risky for traditional venture capitalists. An adventure capitalist helps other entrepreneurs financially and often plays an active role in the company’s operations such as by occupying a seat on the board of directors etc.
An individual providing business connections, guidance, advice and support to the entrepreneur as they develop and grow their startup.
An advisory board is a body that provides non-binding strategic advice to the management of a corporation, organization, or foundation. Many new or small businesses choose to have advisory boards in order to benefit from the knowledge of others, without the expense or formality of the board of directors.
Agile is a process by which a team can manage a project by breaking it up into several stages and involving constant collaboration with stakeholders and continuous improvement and iteration at every stage.
Alpha testing is a type of acceptance testing; performed to identify all possible issues/bugs before releasing the product to everyday users or public. The aim is to carry out the tasks that a typical user might perform. Alpha testing is carried out in a lab environment and usually the testers are internal employees of the organization.
Amortization is an accounting technique used to lower the cost value of a finite life or intangible asset incrementally through scheduled charges to income. Amortization can also mean the deduction of capital expenses over the asset’s useful life where it measures the consumption of an intangible asset’s value, such as goodwill, a patent or copyright.
An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.
Angel investors are a class of well-to-do investors, usually experienced industry folk who take equity stakes in startups. They take very early-stage businesses under their wing. Typically, institutional investors such as venture capital funds or private equity funds do not like to commit capital to tiny businesses.
An angel round is typically a small round designed to get a new company off the ground. Investors in an angel round include individual angel investors, angel investor groups, friends, and family.
An organization composed of accredited investors which serves as a platform for them to coordinate investments in seed and early stage startup companies. The group members typically work together consolidating their resources, expertise and capital through informal networks or formal funds.
Angel investors are often wealthy individuals who have entrepreneurial experience themselves or specific industry experience that is shared with the company being invested in. They offer various forms of finance including shares or other securities that represent an ownership interest in a company including equity, debt and variations of the two.
An angel round of funding is part of the seed round. Angel rounds usually refer to funding below $1 million, although they can somewhat more than that. For this reason, seed rounds for high-tech startups usually don’t see angel rounds since large VCs (venture capital firms) tend to offer capital well into the millions of dollars to promising high-tech firms.
Annual Recurring Revenue (ARR)
ARR is the value of recurring revenue of a business’s term subscriptions normalized to a single calendar year. It is also known as the run rate.
An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit.
Business to business (B2B)
This describes a business that is targeting another business with its product or services. B2B technology is also sometimes referred to as enterprise technology.
Business to consumer (B2C)
This describes a business that is selling products or services directly to individual customers.
The balance sheet is a snapshot of a company’s financial condition. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. The balance sheet shows if company’s activity is mainly financed by:owners’ equity: capital stock, retained earnings, reserve, liabilities: accounts payable, loans payable, tax payable.
Bankruptcy is a legal declaration of one’s inability to pay off debts. When one files for bankruptcy, one obliges to pay off what is owed with help from the government. In general, there are two main forms of bankruptcy – reorganization and liquidation bankruptcy. Under reorganization bankruptcy, debtors restructure their repayment plans to make them more easily met. Under liquidation bankruptcy, debtors sell certain assets in order to make money they can use to pay off their creditors.
Benchmarking is comparing ones business processes and performance metrics to industry bests and best practices from other companies.
Beta Testing of a product is performed by “real users” of the software application in a “real environment” and can be considered as a form of externalUser Acceptance Testing. It is the final test before shipping a product to the customers. Direct feedback from customers is a major advantage of BetaTesting. This testing helps to tests the product in real time environment.
A board observer is an individual who attends company board meetings but is not an official member of the Board of Directors. During a funding round some investors will request the right to appoint a board observer, this may or may not be set out in the investment terms. Investors given the option to appoint a board observer can opt to appoint someone other than themselves to the role.
Board of directors
The board of directors is a group of people who are either elected, or appointed, to oversee the activities of a company. The board represent the interest of company shareholders. Their responsibilities are set out in the company’s bylaws and are typically far reaching. Typically a company’s CEO and other C level individuals will belong to the board in addition to non-employees who are appointed to contribute insights and experience to compliment those of the other board members.
A bond, also known as a fixed-income security, is a debt instrument created for the purpose of raising capital. They are essentially loan agreements between the bond issuer and an investor, in which the bond issuer is obligated to pay a specified amount of money at specified future dates.
Bootstrapping refers to the starting of a self-sustaining process that is supposed to proceed without external input. In relation to an early stage venture, a company that has been bootstrapped is one that has not taken in external finance (from business angels or venture capitalists), preferring to be supported by the finance and assets of the founding team and any revenue generated.
Bridge financing, often in the form of a bridge loan, is an interim financing option used by companies and other entities to solidify their short-termposition until a long-term financing option can be arranged. Bridge financing normally comes from an investment bank or venture capital firm in the form of a loan or equity investment. This type of financing only occurs when a company’s runway is shorter than its future financing options, and it needs to remain solvent in order to obtain such long-term financing.
A budget is an estimation of revenue and expenses over a specified future period of time; it is compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a family, a group of people, a business, a government, a country, a multinational organization or just about anything else that makes and spends money.
Burn rate is the rate at which a company spends its cash, generally calculated as a monthly value. Burn rate includes all costs including salaries, equipment, facilities, research and development. For early stage ventures burn rate is often used to understand when a company may become profitable (when revenue’s exceed burn rate) or when a company may be expected to raise another funding round (when they are likely to “burn” through the current funding.
Business Model Canvas
The Business Model Canvas is a strategic management and lean startup template for developing new or documenting existing business models. The methodology was first introduced by Alex Osterwalder and Yves Pigneur in their book Business Model Generation.
A business plan is an ever evolving document that outlines the company’s goals and details how they will be achieved. It often includes the company’s summary, market, industry, and customer analysis, the marketing, operational, and financial plans, and information regarding the management team.
CAC (Customer Acquisition Costs)
CAC is the amount of money you need to spend on sales, marketing and related expenses, on average, to acquire a new customer.
Capital is a term for financial assets or their financial value (such as funds held in deposit accounts), as well as the tangible factors of production including equipment used in environments such as factories and other manufacturing facilities.
Capital expenditure, or CapEx, are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.
Capital Under Management
Capital Under Management is the total market value of assets that an investment company or financial institution manages on behalf of investors. Assets under management definitions and formulas vary by company.
The Cap Table, or “capitalization table” is a table that presents a view of all of the shareholders of a company and their percentage of equity, calculated on a fully-diluted basis. This includes the percentages owned by the founders and all other investors.
A cash position represents the amount of cash that a company, investment fund or bank has on its books at a specific point in time. The cash position is a sign of financial strength and liquidity. In addition to cash itself, this position often takes into consideration highly liquid assets, such as certificates of deposit, short-term government debt, and other cash equivalents.
Closing is a sales term which refers to the process of making a sale. The sales sense springs from real estate, where closing is the final step of a transaction. In sales, it is used more generally to mean achievement of the desired outcome, which may be an exchange of money or acquiring a signature. Salespeople are often taught to think of targets not as strangers, but rather as prospective customers who already want or need what is being sold. Such prospects need only be “closed.”
Equity co-investment is a minority investment in a company made by investors alongside a private equity fund manager or venture capital firm. Equity co-investment enables investors to participate in potentially highly profitable investments without paying the usual fees charged by a private equity fund.
Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure; in the event of liquidation, common shareholders have rights to a company’s assets only after bondholders, preferred shareholders and other debt holders are paid in full.
Compound Annual Growth Rate (CAGR)
The compound annual growth rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year. To calculate compound annual growth rate, divide the value of an investment at the end of the period in question by its value at the beginning of that period, raise the result to the power of one divided by the period length, and subtract one from the subsequent result.
Convertible Note Funding
A convertible note is an ‘in-between’ round funding to help companies hold over until they want to raise their next round of funding. When they raise the next round, this note ‘converts’ with a discount at the price of the new round. You will typically see convertible notes after a company raises, for example, a Series A round but does not yet want to raise a Series B round.
Conversion Ratio is the percentage of paying customers who remain paying customers during a given period of time. The converse to retention rate is churn (or attrition), the percentage of customers you lose in a given period of time
Convertibles are securities, usually bonds or preferred shares, that can be converted into common stock. Convertibles are most often associated with convertible bonds, which allow bond holders to convert their creditor position to that of an equity holder at an agreed-upon price.
Convertible debt is when a company borrows money from an investor or a group of investors and the intention of both the investors and the company is to convert the debt to equity at some later date. Typically the way the debt will be converted into equity is specified at the time the loan is made.
A convertible note is an investment that starts as debt but ultimately is converted into equity. The conversion to equity occurs at pre-determined time or milestone, such as the issuing of new shares as part of a funding round. The holder of the convertible note is often paid interest on the debt held up until the point at which it is converted to shares.
Convertible Preferred Stock
Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually any time after a predetermined date.
A convertible security is an investment that can be changed into another form. The most common convertible securities are convertible bonds or convertible preferred stock, which can be changed into equity or common stock.
A corporate round occurs when a company, rather than a venture capital firm, makes an investment in another company. These are often, though not necessarily, done for the purpose of forming a strategic partnership.
Corporate venturing (also known as corporate venture capital) is the practice of directly investing corporate funds into external startup companies. This is usually done by large companies who wish to invest small but innovative startup firms.
Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.
Daily Active Users (DAU)
DAU is the number of unique users who engage with the site or app in a day.
Deal flow describes the rate at which business proposals and investment pitches are being received by financiers such as investment bankers and venture capitalists. Rather than a rigid quantitative measure, the rate of deal flow is somewhat qualitative and is meant to indicate whether business is good or bad.
The type of agreement reached in financing an acquisition. The deal can be unleveraged, leveraged, traditional debt, participating debt, participating/convertible debt, or a joint venture.
Debt Financing Funding
In a debt round, an investor lends money to a company, and the company promises to repay the debt with added interest.
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. Businesses depreciate long-term assets for both tax and accounting purposes.
Dilution is a result of a reduction in the ownership percentage of a company, or shares of stock, due to the issuance of new equity shares by the company. Dilution can also occur when holders of stock options, such as company employees, or holders of other option able securities exercise their options. When the number of shares outstanding increases, each existing stockholder owns a smaller, or diluted, percentage of the company, making each share less valuable.
Discounted Convertible Note
Convertible notes generally convert using the the discount rate OR the valuation cap, whichever gives the investor a better price.
In business, a disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and valuenetwork, displacing established market-leading firms, products, and alliances
Diversification is an investment strategy that involves mixing the amount, values and types of assets held within a portfolio to spread risk and minimize losses. Traditionally the asset classes held included the big three: stocks, bonds, and cash with more recent studies showing that alternative classes should be introduced to disrupt the portfolio’s market correlation.
A dividend is the distribution of a portion of a company’s profits to shareholders. Most early stage ventures do not pay dividends as the profits are reinvested into the business in an effort to accelerate growth.
A down round occurs in private financing when investors purchase stock or convertible bonds from a company at a lower valuation than the preceding round.
Due diligence is what investors should do before investing in a company. It is the process of comprehensively examining an investment opportunity to ensure that everything is as it seems. It covers aspects ranging from the company’s product or service to the team and the financials. The purpose is to allow the investor to reassure themselves that all material facts are correct and that they are not overpaying for their shares.
Exits are liquidity events in which angel or Venture Capital investors get their investments (and hopefully profits) out of the companies they invest in. Exits are typically M&A (mergers and acquisitions) or IPO (Initial Public Offerings). Basically, someone else is buying the company for more than the investors paid for it. The founders may stay on with the company at this point, so it’s not always an exit of the founder, or end of the company – just a return of capital to investors.
For companies that are able to begin operations but are not yet at the stage of commercial manufacturing and sales, early stage financing supports a step-up in capabilities. At this point, new business can consume vast amounts of cash, while VC firms with a large number of early-stage companies in their portfolios can see costs quickly escalate.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
EBITDA stands for earnings before interest, taxes, depreciation and amortization. EBITDA is one indicator of a company’s financial performance and is used as a proxy for the earning potential of a business, although doing so can have drawbacks. EBITDA strips out the cost of debt capital and its tax effects by adding back interest and taxes to earnings.
Economies of Scale
Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger factory will produce power hand tools at a lower unit price, and a larger medical system will reduce cost per medical procedure.
Elevator pitch is a slang term used to describe a brief speech that outlines an idea for a product, service or project. The name comes from the notion that the speech should be delivered in the short time period of an elevator ride, usually 20-60 seconds. In the financial world, the speech refers to an entrepreneur’s attempt to convince a venture capitalist that a business idea is worth investing in.
This agreement contains the entire agreement between the parties, superseding in all respects any and all prior oral or written agreements or understandings pertaining to the employment of the Employee by the Employer and shall be amended or modified only by written instrument signed by both of the parties here to.
An entrepreneur is an individual who, rather than working as an employee, founds and runs a small business, assuming all the risks and rewards of the venture. The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services and business/or procedures.
The term equity refers to shares or other securities that represent an ownership interest in a company. Those that hold equity are referred to as shareholders and may or may not be entitled to a vote in certain company decisions.
Equity Crowdfunding is the form of crowdfunding whereby investors are offered shares in the company in return for their investment. Two main forms of equity crowdfunding have been developed, company led, and investor led. With both the majority of the processes and investment occur online.
ESOP (Employee stock ownership plan)
An employee stock ownership plan is a qualified defined-contribution employee benefit plan designed to invest primarily in the sponsoring employer’s stock. ESOPs are qualified in the sense that the ESOP’s sponsoring company, the selling shareholder and participants receive various tax benefits. Companies often use ESOPs as a corporate-finance strategy and to align the interests of their employees with those of their shareholders.
An Exit is an event that offers investors the opportunity to dispose or “exit” part or all of their shareholding. The three most common types of exit are trade sales, initial public offerings (IPO), and management buyouts.
An exit strategy refers to the course of action a company will take to enable investors to exit the business. The exit strategy usually includes the most likely type of exit (trade sale, IPO, management buyout), the value the company believes it can achieve at exist, and the amount of time the management team believe is needed to achieve that exit.
A financial forecast is an estimate of future financial outcomes for a company. Financial forecasts estimate future income and expenses for a business over a period of time, generally the next year. They are used to develop projections for profit and loss statements, balance sheets, burn rate, and other cash flow forecasts. Financial forecasts can use historical accounting and sales data, and external market and economic indicators, to predict what will happen to the company in financial terms over the given period of time.
Primary funds contributed by lenders or outside investors in a firm. First round financing typically occurs when a firm can realize moderate yet steady growth with additional capital after having passed the period of teething troubles: the management and other important staff is in place, and the markets have been identified and penetrated. Also called first round funding.
Flat Round refers to a round of financing that is closed at the same valuation as the startup’s prior round of financing.
Founders’ stock is the common stock issued to the founders of a company. These stocks have slightly different characteristics when compared to the common stocks sold in the secondary market. The main difference is that founders’ stock is issued only at par value and has a vesting schedule that comes with it.
Free cash flow
Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment. This cash can be used for expansion, dividends, reducing debt, or other purposes.
Fully diluted refers to all the shares of a company in issue, plus all shares which are the subject of options, warrants, or other contractual rights to be issued in the future. During a funding round investors want to know what their equity percentage when fully diluted so that they understand what they will own should options and other be exercised.
A fund is an investment vehicle with money raised to invest across multiple businesses. Funds can be managed or not and often charge differing fees dependent on the level of management and additional services offered to investors. While funds do offer investors a way to spread their capital, and risk, across many companies, there is no guarantee that a fund will do better than an investor creating a portfolio for themselves. Funds come in many different flavors and risk levels. Investors wishing to consider investing through a fund may wish to seek professional advice from an IFA or Wealth Manager.
Fundraising is the the activity of raising finance through the issuing of shares or from debt. While companies traditionally sought to raise finance from banks, or other institutions and wealthy investors, crowdfunding allows early stage ventures to raise finance from a much larger pool of investors.
“Funding round” is the general term used for a round when information regarding a more specific designation of the funding type is unavailable.
A grant is when a company, investor, or government agency provides capital to a company without taking an equity stake in the company.
Gross Merchandising Value
GMV is the overall value of sales of goods or services purchased through a marketplace.
The term growth stage refers to the stage a business is in when it has moved beyond the initial seed stage. Companies are often considered to be in growth stage when they have completed their proof of concept, have an initial form of traction, and are looking to accelerate the growth of the business.
A holding period is the amount of time the investment is held by an investor or the period between the purchase and sale of a security. In a long position, the holding period refers to the time between an asset’s purchase and its sale. In a short options position, the holding period is the time between when a short seller buys back the securities and when the security is delivered to the lender to close the short position.
An illiquid asset is one that can’t be turned into cash quickly or without losing substantial value. For example, a shareholding in a private (unlisted) company is an illiquid asset, whereas shares in a company listed on a major stock exchange have much greater liquidity. In times of economic turmoil especially, holders of illiquid assets may be unable to dispose of them or may only be able to do so at a substantial loss.
An income statement is a financial statement that reports a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also showsthe net profit or loss incurred over a specific accounting period.
A business incubator is an organisation that provides a range of resources to startups and early-stage businesses. These can range from office space to events and access to angel networks. The goal of a business incubator is to help startup and early-stage companies grow and succeed.
Initial coin offering (ICO)
An initial coin offering (ICO) is a means of raising money via crowdfunding using cryptocurrency as capital. A company raising money through an ICO holds a fundraising campaign, and during this campaign, backers will purchase a percentage of a new cryptocurrency (called a “token” or “coin”), often using another cryptocurrency like bitcoin to make the purchase, in the hopes that the new cryptocurrency grows in value.
Intellectual Property (IP)
Intellectual Property (IP) refers to ‘creations of the mind’. These include inventions and literary and artistic works. IP also includes brands – symbols, names and images used in commerce. IP can be protected by asserting copyright and by patents, designs and trademarks. It is owned by individuals or businesses and may be sold or transferred.
Internal Rate of Return (IRR)
The internal rate of return (IRR) or economic rate of return (ERR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. In terms of early-stage In terms of early stage investments, IRR is often used by business angels to show their returns from investing in these companies.
An investment memorandum is a legal document that a company presents to potential investors to explain the objectives, risks, and investment terms surrounding a funding round. This includes financial statements, management biographies, company details, and many more items that help give a detailed view of the business and financial plan going forward
IPO – Initial public offering
An IPO, short for an ‘initial public offering’, occurs when shares in a privately held company are first listed on a stock exchange. The first modern IPO took place on the Amsterdam Stock Exchange in March 1602, when the Dutch East India Company sold shares of the company to the public, making it the first ‘public’ company (sometimes referred to as a ‘listed’ company). Once an IPO is complete investors can freely buy and sell shares on the market (a stock exchange) provided there is a person/group/fund willing to complete the opposite action at the set price.
KYC refers to the regulatory process that financial services firms and certain other of businesses must perform to verify the identity of their customers to help prevent against money laundering and other financial crimes.
A Lead Investor is an individual or group who are leading a funding round. Groups leading a round often appoint an individual lead who, while not necessarily the one investing the most money, is often the one who can contribute the most to the company in terms of time and experience.
The lean startup methodology is an approach to starting a company that does not require large amounts of outside funding. The term is credited to author Eric Ries. A lean startup generally has a flat management structure and flexible resources. Product or service development involves a three-stage process: build, measure and learn. Much value is based on a business’s ability to change quickly.
Lifetime Value (LTV)
Lifetime value (LTV) is the measurement of the net value of an average customer to your business over the estimated life of the relationship with yourcompany. Understanding this number, especially in its relation to CAC, is critical to building a sustainable company.
A lift round is a funding round that has raised its minimum funding target from an angel syndicate or other professional investors before the opportunity goes live on Syndicate Room. In such cases, we will have negotiated an exclusive chance for our members to invest in an extension of the round.
Liquidation is the process of selling off assets to repay creditors and distributing the remaining assets to the owners. In other words, liquidation is the process of closing a business, paying off creditors, and giving the investors whatever is left over.
Liquidation preference establishes that certain investors receive their investment money back first before other company owners in the event the company is sold, has a public offering, pays dividends, or has another liquidation (payout) event.
Liquidity is a measure of how easy it is to buy or sell an investment. An investment can be described as ‘liquid’ if it is easy to buy or sell; for example shares in FTSE 100 companies. The level of liquidity may be lower in the case of small stocks or during periods when the market is in turmoil – making it harder to buy or sell an investment.
Logos serve to represent a given organization or company through a visual image that can be easily understood and recognized. A logo generally involves symbols, stylized text or both. Logos are often created by a graphic artist in consultation with a company and marketing experts.
Management buy-in (MBI)
In the case of a management buy-in (MBI), an outside team of managers, raises the necessary finance and buys into a company, replacing the incumbent management team and managing the business themselves.
Management buyout (MBO)
A Management buyout occurs when the current management, often aided by existing or new investors, seek to buy out the parent company or current shareholder of a firm in order to change the way that the business is run. Through a management buyout current investors are offered a way to exit their shares by selling them to the incoming team.
The management team is the group of individuals that operate at the higher levels of an organisation and have day-to-day responsibility for managing other individuals and maintaining responsibility for key business functions.
Market capitalization is just a fancy name for a straightforward concept: it is the market value of a company’s outstanding shares. This figure is found by taking the stock price and multiplying it by the total number of shares outstanding.
A marketing channel is the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products and services get to the end-user, the consumer; and is also known as a distribution channel.
Market risk is the risk that the value of an investment will decrease due to changes in market factors. These factors will have an impact on the overall performance on the financial markets and can only be reduced by diversification into assets that are not correlated with the market – such as certain alternative asset classes. Market risk is sometimes called “systematic risk” because it relates to factors, such as a recession, that impact the entire market.
A marketing plan is a comprehensive document that outlines a company’s overall marketing effort. It is a blueprint that outlines how a company will implement its marketing strategy, and use a combination of resources to achieve business objectives including sales targets or customer acquisition.
MAU (Monthly Active Users)
MAU is the number of unique users who engage with the site or app in a 30-day period.
A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions are commonly done to expand a company’s reach, expand into new segments, or gain market share.
Milestones are tools used in project management to mark specific points along a project timeline. These points may signal anchors such as a project start and end date, a need for external review or input and budget checks, among others.
Month over Month (MoM)
MoM (Month-over-Month) are changes in levels expressed with respect to the previous month. MoM measures tend to be more volatile as they are more affected by one-time events (e.g. stock market crash, natural disasters, months with many working days, months with many people on vacation, etc.).
Monthly Recurring Revenue (MRR)
This is simply the net amount of cash flow for a month when net cash flow is negative. If the company starts the month with $100,000 in cash and ends the month with $90,000 in cash, its burn rate is $10,000. If a company’s monthly net cash flow is positive, it is not burning cash.
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.
Non-disclosure agreement (NDA)
A non-disclosure agreement is a contract whereby two parties signing it agree not to disclose any confidential information outside of work. Non-disclosure agreements are generally made to protect business confidential.
Net Asset Value (NAV)
Net asset value (NAV) is value per share of a mutual fund or an exchange-traded fund (ETF) on a specific date or time. With both security types, the per-share dollar amount of the fund is based on the total value of all the securities in its portfolio, any liabilities the fund has and the number of fund shares outstanding.
Net income – NI is equal to net earnings (profit) calculated as sales less cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes and other expenses. This number appears on a company’s income statement and is an important measure of how profitable the company is.
Net Present Value (NPV)
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting to analyze the profitability of a projected investment or project.
Net worth is a concept that can be applied to both individuals and businesses, as a measure of how much they are really worth. In the corporate world, net worth is also called book value or shareholders’ equity. The word “net”, in financial language, means “after subtracting expenses and debts.”
A nominee is a person or company who holds an asset on behalf of another. The nominee acts on behalf of the other individual, or group of individuals, on many administrative related tasks. A nominee structure is said to be in place when investment opportunities are set up to act as the nominee for the investor.
A non-accredited investor is any investor who does not meet the income or net worth requirements set out by the Securities and Exchange Commission (SEC). The concept of a non-accredited investor comes from the various SEC acts and regulations that refer to accredited investors. An accredited investor can be a bank or a company, but is mainly used to distinguish individuals who are considered financially knowledgeable enough to look after their own investing activities without SEC protection.
A non-equity assistance round occurs when a company or investor provides office space or mentor ship and does not get equity in return.
It’s a term used to describe a variety of eCommerce services that provide online information, services, or discounts to consumers that enhance their offline shopping experiences
An Operational Plan is a highly detailed plan that provides a clear picture of how a team, section or department will contribute to the achievement of the organisation’s goals. The operational plan maps out the day-to-day tasks required to run a business and cover.
The option pool is a way of attracting talented employees to a startup company – if the employees help the company do well enough to go public, they will be compensated with stock. Employees who get into the startup early will usually receive a greater percentage of the option pool than employees who arrive later.
Ordinary shares are shares that represent a normal equity ownership in a company. These shares often allow the investor to vote, to receive dividends,and to receive distributions on the winding up of a company.
Overfunding refers to a situation where a company raising finance reaches its target raise amount before its deadline and decides to continue to accept investment. The decision to overfund or not lies with the company. If it chooses to proceed, the company will have to release additional equity and its post-money valuation will increase by the additional amount of capital invested.
An oversubscribed security offering often occurs when the interest for an initial public offering (IPO) of securities exceeds the total number of shares issued by the underlying company. The degree of oversubscription is shown as a multiple, such as “ABC IPO oversubscribed two times.”
Platform as a Service (PaaS )
Platform as a service (PaaS) is a cloud computing model in which a third-party provider delivers hardware and software tools — usually those needed for application development — to users over the internet. A PaaS provider hosts the hardware and software on its own infrastructure. As a result, PaaS frees users from having to install in-house hardware and software to develop or run a new application.
Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states the (1) nature of the business, (2) capital contributed by each partner, and (3) their rights and responsibilities.
Peer to Peer Lending
Peer-to-peer (P2P) lending is a method of debt financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary. Peer-to-peer lending removes the middleman from the process, but it also involves more time, effort and risk than the general brick-and-mortar lending scenarios.
Peer-to-peer (P2P) finance
Peer-to-peer finance, often abbreviated as P2P finance, refers to the direct exchange of money from individuals to other individuals or businesses through a platform that bypasses the traditional financial intermediaries such as banks and other institutions. Peer-to-peer finance encompasses a range of financial products that includes bother debt (Peer-to-peer loans, invoice finance, mini-bonds, etc.) and equity (equity crowdfunding).
A term that often is used to refer to the amount of business that a company expects to receive in the coming months or year. Typically it is used whencompanies have a long time between the placement of orders and when the goods or services actually are delivered.
A pitch deck, also known as investor pitch deck or a startup pitch deck, is the first communication tool that provides your audience with an overview of your business and helps you to raise funds. A pitch deck is usually a brief presentation which gives a brief idea about your business to the potential investors.
When used in relation to entrepreneurship, pivot (which generally refers to a shift in strategy) describes the tortured path that most start-ups go through to find the right customer, value proposition, and positioning.
Proof of concept (POC )
Proof of concept (PoC) is a realization of a certain method or idea in order to demonstrate its feasibility, or a demonstration in principle with the aim of verifying that some concept or theory has practical potential. A proof of concept is usually small and may or may not be complete.
A portfolio is a group of financial assets that may include shares, property, bonds, alternative investments, or other, held by an individual or a group. A portfolio can be self-managed or managed by another individual or group.
A portfolio company is a company or entity in which a venture capital firm, a buyout firm, or a holding company invests. All companies currently backed by a private equity firm can be spoken of as the firm’s portfolio.
Post-investment refers to the period of time after an investment has been made into a company and after the cooling off period has expired. There is no set duration of time that is considered as standard for the post-investment period though it is generally ended by the raising of a new funding round or an exit.
Post Money valuation
Post-money valuation is the term used in angel investing, private equity, and venture capital to describe the valuation of a business after an investment / capital injection has been made. The post-money valuation is determined by adding the amount invested to the pre-money valuation calculated on a fully diluted basis. New investors ownership percentage is calculated by dividing their investment by the post-money valuation.
A post-IPO debt round takes place when firms loan a company money after the company has already gone public. Similar to debt financing, a company willpromise to repay the principal as well as added interest on the debt.
A post-IPO equity round takes place when firms invest in a company after the company has already gone public.
A post-IPO secondary round takes place when an investor purchases shares of stock in a company from other, existing shareholders rather than from the company directly, and it occurs after the company has already gone public.
Pre money Valuation
Pre-money valuation can also refer to the period before any investment or funding of any type is put towards a company, not just when it is traded on public markets. This includes a valuation prior to seed, angel, or venture funding is put into a company. A pre-money valuation at this stage may alsocoincide with the company being pre-revenue, meaning that it has yet to generate any sales.
A pre-emption right is a contractual provision which requires a company seeking to issue shares to offer existing shareholders the chance to purchase additional shares to maintain their percentage of equity before making the offer available to new investors. In early-stage investing, business angels and syndicates of investors consider pre-emption as one of the basic investor protections they will not invest without.
Pre-money valuation is the term used in angel investing, private equity, and venture capital to describe the valuation of a business prior to an investment being made. Pre-money valuation is often used by investors to determine how much equity to ask for in return for their investment. Pre-money valuation should be calculated on a fully diluted basis.
A Pre-Seed round is a pre-institutional seed round that either has no institutional investors or is a very low amount, often below $150k.
A preemptive right is a privilege that may be extended to certain shareholders of a corporation that grants them the right to purchase additional shares in the company prior to shares being made available for purchase by the general public in the event of a seasoned offering, which is a secondary issuing of stock shares.
A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.
Private Equity Funding
A private equity round is led by a private equity firm or a hedge fund and is a late stage round. It is a less risky investment because the company is more firmly established, and the rounds are typically upwards of $50M.
In a product crowdfunding round, a company will provide its product, which is often still in development, in exchange for capital. This kind of round is also typically completed on a funding platform.
Product Market Fit
Product market fit is pursuing the state when you have a product in a good market that satisfies the market. It can not be defined what market is roughly good or bad, but a good one is commonly defined when it has lots of potential users, they are growing constantly and app is being widely shared.
Proprietary Deal Flow
A proprietary deal lets a specific buyer have a first chance to purchase a company before the company is presented to other buyers by the owner or an investment banker. Proprietary deals are often presented to specific buyers based on their perceived fit with the seller. While proprietary deals can be cost effective and closed more quickly than an auctioned process, the total purchase price and/or overall deal structure may not maximize value for the seller.
A public company is a company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or in over-the-counter markets. Although a small percentage of shares may be initially floated to the public, becoming a public company allows the market to determine the value of the entire company through daily trading.
Recapitalization is restructuring a company’s debt and equity mixture, often with the aim of making a company’s capital structure more stable or optimal. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company’s capital structure and replacing them with bonds.
Return on Investment
Return on Investment, often referred to as ROI, is a ratio used to calculate the profitability (gain or loss) of an investment as a percentage of the cost. Return on investment is expressed as a percentage and is often used to compare the profitability of different investments and investment types. The ROI calculation is one of the most common investment ratios because it’s extremely versatile and very simple. It can be used by individual investors to calculate the return on an individual investment, by business angels to determine the return on their entire portfolio, or by management teams at companies looking to compare the potential returns from projects they must decide between.
Reverse Vesting is when co-founders receive their shares up front (along with all economic and voting rights), but are subject to vesting. Vesting in this context measures how many shares the company can repurchase from a departing co-founder.
Right of First Refusal
Right of first refusal is a contractual right , but not obligation, to enter into a business transaction with a person or company before anyone else can. If the entity with the right of first refusal declines to enter into a transaction, the owner of the asset who offered the right is free to open the bidding up to other interested parties.
Risk, in the context of early stage investing, refers to the danger associated with the company one has invested in going bankrupt and most, or all of the money invested being lost. Risk can also be used to describe a number of challenges that the company itself faces (market risk, Product Risk, Finance Risk, Team Risk, Execution Risk).
Runway is the measure of the amount of time until the company runs out of cash, expressed in terms of months. Runway is computed by dividing remaining cash by monthly burn.
Software as a Service (SAAS )
Software as a service (SaaS) is a software distribution model in which a third-party provider hosts applications and makes them available to customers over the Internet. SaaS is one of three main categories of cloud computing, alongside infrastructure as a service (IaaS) and platform as a service (PaaS).
Scalability is a characteristic of a system, model or function that describes its capability to cope and perform well under an increased or expanding workload or scope. A system that scales well will be able to maintain or even increase its level of performance or efficiency even as it is tested by larger and larger operational demands.
Search Engine Optimization (SEO)
The process of maximizing the number of visitors to a particular website by ensuring that the site appears high on the list of results returned by a search engine.
A secondary marketing is a marketplace where investors can purchase shares directly from other investors, rather than from the company directly. The London Stock Exchange (LSE), the New York Stock Exchange (NYSE), and all others often referred to as stock markets are secondary markets.
Secondary Market Funding
A secondary market transaction is a fundraising event in which one investor purchases shares of stock in a company from other, existing shareholders rather than from the company directly. These transactions often occur when a private company becomes highly valuable and early stage investors or employees want to earn a profit on their investment, and these transactions are rarely announced or publicized.
Seed rounds are among the first rounds of funding a company will receive, generally while the company is young and working to gain traction. Round sizes range between $10k–$2M, though larger seed rounds have become more common in recent years. A seed round typically comes after an angel round (if applicable) and before a company’s Series A round.
Series A and Series B Funding
Series A and Series B rounds are funding rounds for earlier stage companies and range on average between $1M–$30M.
Series C Funding
Series C rounds and onwards are for later stage and more established companies. These rounds are usually $10M+ and are often much larger.
A shareholder is an individual who holds shares in a company. Shareholders have specific rights and obligations as defined by the share class they hold, which may include the ability to vote on company matters. Shareholders may gain or lose financially if the value of their shares increases or decreases. A list of shareholders can be found in the company’s cap table.
The shareholders’ agreement is an agreement among the shareholders of a company which sets out to establish a fair relationship between the shareholders and govern how the company is run. Ultimately the shareholders’ agreement is meant to protect shareholders’ investment in the company.
SME (Small medium size Enterprise)
Small and mid-size enterprises are businesses that maintain revenues, assets or a number of employees below a certain threshold. Every country or economic organization has its own definition of what is considered a small and medium-sized enterprise.
A syndicate is a self-organizing group of individuals, companies, corporations or entities formed to transact some specific business, to pursue or promote a shared interest.
Synergy is the concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts. Synergy is a term that is most commonly used in the context of mergers and acquisitions (M&A).
A term sheet is a non-binding bullet-point document that outlines the basic terms and conditions under which an investment into a company will be made. A term sheet serves as a template to develop more detailed legal documents.
A turnaround is the financial recovery of a company that has been performing poorly for an extended time. To effect a turnaround, a company must acknowledge and identify its problems, consider changes in management, and develop and implement a problem-solving strategy.
The term, unicorn, has different meanings in the business world: In the venture capital industry, a unicorn refers to any tech startup company that reaches a $1 billion dollar market value as determined by private or public investment.
Unique visitor is a term used in Web analytics to refer to a person who visits a site at least once within the reporting period. Each visitor to the site is only counted once during the reporting period, so if the same IP address accesses the site the site many times, it still only counts as one visitor.
An up round is considered to be an indication that a company is growing and is more likely to be profitable for investors. In many cases, successful up round financing spurs market confidence, additional publicity and often actual growth.
Valuation is the economic value of a company as determined by a number of quantitative and qualitative factors that is often used to determine the price at which a business, or shares of that business, will be bought or sold. In early stage investing you will often see pre and post-money valuations.
Value proposition refers to a business or marketing statement that a company uses to summarize why a consumer should buy a product or use a service. This statement convinces a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings will. Companies use this statement to target customers who will benefit most from using the company’s products, and this helps maintain an economic moat.
Venture capital is the finance provided by investors to early-stage ventures with a high-potential for long term growth but that lack access to traditional capital markets. Venture capital is often seen as the next source of capital for a company once it has raised a seed round from other sources such as business angels. Venture capital funding rounds are often referred to in an alphabetic order with the first venture capital round called the Series A round, the second the Series B round, and so on.
Venture funding refers to an investment that comes from a venture capital firm and describes Series A, Series B, and later rounds. This funding type is used for any funding round that is clearly a venture round but where the series has not been specified.
A period of time in which an employee must work for an employer in order to fully own their shares in the company’s stock option plan.
A vesting schedule is set up by a company to determine when you’ll be fully “vested,” or acquire full ownership, of certain assets — most commonly retirement funds or stock options.
Voting rights are rights granted by the holding of a share or shares in a company that grant the holder the option to vote in certain activities. The activities that the shareholder can vote on are outlined in the articles of association and often covers issuing securities, initiating corporate actions and making substantial changes in the corporation’s operations.
A person who aspires to be an entrepreneur, especially one who never realizes this ambition.
A white paper is an informational document, issued by a company or not-for-profit organization, to promote or highlight the features of a solution, product, or service. White papers are sales and marketing documents, used to entice or persuade potential customers to learn more about or purchase a particular product, service, technology or methodology. White papers are designed to be used as a marketing tool before a sale, and not as a user manual or other technical document developed to provide support to the user after making a purchase.
A wireframe is a sketch of the system to be built. It’s simple, clear and allows everyone to read and understand easily. Wireframe shows “just enough”information of the screen instead of the full details. The actual screen design will be produced at a later stage by referencing the wireframe. You can show the scenario to your customer visually to obtain consent about the requirements.
Working capital, also known as net working capital, is the difference between a company’s current assets, like cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, like accounts payable.
VC funded companies that don’t close their doors after funding runs out, but also does not grow significantly. They typically generate enough revenues to continue business, but the VC is unable to divest. As a result, the company tends to shed all of its brainpower and continues to operate as a brainless zombie for many years.
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