Startup, Business, and Venture Capital Glossary

Startup, Business, and Venture Capital Glossary

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If someone’s building a Startup or ramping up on the Investment and business world, chances are they are always out of time. Here we collate a Startup Vocabulary, Venture Capital Glossary, and Business Jargon to get you up to speed about the ecosystem.
Quickly learn all the big words that you come across in the Startup, VC and Business world.

Term

Definition

A/B TestCategorizing users into different groups and seeing how each group’s experience differs.
AARRRStartup success model that fuses acquisition, activation, retention, referrals, and revenue as data points. (see more)
Above Ground RiskThe risk of political, social, or cultural factors influencing business.
Above Market CostHow much more expensive a product is versus alternatives.
Absolute AdvantageProducing a good with less input.
AcademicsCredentialed professionals who provide research.
Accelerated VestingA form of vesting that manifests more quickly than strategized in a company’s stock option plan. This allows individuals to receive monetary benefits from their options earlier.
AcceleratorA program that startups can apply to that provides funds and mentorship, most times for a chunk of equity, in an effort to help the company grow. Most accelerators are geared towards helping early-stage companies.
Fixed-term programs that provide mentorship, valuable advice, and training for entrepreneurs. Oftentimes, these programs culminate in a pitch event.
A three to four month program that takes a small amount of equity in an early-stage startup in exchange for access to mentors, classes and workshops, and small investments of capital. Often used interchangeably with incubator, accelerators are looking to fast track a small “class” of promising companies. Famous accelerators include YCombinator and TechStars.
A program that aims to accelerate the growth of startup companies through mentorship, brokering connections, and providing services and infrastructure (such as office space) for small portions of equity in participating companies.
Accounts Payable (AP)The amount of money a company owes to suppliers or creditors after services or supplies have been delivered and used.
Accounts Receivable (AR)Amount of money owed by customers after a product has been delivered.
accredited investorAccredited investor is a wealthy investor who meets certain SEC requirements for net worth and income as they relate to some restricted offerings. Accredited investors include institutional investors, company directors and executive officers, high net worth individuals, and certain other entities. Some limited partnerships and angel investor networks accept only accredited investors.
a category of investors who are deemed sophisticated and meet certain net worth requirements outlined by the SEC. These investors have less need for the protection provided by registration under securities laws.
An investor who meets specific SEC income and net worth criteria, allowing them to invest in startups and other high-risk private company securities.
United States: An individual or institution who satisfies certain tests based on net worth or income as stipulated by the Investment Company Act of 1940.
An individual with either an annual income of $200,000, or a net worth of $1 million, excluding residential property (the exact definition is a bit more complicated, but the basic idea is to use wealth as a proxy for knowing what you’re doing when investing in startups).
An individual who meets the legal requirements for investment in a business venture.
Potential investors who meet certain minimum net worth or income tests (as determined by the SEC) as they relate to certain exempt offerings. See also. Sophisticated Investor, and consult with your legal counsel for further clarification.
Accrual BasisA type of accounting that reports income when earned and expenses when spent. Companies are responsible for accurately recognizing their own income and expenses.
Accrued InterestThe interest accrued on a debt or asset since the most recent interest payment was made.
Acquiescence BiasBias for people to agree with a statement when in doubt.
Acquired KnowledgeInformation outside of a company that can be purchased or hired.
acquisitionAcquisition is the process through which one company takes over the controlling interest of another company. Acquisition includes obtaining supplies or services by contract or purchase order with appropriated or non-appropriated funds, for the use of Federal agencies through purchase or lease.
When one company buys controlling stake in another company. Can be friendly (agreed upon) or hostile (no agreement).
The action of taking a controlling interest (50% or more) in a company.
Actionable MetricData that links actions to results, allowing companies to act upon that data. (Check out this guide on running companies based on metrics to find out more)
ActivationThe process of an individual becoming aware of a brand.
Active BuyerCustomer whose most recent purchase was made in the last 12 months.
Active UsersMeasurable amount of users taking action on a product or platform. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Ad HocA project or initiative created for the purpose of solving a specific problem.
add-on serviceAdd-on Services are the services provided by a venture capitalist that are not monetary in nature, such as helping to assemble a management team and helping to prepare the company for an IPO.
Add-on/bolt-ona private equity transaction where the acquired company is “added on” to an existing portfolio company. In add-on deals, the acquiring company is called the “platform” and the private equity firm is referred to as the “sponsor.” (Bolt-on is often the preferred term in Europe)
Addressable MarketThe total possible market of a product.
adventure capitalistAdventure capitalist is an entrepreneur who 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.
Advertising to Sales RatioA metric used to measure the effectiveness of an advertising campaign, conducted by comparing the amount spent on advertizing to the increase in sales.
Advisor AgreementA document that outlines an advisor’s commitment to a company and sometimes grants him/her a small amount of equity. (see Founder Institute Releases Standard Advisor Agreement for more info)
Advisory BoardA group of external advisors who provide strategic advice.
Advisory Feesee Monitoring Fee.
Affiliate MarketingA sales method wherein companies present their products to other individuals or companies who will sell the company’s products for a commission.
AgileA philosophy of software development that promotes incremental development and emphasizes adaptability and collaboration.
Agile MethodologyA strategic approach, often used in software development, building products via a series of incremental development sprints. This approach helps teams respond to the inherent unpredictability of product development. (see The Ultimate Guide to Project Management Fundamentals to learn more)
Alligator ArmsA state in which someone is unwilling to reach outside their comfort zone.
Alpha TestControlled internal testing of a pre-production model, intended to detect design flaws or functionality deficiencies.
Alternative Investmenta broad term for untraditional assets such as private equity, venture capital, hedge funds and real estate.
Always Be Closing (ABC)A phrase used in retail describing a sales strategy wherein the salesperson is constantly seeking new customers and cutting through small talk.
AmortizationThe scheduled process of gradually paying off a debt.
Analysis ParalysisThe state of having too much data to make a decision.
AnalystThe most junior people at a venture capital firm, usually a recent college graduate. The primary role of analysts is to network and serve as the venture firm’s “boots on the ground” in an intelligence-gathering capacity. Analysts are also tasked with performing preliminary screening, business analysis, and market research.
AnalyticsA broad word used to describe all of the tools used to track user behavior. (Check out this guide on running companies based on metrics to find out more)
Anchor tenantthe first limited partner to commit to a fund.
Angelan individual who makes direct investments into early stage businesses. Due to the nascent characteristics of these companies, angel investing is a high-risk, high-reward endeavor.
Angel FundA group of angel investors who work together and coordinate in the investment process.
angel investorAngel or Angel Investor is an individual who provides capital to one or more startup companies. Unlike a partner, the angel investor is rarely involved in management. Angel investors can usually add value through their contacts and expertise.
An individual (as opposed to a firm) who provides their person capital to fund a startup company.
Individual who provides a small amount of capital to a startup for a stake in the company. Typically precedes a Seed Round and usually happens when the startup is in its infancy.
Individual who provides capital for startups in exchange for either debt or equity. (see What is an Angel Investor?)
Angel RoundFunding round dedicated to attracting angel investors.
AngelsIndependently wealthy individuals who invest their own money into startup companies, usually as part of a broader investment strategy.
Individual investors who provide seed capital to early-stage businesses. The “angel” label comes from making small, altruistic investments (in the range of $25,000 to $500,000 or more) in companies and industries the investor is passionate about. An angel investor invests her own money (rather than a fund’s money) and is usually a seasoned veteran in the industry she likes to fund (i.e., mobile apps, biotech, SaaS, etc.). Angel investors typically supply the second round of capital (after savings and friends & family), but the best of them can also offer advice, mentorship, and connections to key contacts to help grow a business. Angel investors often work together to make investments.
AnthropomorphizationA research tactic where users are asked to describe a product or brand in terms of human personality traits.
Anti-Dilution AgreementA legal agreement ensuring that if further investments are made into a company or a sale occurs, the investor’s shares are not diluted. This is primarily performed to protect the interests of early investors.
Anti-dilution ProvisionsThe financial mechanisms placed into a preferred stock agreement to maintain the investor’s percentage share in the company if the company raises a future round at a valuation lower than the one at which the preferred shareholder purchased the shares.
ApportunityOpportunity to improve an app or turn it into something more desireable.
ArchetypeAn unconsciously inherited and ever-present idea or notion.
Asset Allocationdescribes the general mix of investments in a portfolio, determined by investing timeframe, risk tolerance and overall goals.
Asset-based Lendingany form of lending to a business that is collateralized or secured by a balance sheet asset. Pledged assets may include inventory, equipment and accounts receivable, among others, that will be redeemed in the event of default by the debtor.
Assets Under ManagementThe total market value of the financial assets which the venture capital fund manages on behalf of its limited partners.
AssociateAssociate roles are the next rung up on the hierarchy. These positions are typically “partner track” and open to applicants with graduate degrees or to analysts who’ve been working with the venture firm for a few years. Associates are usually tasked with due diligence research, obtaining progress reports from portfolio companies, and acting as the intermediary between investment prospects and the partners who make final investment decisions.
Association TechniqueA research tactic where users are asked which words come to mind when they think of a certain product.
Average Order Volume (AOV)Measures the size of each product order.
Average Revenue Per User (ARPU)Total revenue divided by number of users.
Average Size of SaleThe average dollar amount brought in by each individual sales contract.
B CorporationA for-profit business dedicated to addressing social and environmental issues.
B2BBusiness to business. This describes a business that is targeting another business with its product or services. B2B technology is also sometimes referred to as enterprise technology. This is different from B2C which stands for business to consumer, and involves selling products or services directly to individual customers.
Back CheckingCalling a previously interviewed customer and asking about their experience in that interview.
Back of the Napkin ModelA brief business model designed to fit on the back of a napkin.
BacklinkIncoming links to a website or a particular web page.
Balance SheetA document that details a company’s assets, revenue, and expenses.
Banner AdOnline advertising tactic wherein an advertisement is embedded in a web page. (see Tips To Be Competitive In The Mobile App Industry)
Bayesian StatisticProbability calculated by a combination of prior knowledge and accumulated experience. (see more)
BenchmarkThe process by which a startup company measures their current success. An investor measures a company’s growth by determining whether or not they have met certain benchmarks. For example, company A has met the benchmark of having X amount of recurring revenue after 2 years in the market.
The metric used by a company to gauge their success
Benchmarkingthe process of comparing the returns of a portfolio against a group of its peers.
benchmarksBenchmarks are performance goals against which a company’s success is measured. Benchmarks are often used by investors to help determine whether a company should receive additional funding or whether management should receive extra stock.
Beta TestExternal pilot-test after Alpha testing is complete and prior to commercial production. In beta testing, the product is released to a limited number of customers for testing under normal, everyday conditions in order to detect any flaws. (see 10 Experiments To Test Your Startup Hypothesis)
Big BeastSomeone who is incredibly knowledgeable and considered an expert in their field.
Black hatA method that is slightly, if not completely, illegal used to grow your startup
blind poolBlind pool is a form of limited partnership which doesn’t specify what investment opportunities the general partner plans to pursue.
Blue ChipLarge, established, successful company occupying a space.
Board of directorsA group of influential individuals, elected by stockholders, chosen to oversee the affairs of a company. A board typically includes investors and mentors. Not all startups have a board, but investors typically require a board seat in exchange for an investment in a company.
a group of individuals selected to represent stockholders with regard to company policies or significant company decisions. PE or VC investors will often place executives on the Board of a portfolio company as part of an investment.
A group of individuals who have been elected by stockholders and chosen to oversee a company’s affairs. Oftentimes, investors request a board seat in exchange for a startup investment.
BoilerplateAn organization’s standard description that is used repetitively. Oftentimes, boilerplates are placed at the bottom of email correspondence.
Boiling the OceanPhrase that describes an idea that is either too broad or trying to achieve too much.
Book Runnerthe main entity responsible for the issuance of new equity, debt, and other securities.
BookingsA contract between a company and a customer, where the customer agrees to pay the company for a product or service.
BootstrapBuilding a company without outside investment money
To start a company with only personal resources and no outside funding.
BootstrappedA company is bootstrapped when it is funded by an entrepreneur’s personal resources or the company’s own revenue. Evolved from the phrase “pulling oneself up by one’s bootstraps.”
BootstrappingStarting a business without external help or investment.
Bottom LineA comparison of net income versus net expenses, resulting in net profit. The word “bottom” refers to the fact that the net profit often appears at the bottom of financial reports. Also referred to as Net Income or Net Profit.
BraindrawingA type of visual brainstorming where a group of people sketches ideas for designs and visual concepts.
BrainwritingMethod to quickly brainstorm by having a group of people write down their ideas and share them anonymously. (see more)
Brand ActivationIntegration of all available communication streams in order to activate consumers and generate brand recognition.
Brand ArchitectureThe “family tree” of a company, detailing the different brands controlled by a company and their relationships. (see A Simple Template to Build Your Startup’s Brand Foundation)
Brand EquityA brand’s power, derived from name recognition and reputation, that has been earned over time. Brands with high equity often generate higher sales and relatively increased profit margins.
Brand ExperienceA brand’s reputation as perceived by an individual.
Brand ExtensionThe launching of a new product in a new market area under an established brand from a different market.
Brand IdentityThe intended customer perception of a brand, orchestrated via name, logo, practices, and communication style.
Brand ImageThe bundle of associations, within a customer’s mind, between a brand and the rest of the world.
Brand LicensingThe act of allowing a manufacturer to produce and sell products under a particular brand name in return for a percentage of the sales profit.
Brand NarrativeThe story of a brand’s ideas, origins, and experiences as they relate to customers. (see A Beginner’s Guide to Brand Storytelling)
Brand PersonalityThe attribution of human traits or personality to a brand in order to achieve differentiation and authenticity.
Brand StrategyThe details of to whom a brand intends to appeal and how this will be achieved. (see Startup Branding Lessons from the Founder of Zipcar)
BreakEven Point
Break-Up Feea fee paid by the seller if it breaches or decides to terminate a definitive acquisition agreement.
Bridge FinancingShort-term financing that is expected to be repaid quickly. (see Startups Can’t Borrow Their Way to Success, by Adeo Ressi)
Bridge loanAlso known as a swing loan. Short-term loan to bridge the gap between major financing.
a temporary, limited amount of financing that serves as a “bridge” until a long-term debt or equity investment can be secured.
a loan which is designed to “bridge the gap” between institutional investment rounds.
bridge loan is a short-term loan that is used until a person or company can arrange a more comprehensive longer-term financing. The need for a bridge loan arises when a company runs out of cash before it can obtain more capital investment through long-term debt or equity.
Brownfieldan investment in an existing asset, land or structure that typically requires repairs, upgrades and expansion.
BuildMeasure
Burn ratea time-based metric reflecting how quickly a startup spends its operating capital/shareholder equity. Burn rates are typically calculated over annual or monthly periods, and in extreme cases can be calculated on a weekly or daily basis.
The rate at which cash is decreasing. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Business Development Company (BDC)a closed-end investment company created to invest in both the debt and equity of small and medium-sized businesses; investments can be made in both public or private entities. While similar to VC funds, many BDCs are actually publicly traded and allow for smaller, non-accredited investors to back startups via purchased shares in the BDCs directly investing in said entities.
Business Model CanvasA map that allows companies design, develop, pivot, and plan its course. (see more)
Business PlanA document describing how a company will reach its goals.
Business to Business (B2B)A company that provides services for other companies.
Business to Consumer (B2C)A company that provides services for individuals.
Buy-and-Sell AgreementA document specifying what will happen if one of the co-owners of a company leaves for any reason.
buyoutBuyout is defined as the purchase of a company or a controlling interest of a corporation’s shares or product line or some business. A leveraged buyout is accomplished with borrowed money or by issuing more stock.
when a purchaser gets controlling interest in a company after it buys the requisite number of shares.
A common exit strategy. The purchase of a company’s shares that gives the purchaser controlling interest in the company.
a private equity transaction in which a firm acquires all or a significant amount of equity in a business. Buyouts typically involve a mixture of cash and debt, which has led to the term “leveraged buyout.”
A common exit strategy in which a company’s shares are purchased, granting the purchaser a controlling interest in the company.
C CorporationThe most basic form of corporations, any newly incorporated entity is automatically assumed to be a C Corporation unless otherwise specified. The key characteristic of a C Corporation is that it is legally viewed as an individual entity, separate from its shareholding owners.
Callto
Capa valuation ceiling that exists in a convertible debt deal.
Cap Tablea detailed spreadsheet that outlines all the stockowners of a company and the terms at which they have invested.
CapitalMonetary assets currently available for use. Entrepreneurs raise capital to start a company and continue raising capital to grow the company.
Capital Callthe act of a private equity fund “calling down” previously pledged capital from its limited partners in order to execute an investment.
Capital Expenditures (CapEx)Any items purchased by a company with the expectation of future benefits.
capital gainCapital Gain is the gain to investor from selling a stock, bond or mutual fund at a higher price than the purchase price. The capital gain is usually the amount realized (net sales price) less your investment (adjusted tax basis) in the property. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.
The difference between the purchase price and selling price of a given asset.
Capital Overhangthe current amount of capital available to private equity investors.
capital under managementCapital under management is the amount of capital available to a management team for venture investments.
The amount of capital, or financial assets, that a venture capital firm is currently managing and investing.
The amount of capital available to a management team for venture capital investment.
CapitalCash, goods, and assets at one’s disposal.
Capitalization TableA list of investors in a startup including the names of shareholders, number of shares held, percentage ownership, and which classes of stock are owned by whom.
A table displaying the total amount of securities issued by a company, along with details of the ownership of these securities.
Capped notesRefers to a “cap” placed on investor notes in a round of financing. Entrepreneurs and investors agree to place a cap on the valuation of the company where notes turn to equity. This means investors will own a certain percentage of a company relative to that cap when the company raises another round of funding. Uncapped rounds are generally more favorable to an entrepreneur/startup.
This refers to the practice during investment rounds where a cap is placed on a company’s valuation.
Carried Interest or “Carry”a general partner’s share of the capital gains from a fund, generally 20%. Most limited partnerships include a provision that allows the general partner to receive carry only after the limited partners have achieved a preferential rate of return on their original commitment.
The portion of investment gains to which fund managers are entitled without contributing their own capital.
The fee charged by the firm on the profits generated on a particular investment, typically 20%. This serves to align the interests of limited partners with the general partners managing the fund.
profits that a VC is entitled to after returning principal and interest to their investors. This can range from 10-30%.
Carveouta transaction in which a parent company sells all or part of a subsidiary, division or other portion of its operations.
Cash BasisType of accounting that reports all revenue and expenditures when payments are sent. This form of accounting is optimal for startups and companies with small inventories.
Cash FlowNet amount of cash moving into and out of a business. Positive cash flow indicates that a company’s liquid assets are increasing while negative cash flow indicates the opposite.
Cash-on-Cash Return“A simplified method for calculating return by dividing the total amount of money received from an investment (or the combination of cash returned and the current value of the portfolio) by the amount initially committed.” (Lerner, Leamon, and Hardymon 2012)
Challenger BrainstormA brainstorm method where a group lists all of their assumptions and attempt to invalidate them. (see more)
Change agentLike a secret agent, but with a Twitter account
Chapter 11: the section of the Bankruptcy Code that outlines the process for asset reorganization.
Chapter 7: the section of the Bankruptcy Code that outlines the process for asset liquidation.
Chicken and Egg DilemmaSituation where users are necessary to create content in order to attract more users.
Churn RatePercentage of customers who stop subscribing to a service. (see more)
ChurnA general term for any quantifiable loss. This can be attached to customers, cohorts, or revenue in order to measure the retracting of business.
civilian unemployment rateCivilian unemployment rate is calculated by the number of unemployed people divided by the total size of the labor force and is expressed as a percentage. People who are jobless, looking for jobs, and available for work are considered unemployed. The labor force is defined as people who are either employed or unemployed.
Click Through Landing PageA landing page with the goal of sending a user forward to another page.
Click Through Rate (CTR)The amount of users who click a certain link compared to the amount of users who visit the page on which the link resides. This is often expressed as a percentage.
Client/CustomersThe person or group of people who are the direct beneficiary of a particular product or service. Idealy, these are the people for whom the product is designed.
Cliff VestingThe practice by which employees are granted all long-term benefits, stock options, or retirement funds at a single point in time rather than being granted gradually.
CliffA term describing the length of time before a founder or stock recipient becomes partially vested in their restricted stock or stock options.
Closed Funda private equity fund that has finished taking commitments from limited partners and held its “final close.”
closingClosing is the final event to complete the investment, at which time all the legal documents are signed and the funds are transferred.
Closing RateA measurement for sales effectiveness determined by the number of proposals per sale.
ClosingThe final stage in the investment process, where legal documents are signed and an investment becomes official.
Club Deala private equity transaction involving two or more firms.
Cofounder Agreement
Co-founderA joint founder with whom equity is shared.
Cohort AnalysisAttempting to identify trends by breaking up users into different experimental groups. (see more)
CohortA customer group created due to a unifying trend or factor making that group unique.
Co-Investmenta direct investment from a limited partner into a portfolio company executed in conjunction with the general partner.
Common StockThe type of stock generally issues to company employees. This class of stock (shares) generally has the least amount of rights and privileges. Common stock is a lesser class of stock than preferred stock.
Competitive AnalysisIdentifying competitors and recognizing their strengths and weaknesses compared to one’s own. (see What Investors Want to Learn From Your Business Plan to learn more)
Competitive MatrixA tool that compares one’s product to a competitor’s.
Concierge Minimum Viable Product (CMVP)A manual service simulating the same exact steps people would go through with a final product.
ConstraintsLimitations outside the control of a project team. For example, date time
Content MarketingA marketing approach based on the creation and distribution of valuable and relevant content for potential customers to digest. (see Startup Marketing: 7 Steps to Getting Started with $100)
Conversion FunnelAn individual’s journey to discovering a product and becoming a customer. (see What Should You Do When Your Product is Launched? for more info)
Conversion Rate Optimization (CRO)Changing a landing page or website to drive traffic and make users inclined to stay.
Conversion RateThe ratio of closed deals and secured customers compared to the amount of prospective customers at various stages of the funnel.
convertibleConvertibles are the corporate securities, usually preferred shares or bonds, that can be exchanged for a set number of another form, usually common share, at a pre-stated price. Convertibles are appropriate for investors who want higher income than is available from common stock, together with greater appreciation potential than regular bonds offer. From the issuer’s standpoint, the convertible feature is usually designed as a sweetener, to enhance the marketability of the stock or preferred.
Convertible debtThis is when a company borrows money with the intent that the debt accrued will later be converted to equity in the company at a later valuation. This allows companies to delay valuation while raising funding in it’s early stages. This is typically done in the early stages of a company’s life, when a valuation is more difficult to complete and investing carries higher risk.
Convertible Debt/Equitydebt that can be converted to equity based on certain conditions, typically a pre-defined valuation or date. Convertible debt usually includes compensation, most likely warrants or discounts, in addition to the round amount.
a debt or loan that will be paid back in the future in the form of equity or company stock.
Investments designed to turn into equity at a future point in time, when a company is first valued. This is a useful method for young companies to attract investment prior to valuation.
Convertible NoteA kind of financial instrument that, under certain conditions specified in the investment agreement, converts from a debt owed to the investor to equity in the company owned by the investor.
Corporate Acquisitionthe purchase of a portfolio company by a corporation for strategic purposes.
Corporate Venture Capital (CVC)Corporate venture capital is a subsidiary of a large corporation which makes venture capital investments.
corporations can have a venture capital team that looks to invest in companies that may align with the parent company’s goals. Often times these investments lead to partnerships between the investor and the company raising money.
“An initiative by a corporation to invest either in young companies outside the corporation or in business concepts originating within the corporation. These are often organized as corporate subsidiaries, not as limited partnerships.” (Lerner, Leamon, and Hardymon 2012)
corporate venturingCorporate Venturing is a practice of a large company, taking a minority equity position in a smaller company in a related field.
Cost of Goods Sold (COGS)Direct costs attributable to the production of the goods sold by your company.
The expense required to produce the goods sold by a company. Oftentimes, this means the cost of raw materials plus the cost of labor. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Cost Per Action (CPA) MarketingOnline advertising pricing strategy in which payment is based upon the effective results of that advertisement, oftentimes measured in sales or registration numbers.
Cost Per Thousand (CPM)A standard measurement for the cost of advertisements, measured by cost of advertisements per 1,000 created impressions.
Cost StructureAn analysis of the costs of business expenses versus the necessity of these expenses.
Co-working spaceA company or non-profit that rents or provides work space to entrepreneurs and startups. Co-working spaces seek to foster a work environment that allows for spontaneous networking and the possibility of collaboration. Examples include Coloft in Los Angeles, Gangplank in Phoenix, and General Assembly in New York.
Creative IntelligenceAbility to reach creative solutions by framing problems in new ways. (see more)
CreditAn accounting entry that either decreases total assets or increases liability.
CrossElasticity
Crowdfundingthe process of funding a venture by raising small amounts of capital from a large number of people (the crowd), usually through an online platform.
the process by which a large number of individuals make small monetary contributions into a single pool, ultimately funding a new venture or project.
Crowdfunding enables a company to attract capital from a large number of small investments (or donations). Some types of crowdfunding conducted through an online portal such as OneVest (formerly Rock the Post), enable startups to raise equity capital from accredited investors. Other types, such as Kickstarter, allow projects to seek contributions (but not direct equity investment) from supporters.
The process of generating money to fund a business via many individual donors across an online platform. (see Crowdfunding Checklist: 10 Steps To Launching A Successful Campaign)
CrowdsourcedResources or information gathered from a crowd over the Internet, but often is used in place of a survey, a poll, or “I asked a bunch of people.”
Crushing itUse this phrase before or after “bro
CurationLast time I checked, you are not working for a museum
Current Assets (CA)Assets that will be used within one year.
Current LiabilitiesDebts that are payable within one year.
Customer Acquisition Cost (CAC)The full cost required to acquire a customer.
Customer ArchetypeA “typical customer” for a company to establish its intended audience. (see Customer Definition: Customers are People Too to learn more)
Customer Life CycleThe steps a customer goes through when using a product.
Customer Relations Management (CRM)Practices and strategies to analyze customer interactions with the ultimate goal of improving business relations and achieving customer satisfaction.
Customer RetentionPractices a company engages in to retain customers.
Customer SegmentsA breakdown of a product’s value for various sets of customers.
Daily Active Users (DAU)The amount of users of a service or product in a 24 hour period.
Data MiningQuerying large sets of data for precise analysis.
Data Rooma secure, digital location where potential investors can review confidential information on a target company, including financial statements, compensation agreements, intellectual property and client contracts.
deal flowDeal flow (dealflow) is the rate at which investment offers are presented to funding institutions.
a measure of the volume of private equity transactions that have closed in a given period.
The rate at which investment opportunities are introduced to a funding institution.
Deal RoomCentral location where investment pitches and negotiations take place.
DebitAn accounting entry that increases assets or reduces liability.
debt financingDebt Financing means when a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay principal and interest on the debt.
This is when a company raises money by selling bond, bills, or notes to an investor with the promise that the debt will be repaid with interest. It is typically performed by late-stage companies.
happens most often when a company sells a note to an investor, promising to repay the debt with interest.
Money-raising tactic in which a company sells bonds or notes to an investor with the assumption that they will be re-purchased with interest. (see 7 Ways Entrepreneurs Can Avoid Financial Instability)
DebtLoans that must be repaid over time.
Deep diveTo research something
DeepnessA measurement of how much value an idea can ultimately deliver.
DeliverableA tangible outcome produced by a project. Internal deliverables are created by a project and are used by the company itself. External deliverables are created for clients, stakeholders, or customers. A single project can create many sets of deliverables.
DeltaIt means change, but not the “disprupt” kind
DeploymentIntroduction of a new activity, procedure, or program to an organization.
Design ThinkingCreative problem
Digital nomadI don’t work in a cubicle; I just wander the world with my iPhone
Dilution“The reduction in the fraction of a company’s equity owned by the founders and existing shareholders that is associated with a new financing round.” (Lerner, Leamon, and Hardymon 2012)
The process by which founders of a company slowly lose their equity/ownership.
direct financingDirect financing is a financing without the use of underwriting. Direct financing is often done by investment bankers.
Direct MarketingA form of advertising featuring physical items for customers in order to communicate information about a product and create a lasting impression.
Disbursementinvestments made by private equity funds into their portfolio companies.
Disclosure DocumentsA series of documents prepared by prospective investors and acquirers. These documents include compliance requirements and the details of a given investment or acquisition.
DiscoverabilityHow people will learn about a product.
DisruptPerhaps the most revered and hated tech buzzword of the 21st century. The word really just means “change.”
DisruptionA buzzword for the act of creating a business opportunity in a market where it was thought none existed, by way of sustainable innovation. Famous examples include Kickstarter, Uber, and Airbnb. However, disruption is the exception, rather than the rule. I wrote about disruption in a previous blog post, What Not to Say to Investors, saying, “True market disruption is almost never the result of a startup and its first product. It’s fine to have a long-term vision for changing the world, but investors are more interested in concrete, achievable plans. That means having a marketable solution for an actual problem.”
Also known as disruptive innovation. An innovation or technology is disruptive when it “disrupts” an existing market by doing things such as: challenging the prices in the market, displacing an old technology, or changing the market audience.
DisruptiveThe creation of a new market that overcomes an existing one.
Distressed Investmenta debt or equity investment into a company experiencing liquidity, capitalization, and/or underperformance issues.
Distributed to Paid-In (DPI)money returned (distributions) to limited partners divided by money paid in to the partnership. Also called cash-on-cash multiple.
Distributionthe act of returning capital back to limited partners following a liquidity event.
Dividend Recapitalizationa specialized type of recapitalization in which a portfolio company takes on new debt in order to issue distributions to the owners.
DogfoodingA company showing confidence in their own product by using it themselves. Derived from the expression “eating your own dog food.”
Domain NameA unique name identifying a website.
Double EntryA form of accounting where each entry requires a corresponding entry in a different account. This is done in order to ensure that no errors occur and no expenditure or revenue goes missing.
Down RoundA round in which the valuation of the company declines relative to the previous round. This might trigger anti-dilution provisions in the investment agreement.
Dragona single investment that returns the entire value of the fund.
Drawdown Ratethe speed with which a general partner calls down the capital previously committed by its limited partners.
Drip CampaignMarketing method designed to attract customers through repetitive marketing actions and advertisements.
drive-by dealDrive-By Deal is a slang often use when referring to a deal in which a venture capitalist invests in a startup with the goal of a quick exit strategy. The VC takes little to no role in the management and monitoring of the startup.
Dry Powdersee Capital Overhang.
due diligenceDue diligence is the process of investigation and evaluation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.
An analysis an investor makes of all the facts and figures of a potential investment. Can include an investigation of financial records and a measure of potential ROI.
The process of investigating a business prior to making an investment, forming a business partnership, or other long-term binding agreement.
the process of vetting, analyzing and assessing individuals and institutions prior to engaging in a transaction.
or a thorough, detailed analysis of a company.
An analysis made by an investor based on the facts and information about a company or product prior to investment.
EarlyAs with nearly all of the terms listed here, early-stage startup means something different to everyone. For a founder it might mean the time period between the initial idea and filing for an LLC, registering a domain name, and developing an actual business plan. An angel may view an early-stage startup as a company with a prototype or mockup of their product or service and a promising business plan to go with it. VC firms set the bar the highest, and often consider anything below $10 million in revenue to be early-stage.
Early AdopterIndividual or business who discovers and uses a product before others.
Early MajorityFirst sizeable segment or customer group to adopt a new product.
Early Stagea period of venture capital investment in-between seed and late stage deals that includes Series A and Series B financings. These companies typically have a proven concept and little revenue.
The earliest stage of the three main startup phases. These are fledgling companies that are often pre-valuation.
Earnout Provisionspart of a contract that details future compensation for the seller if the business attains certain performance goals.
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)a cash flow measurement that takes revenue less expenses without including interest, taxes, depreciation and amortization.
EcopreneurEntrepreneur who focuses on environmentally friendly products.
ElasticWhen a small change in price leads to a large change in demand.
ElegantIt looks nice
Email AliasAn email address linked with a different destination email address.
EmbargoAn agreement to provide a particular press agency with a story but delay publication of that story.
Employment TermsLegal document detailing the specific requirements and benefits of employment.
Endowment FundsThe long-term pool of financial assets held by many universities, hospitals, foundations and other nonprofit institutions.
EnterpriseThe term enterprise typically refers to a company or business (i.e. an enterprise tech startup is a company that is building technology for businesses).
Enterprise Valuea measure of a company’s value calculated as market capitalization, including all debt and equity interests, minus excess cash.
EntrepreneurAn individual who starts a business venture, assuming all potential risk and reward for his or herself.
Entrepreneur in residence (EIR)A seasoned entrepreneur who is employed by a Venture Capital Firm to help the firm vet potential investments and mentor the firm’s portfolio companies.
An experienced entrepreneur who is employed by a venture capital firm and plays an advisory role.
EphemeralSomething that disappears
equity financingEquity financing is a term used for company’s issuance of shares of common or preferred stock to raise money. Equity financing is commonly done when its per share prices are high-the most money that can be raised for the smallest number of shares.
The act of raising capital by selling off shares of a company. An IPO is technically a form of equity financing.
when a company raises money by selling its shares for cash. Shareholders then become partial owners of the company, facing both the risk and the reward that may follow. It’s worth noting that debt and equity financing can happen independently or in conjunction with each other.
Money-raising tactic where investment is provided in exchange for a portion of ownership over the company.
Equity GrantsEquity rewards, often in the form of stock, given to key employees. Oftentimes, there is a waiting period before employees can legally claim this equity. (see A Guide to Startup Employee Equity to learn more)
equity offeringsEquity Offerings is raising funds by offering ownership in a corporation through the issuing of shares of a corporation’s common or preferred stock.
EquityA broad word used to describe the ownership of a company. It can be measured in stock or other units based on a company’s structure. (see A Guide to Startup Employee Equity)
Evergreen Funda private equity fund that continually fundraises and never holds a final close in order to ensure consistent cash flows.
ExitThe sale of your company in the public markets, to another company or private investors
Exit is the sale or exchange of a significant amount of company ownership for cash, debt, or equity of another company.
This is how startup founders get rich. It’s the method by which an investor and/or entrepreneur intends to “exit” their investment in a company. Commons options are an IPO or buyout from another company. Entrepreneurs and VCs often develop an “exit strategy” while the company is still growing.
the sale of a portfolio company by a private equity firm. Exits can be either full or partial. Common strategies include corporate acquisitions, secondary buyouts and IPOs. Also called a Liquidity Event.
exit routeExit Route is the method by which an investor would realize an investment.
Exit strategyTech is so much fun I just want to leave
Exit Strategy is the way in which a venture capitalist or business owner intends to use to get out of an investment that he/she has made. Exit Strategy is also called liquidity event.
the way an investor will see the return on their investment. It most commonly happens through an Initial Public Offering (IPO), or a buyout.
ExitThe point at which an investor sells their stake in a business to fully realize gains or losses. Generally, exit details are planned at the time of the original investment.
ExpensesCosts that a business incurs from all sources. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Exploding OfferAn investment offer that is retracted if it not accepted after a short time period.
Failing ForwardLearning from failures and using them to build a more successful product.
Family OfficeA private advisory firm that typically manages the wealth, taxes, and estate planning of ultra-high net worth investors (i.e. individuals or families with more than $100 million in investable assets).
a firm that manages assets, investments and trusts for a wealthy family.
Final Closethe end of a general partner’s fundraising efforts for a particular fund.
Financial ModelAn abstract
financierFinancier is a person or financial institution engaged in the lending and management of money and makes a living participating in commercial financing activities.
Financing RoundA financing round is a type of securities offering wherein a company receives capital from investors in exchange for equity, as a loan, or in some other financial arrangement.
Finder’s FeeThe amount paid to a third
First Mover AdvantageAdvantage gained by being the first company in a particular market space.
First RefusalClause that requires investors and founders to offer their shares to an existing early investor before selling to a third party.
first stage capitalFirst Stage Capital is the money provided to entrepreneur who has a proven product, to start commercial production and marketing, not covering market expansion, de-risking, acquisition costs.
first-round financingFirst-round financing is the first investment in a company made by external investors.
Fixed Assets (FA)Long
Fixed CostsA cost that does not change with increases or decreases in volume of sales.
follow-onFollow-On is a subsequent investment made by an investor who has made a previous investment in the company, generally a later stage investment in comparison to the initial investment.
ForecastingA planning tool designed to eliminate uncertainty over the future, relying upon past data to reveal persistent trends. (see Does Your Startup Have Potential?: An Investor’s POV)
FounderEntrepreneurs who have started a venture.
FreemiumFree service with paid features.
Friends & FamilyTypically non-professional investors who provide capital to a startup company based on their close connection to a startup founder through familial, collegial, or professional relationships.
full ratchetFull ratchet is an investor protection provision which specifies that options and convertible securities may be exercised relative to the lowest price at which securities were issued since the issuance of the option or convertible security. The full ratchet guarantee prevents dilution, since the proportionate ownership would stay the same as when the investment was initially made.
A provision intended to protect investors, preventing extreme dilution of equity/shares.
Functional ManagerThe individual to whom another employee reports within a company.
Functional RequirementsParticular behavior or metric to judge the operation of a system.
Fundan investment vehicle comprising capital commitments from limited partners, which are raised by a general partner. Funds typically have specific sectors, regions and deal amounts that they target for their investments.
fund of fundsFund of Funds is a mutual fund which invests in other mutual funds. Fund of Funds is an investment vehicle designed to invest in a diversified group of investment funds.
A mutual fund that invests in other mutual funds.
A mutual fund that invests into other mutual funds.
Fund TermMost venture capital funds raise a finite amount of money and operate for a finite period of time. Once the target fund size has been reached, that capital is under the fund’s management, usually for a period of ten years. Fund managers usually have the option to extend the fund’s term by two to three years, often in one year increments, at their discretion.
Fund-of-Fundsa fund that invests in private equity funds, allowing small institutions and individuals to gain private equity exposure. A fund-of-funds devotes all of its time to evaluating general partners, which generally leads to above-average returns. However, there are extra fees and expenses associated with investing in a fund-of-funds.
Fundraisingthe process by which a general partner seeks capital commitments from limited partners.
Funds of Funds (FoF)An investment vehicle that allocates its assets among a number of venture capital or private equity firms – rather than directly into private companies – on behalf of its investors.
Future ValueThe possible value of an asset in the future.
Game changerUsually not game related
GamificationAdding game elements to a non
GamifyOur product is boring, so we made it into a game
Gantt ChartA bar chart depicting activities for a given day, used for day
General LedgerA comprehensive and complete record of all financial transactions spanning the lifetime of a company.
General Partner (GP)the entity in a limited partnership that maintains responsibility for all debts and obligations. The GP manages all aspects of the fund, including investment decisions, and earns a management fee and percentage of the carried interest (assuming the fund is successful).
General solicitation.In September 2013, the SEC lifted the ban on general solicitation as mandated by the JOBS Act of 2012. General solicitation basically means advertising investment opportunities; it was prohibited in the past in an effort to cut down on investment fraud. With the new rules in place, startups can now advertise an investment round online and in the media, but funding is still limited to accredited investors only. Startups must take additional steps to vet investors’ accredited status should they choose to file under Rule 506(c). I wrote a primer on general solicitation back in September and Ryan Caldbeck, CEO of funding platform CircleUp, has some good tips for startups to consider as well. Funding regulations are nuanced, and you’ll want an attorney’s guidance before going too far down any path.
Generally Accepted Accounting Principles (GAAP)An established set of rules created by the accounting industry which must be followed when reporting financial information.
Generation StageThe stage of creating ideas.
Goto
Going PrivateWhen a company transitions from public to private through a series of transactions in which either the company itself or a private investor (re)purchases its stock from the public.
Golden HandcuffsBenefits or delayed payments offered by a company in order to prevent an employee’s departure.
Golden ParachuteA large compensation or lump payment for the dismissal of an executive, often occurring in the aftermath of a takeover.
Greenfieldan investment involving an asset or structure that does not yet exist. In a greenfield investment, investors fund all stages of development, including design, construction, infrastructure, and operations.
A market area with no restraints or previous solution attempts.
Gross MarginA percentage metric for how much revenue a company keeps after subtracting the cost of all production
Gross ProfitNet Revenue minus COGS
Gross Profit MarginGross Profit divided by Net Revenue
Gross ProfitA measure of the profitability of a revenue stream. This statistic is essentially all revenue generated by a product subtracted by the cost of production, support, and delivery. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Gross RevenueAll the money/income generated from the sale of your product and/or service.
ground floorGround floor is a term used for the first stage of a new venture or investment opportunity.
A reference to the beginning of a venture, or the earliest point of a startup. Generally considered an advantage to invest at this level.
Earliest possible startup phase.
GroupthinkConsensus of opinion without critical reasoning. This is to be avoided at all costs, as it damages creativity and idea generation. (see more)
Growth Equity Investmenta growth equity investment provides relatively mature companies with capital to fund expansion or restructuring in exchange for an equity position, typically a minority stake. As opposed to a buyout, growth equity investors do not take control of the business.
Growth HackerAn employee who creates viral results quickly.
A term coined by Sean Ellis to refer to the job description of a startup’s online marketing guru. This person is responsible for setting strategy for SEO, SEM, content marketing, social media, referral marketing, and testing the efficacy of these campaigns. The goal of a growth hacker is to find out what kind of marketing grows the business fastest at the lowest possible cost. Please see this great post on Mark Suster’s blog (and this follow-up post) for an in-depth discussion about the value of growth hacking.
Growth HackingCoined by Sean Ellis, this term refers to the art of generating fast attention and customer base growth via unconventional means. (see Startup Growth Hack Strategies to Get You to 1000 Users and Beyond)
Hard SellA pitch style designed to get a consumer to purchase a product in the short
Harvest PeriodThe period in which the fund begins to see returns from its investments through mergers and acquisitions, initial public offerings, technology licensing agreements, and other means.
HashtagA tag or phrase preceded by a hashmark (#) in order to establish a keyword or topic of discussion.
Herd MentalityThe phenomenon of individuals following a leader rather than thinking independently. (see more)
Hockey stick growthExponential-looking growth. If you are on a stage using the word, be sure to motion the shape with your hands.
Hockey StickThe informal term for a upward growth trend.
Holding CompanyAn entity created for the sole purpose of holding assets with few other functions.
Hourly Active Users (HAU)The amount of users of a service or product in a 60 minute period.
Hurdle Ratesa pre-established minimum rate of return that general partners must achieve before they are allowed to claim carried interest.
Hybrid Viral ModelSupplementing customers gained by viral campaigns with customer acquisition through other means, like paid search or SEO.
Ideate“I don’t come up with ideas
IdeationThe creative process of generating, developing, and communicating ideas. (see also: Generation Stage)
ImpressionsMetric to determine the amount of newly generated users as a result of a particular advertisement.
Income StatementSales, expenses, and net profit over a particular period of time. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
IncorporationThe act of legally forming a company.
incubatorIncubator is a company or facility designed to foster entrepreneurship and help startup companies, usually technology-related, to grow through the use of shared resources, management expertise and intellectual capital.
An organization that helps develop early stage companies, usually in exchange for equity in the company. Companies in incubators get help for things like building their management teams, strategizing their growth, etc.
entities that advise and develop young companies in their earlier days, most commonly before they have received significant investment. Aside from offering the companies physical workspace, they provide an array of services—marketing help, guidance on product development, legal assistance, access to a network of investors, and pitch/presentation training—designed to ready them for growth and success.
While the definitions are blurry, some people do make a distinction between an incubator and an accelerator. Depending on who you talk to, an incubator is a more long-term program that will take a bigger slice of the equity pie.
an institution to host and develop startup companies. An incubator provides early-stage startup companies with office space, resources, advice and networking opportunities. In return, the incubator generally receives an equity stake in the company.
A company or facility designed to aid entrepreneurs via shared resources, education, expertise, and intellectual capital. (see 8 Important Lessons You Can Learn from an Incubator)
Indication of Interest (IoI)A potential customer displaying interest in a product.
InelasticWhen a change in price does not lead to a large change in demand.
Influence MarketingIdentifies the individuals or organizations who have influence over potential buyers and attempts to market towards those influencers.
Initial Public Offering (IPO)the initial offering of publicly available stock by a private company. All companies undergoing an IPO must register with the SEC and take the necessary steps to comply with all applicable rules and regulations.
A corporation’s first sale of securities, often in stock form, under the regulations of a public company.
InnovationSuccessful introduction of a new change that adds value.
FYI, not everything is innovative
InnovatorAn individual who introduces valuable changes.
Institutional Investordedicated financial entities that invest on the behalf of companies and individuals. Examples include university endowments, insurance companies and pension funds.
Institutional Investors refers mainly to insurance companies, pension funds and investment companies collecting savings and supplying funds to markets but also to other types of institutional wealth like endowment funds, foundations, etc.
Integrative ThinkingProblem
Intellectual Property (IP)The legal ownership of ideas or concepts. These are intangible assets, which have the potential to be far more important than any tangible assets. (see Inside FI: IP May be Your Savior for more info)
Interim Closefunds that are currently raising capital may have a series of interim closes as limited partners make commitments. Investing can begin as soon as the fund holds its first interim close.
Internal Rate of Return (IRR)“The annualized effective compounded return rate that can be earned on the invested capital, otherwise known as the investment’s yield. [For venture capital firms], the longer the money is tied up in an investment, the higher the multiple of the original investment that must be returned to have an adequate Internal Rate of Return.” (Lerner, Leamon, and Hardymon 2012)
the rate at which the net present value of all the cash flows from an investment will equal zero. IRR is a widely used metric to gauge fund performance over time.
IntrapreneurSomeone who practices entrepreneurship within a large company.
InventionThe creation of new forms. An idea that has become a reality.
Investment Banka financial institution that serves as an agent or underwriter for security issuances. Additionally, some investment banks act as broker/dealers and provide advisory services for mergers, acquisitions, restructurings and other transactions.
Investment Bank is a financial intermediary that performs a variety of services which includes underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients.
Investment PeriodThe period in which the fund deploys the majority of its capital into its portfolio companies, which is typically somewhere between three and five years.
Investor Rights Agreement (IRA)A legal document which is often introduced by venture capital firms or prospective investors while a company is seeking investment. These agreements are often designed to protect the interests of investors.
invisible venture capitalInvisible venture capital is a venture capital from angel investors.
IPOInitial Public Offering or IPO is the first sale of stock by a private company to the public. IPOs are often smaller, younger companies seeking capital to expand their business.
Initial public offering. The first time shares of stock in a company are offered on a securities exchange or to the general public. At this point, a private company turns into a public company (and is no longer a startup).
IPO: Initial Public Offeringmarks the first moment that shares of stock are offered to the public. When this happens, the company becomes publically traded, and is subject to an entirely new array of securities regulations (among other things). This also means the company will be listed on an exchange.
IRRInternal Rate of Return or IRR is often used in capital budgeting, it’s the interest rate that makes net present value of all cash flow equal zero. Essentially, IRR is the return that a company would earn if they expanded or invested in themselves, rather than investing that money abroad.
IterationEach phase of agile development is referred to as an iteration. Iterations are short time frames granted to deliver sets of features. Each iteration generally contains activities such as analysis, design, development, and testing.
J-CurveThe shape of the Internal Rate of Return curve over the course of the fund’s lifecycle, encompassing both the investment period and the harvest period.
a common trend in the private equity industry where fund performance and cash flows are negative in early stages due to capital expenditures and other expenses, but rise over time as results are produced. The phenomenon causes a “J-curve” when looking at a chart of the fund’s performance, with a slight dip at the onset followed by steady growth.
Joint VentureAn arrangement, partnership or investment among a group of individuals or entities spanning a limited time period with the purpose of achieving a specific objective.
Jumping the SharkThe point in time when a brand’s evolution begins to decline.
Key Man Provisionspart of a limited partnership agreement that prohibits investments by the general partner if certain key executives are no longer involved in the fund barring approval from limited partners.
Key Performance Indicators (KPI)The metrics a company tracks to measure progress or success.
a set of measures that can be used to gauge the performance and state of a given business or sector. KPIs can include revenue growth measures, monthly active user growth rates for certain technology firms or leverage ratios, among many others. Depending on a given business’s strategic and operational initiatives, KPIs hold different priorities.
LaggardsA segment of a target market who are hesitant to adopt a new product.
Late MajorityThe last major customer segment to adopt a product.
Late Stagethe final stage of venture capital investing involving companies that have achieved strong revenue growth and are near exit. As late stage investments are less risky, the rate of return is typically lower. Rounds Series C and later are typically categorized at late stage.
A startup company that has been in existence for a noteworthy period of time and has proven to have a viable product and business model.
Lead Generation Landing PageLanding page that is used to capture user information and enter potential customers in the pipeline.
Lead GenerationThe process of attracting potential customers and capturing interest in a given product with the intention of developing the sales pipeline.
lead investorLead investor is a company’s principal provider of capital, such as the entity which originates and structures a syndicated deal.
A venture capital firm or individual investor that organizes a specific round of funding for a company. The lead investor usually invests the most capital in that round. Also known as “leading the round.”
The principal provider of capital in a given financing round, typically the same firm from round to round.
the entity or individual that makes the largest investment in a given venture capital round. As the primary financier for the round, the lead investor determines the current valuation of the company.
Member of an investment syndicate who holds the largest stake in a given company. Oftentimes, the lead investor is a startup’s principal provider of capital. (see How To Secure A Lead Investor)
LeadsA prospective customer who has provided their contact information to a company.
Leaky BucketAn analogy used to explain how products lose customers.
Lean [method, startup].First described by Eric Ries, the lean methodology was first proposed in 2011 as a way to quickly and cheaply develop efficient, revenue-generating businesses. Primarily used by entrepreneurs in the software and web development sectors (but applicable anywhere), companies operating under lean principles are continuously cycling between iterating product features and soliciting customer feedback to achieve “product/market fit.”
Try “spending reasonable amounts of money.”
Letter of Intent (LOI)A business document outlining the terms of a deal, often between two separate companies.
Leveragethe use of debt in an investment, including the acquisition and capital expenditures. Through leverage, general partners are able to expedite improvements at portfolio companies and amplify returns.
Leveraged buyoutWhen a company is purchased with a strategic combination of equity and borrowed money. The target company’s assets or revenue is used as “leverage” to pay back the borrowed capital.
Leveraged Buy-out or LBO is an acquisition of a business using mostly debt and a small amount of equity. The debt is secured by the assets of the business. In LBO, the acquiring company uses its own assets as collateral for the loan in hopes that the future cash flows will cover the loan payments.
Leveraged Buyout (LBO)see Buyout.
When a person or group of people take on debt in order to buy out the remaining shares of a company and achieve ownership.
LiabilitiesThe debts and financial obligations of a company. (see 50 Bootstrapping Hacks for Every Stage of Your Startup)
LiabilityThe state of being legally responsible for something. (see How to Win Friends and Influence Bankers)
LicensingA business agreement wherein one company grants another company permission to manufacture its product for an agreed payment.
Lifestyle BusinessCompany that runs itself and makes a profit, but will never grow into something gigantic.
Lifetime Value of Customer (LTV)Net profit a single customer will provide to the business.
Limited Liability Company (LLC)A company structure preventing individual members of the company from being held personally responsible for the company’s debts or liabilities.
Limited Liability Partnership (LLP)A partnership structure allowing partners to carry limited liability in order to mitigate risks.
Limited Partner (LP)“An investor into a limited partnership, such as a venture capital fund. Limited partners can monitor the partnership’s progress but cannot become involved in its day-to-day management if they are to retain limited liability.” (Lerner, Leamon, and Hardymon 2012)
an investor, usually an institution or accredited investor, that contributes capital to a private equity limited partnership.
An investor with little control over the management of a partnership or a portfolio company, in exchange for less restrictions on liquidation.
limited partnershipLimited partnership is a business organization with one or more general partners, who manage the business and assume legal debts and obligations and one or more limited partners, who are liable only to the extent of their investments. Limited partnership is the legal structure used by most venture and private equity funds. Limited partners also enjoy rights to the partnership’s cash flow, but are not liable for company obligations.
legal term for the relationship between a general partner and its various limited partners.
liquidationLiquidation is the sale of the assets of a portfolio company to one or more acquirers when venture capital investors receive some of the proceeds of the sale.
The process of dissolving a company by selling off all of its assets (making them liquid).
liquidation preferenceLiquidity preference is the right to receive a specific value for the stock if the business is liquidated.
“In a preferred stock agreement, a provision that ensures preference over common stock with respect to any dividends or payments in association with the liquidation of the company.” (Lerner, Leamon, and Hardymon 2012)
The right to receive a specific monetary value in exchange for equity, especially in the event of a company dissolving.
Liquidationthe process of selling assets in order to pay creditors (and potentially shareholders).
The process of turning securities into cash, often as part of an exit strategy.
liquidity eventLiquidity event is the way in which an investor plans to close out an investment. Liquidity event is also known as exit strategy.
the process of selling equity in an investment in order to realize and investment and return capital to limited partners.
An event that allows venture capital firms realize their gains or losses by liquidating equity in a company.
lock-up periodLock-Up Period is the period an investor must wait before selling or trading company shares subsequent to an exit, usually in an initial public offering the lock-up period is determined by the underwriters.
LogoA graphic design logo associated with a company or product. This often contains a name, trademark, or representative symbol.
Long Term LiabilitiesDebts payable over a period of time exceeding one year.
Loss Leader PricingSelling a product at a loss in order to build a customer base.
Low Hanging FruitTask with a large positive potential with few drawbacks. In the context of startup ideation, this means an idea which is in a market area where competition is low.
Magic QuadrantA complete, well
management buy-inManagement Buy-in or MBI is the purchase of a business by an outside team of managers who have found financial backers and plan to manage the business actively themselves.
management buy-outManagement Buy-out or MBO is the term used for the funds provided to enable operating management to acquire a product line or business, which may be at any stage of development, from either a public or private company.
Management Buyout (MBO)a buyout that is led or participated in by the company’s management team.
Funds provided for a management team to acquire a product or business.
Management Feea fee charged by general partners to limited partners in a fund that typically ranges from 0.5% to 3% of the called capital. Ostensibly, the fees are used to pay for the day-to-day operations of the fund.
The annual fee the venture fund charges for its management services, typically 2% of assets under management, but there is some variation.
Market SegmentationThe grouping of prospective buyers based on their common needs and their response to various forms of marketing.
MarketPeople who want a product.
Marketing ChannelOne
master limited partnershipMaster limited partnership or MLP is a limited partnership that is publicly traded. MLP combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.
MeatspaceThe opposite of cyberspace
Medici IdeaIdea in a seemingly isolated field that interconnects with a different field and fixes their problems.
MentorsIndustry experts who provide valuable advice.
Mergera combination of two or more companies, often similar in size. This differs from an acquisition in important ways: Mergers are usually friendly, mutual decisions, whereas acquisitions can often be hostile and unsolicited. Additionally, mergers are often paid for or arranged using stock or other securities, as opposed to cash transactions that characterize most acquisition offers.
Mergers and Acquisitions (M&A)The corporate finance and strategy regarding the sale or purchase of other companies.
Meta ElementTags used in HTML/XHTML documents to provide information about a web page.
mezzanine debtMezzanine debts are debts that incorporates equity-based options, such as warrants, with a lower-priority debt. Mezzanine debt is actually closer to equity than debt, in that the debt is usually only of importance in the event of bankruptcy. Mezzanine debt is often used to finance acquisitions and buyouts, where it can be used to prioritize new owners ahead of existing owners in the event that a bankruptcy occurs.
mezzanine financingMezzanine Financing is a late-stage venture capital, usually the final round of financing prior to an IPO. Mezzanine Financing is for a company expecting to go public usually within 6 to 12 months, usually so structured to be repaid from proceeds of a public offerings, or to establish floor price for public offer.
A form of hybrid capital typically used to fund adolescent and mature cash flow positive companies. It is a form of debt financing, but it also includes embedded equity instruments or options. Companies at this level, which are no longer considered startups but have yet to go public, are typically referred to as “mezzanine level” companies.
Mezzanine Investmentfinancing round in-between senior and subordinated loans that typically includes equity-based options in the form of warrants.
mezzanine levelMezzanine level is a term used to describe a company which is somewhere between startup and IPO. Venture capital committed at mezzanine level usually has less risk but less potential appreciation than at the startup level, and more risk but more potential appreciation than in an IPO.
Micro VCs.Traditional venture capital funds tend to focus on making relatively large investments into firms that already have some kind of track record. However, the seemingly overnight successes of opportunities like Instagram and Snapchat have sparked the proliferation of Micro VCs that search for deals that are still too small to gain the attention of traditional VCs. Micro VCs like 500 Startups and First Round Capital often provide seed capital to companies with no revenue or even a proof of concept.
Middle Marketbroadly defined as companies with an enterprise value of $25 million to $1 billion.
MilestoneA scheduled event to mark the completion of a major element of a product. Milestones are flags to signify that some amount of work has been completed.
Mind MapA diagram used to display information, centering on a certain word or theme. (see more)
Minimum Viable Product (MVP)A low
minority enterprise small business investment companiesMinority Enterprise Small Business Investment Companies or MESBICS are government-chartered venture firms that can invest only in companies that are at least 51 percent owned by members of a minority group or persons recognized by the rules that govern MESBICs to be “economically
Mission StatementA statement which is used as a way of communicating the purpose of an organization. (see more)
Mobile SearchA type of information retrieval focused on the rise of mobile platforms.
MockupA model of a design, device, or product. A mockup is considered to be a prototype if it possesses any degree of functionality and enables testing of a design.
MonetizationA measure of how difficult it is to extract money from a product.
MonetizeCharging customers for a service or product
Monitoring Feea fee, usually tied to EBITDA performance, charged by private equity firms to their portfolio companies for advisory and management services.
Monthover
Monthly Active Users (MAU)The amount of users of a service or product in a month
Monthly Unique VisitorsA metric used in web analytics to determine the amount of users who visit a site in a given month.
Multiple Arbitrageinvestment gains achieved by increasing the sales multiple relative to the original investment multiple. i.e. buying a company at 4x EBITDA and selling at 7x EBITDA.
MVPMost valuable player or minimal viable product, depending on the context
. Minimum viable product. Lean and early-stage startups should focus on developing their MVP so they can test for product/market fit as soon as possible.
NDANon-disclosure agreement. An agreement between two parties to protect sensitive or confidential information, such as trade secrets, from being shared with outside parties.
Net PromoterCustomers who are likely to recommend a product to others.
Net RevenueGross Revenue minus discounts, returns and allowances.
Net SalesThe amount of sales generated by a company after deducting returns, damaged, and missing products.
Network EffectThe power of a user to positively impact a product via contribution
ObviousnessClarity that everyone should be using a given product.
OnboardReaching out to new customers in an attempt to establish brand loyalty.
OnboardingThe process through which new employees acquire necessary knowledge, behaviors and skills in order to become effective members of the company. (see What You Need for the Perfect Startup Team)
Open RateA percentage measuring how many successfully delivered advertisements were opened by subscribers.
Operating MarginMargin ratio measuring a company’s pricing strategy and operational effeciency.
Operating Partneran executive dedicated to working with portfolio companies to increase their value. They often have a specific expertise, for example an industry focus, such as healthcare.
OverhangTerm describing the event when an investor’s liquidation preferences exceed the company’s current value.
owner-employeeOwner-employee is a sole proprietor or any individual who has ownership of at least one-fifth of the capital and/or profits associated with a given venture.
Pages Per VisitA measurement determined by dividing page views by visits, which allows companies to see how many pages an individual can be expected to view in a given visit.
Paid-In Capitalthe amount of committed capital that has been transferred from the limited partner to the general partner.
Pain pointA problem needing to be solved
Paper PrototypeA type of usability testing where a user performs realistic tasks by interacting with a manual, early
Paradigm shiftCan anyone give a definition of the word paradigm? Seriously
PartnerPartners have a similar job description to Principals and Venture Partners. They also sit on the boards of portfolio companies and spend much of their time networking. However, partners are also tasked with more high-level duties, such as identifying emerging technology sectors in which the firm will invest, identifying and developing rapport with key players in those sectors, assessing and communicating fund performance to limited partners and, every five to seven years or so, raising another fund.
Pay Per Click (PPC)Internet advertising model in which the advertising company pays the company who hosts the advertisement based on how many users click a particular link.
Pension FundA pooled investment fund run by an intermediary on behalf of a government or corporation for the purpose of providing pensions to employees. Typically, pension funds deploy their assets into venture capital as part of their risk capital investment strategy.
PersonaFictional, generalized representations of ideal customers. These are intended to be easily remembered in order to ensure that the company does not forget the people for whom their products are made.
Piecemeal Minimum Viable Product (PMVP)A functioning model of a product that takes advantage of existing tools and services in order to emulate the user experience process.
Pilot OperationA small
PIPE or Private Investment in Public EquityPIPE or Private Investment in Public Equity is a term used when a private investment or mutual fund buys common stock for a company at a discount to the current market value per share.
pipelinePipeline is the flow of upcoming underwriting deals.
Pipeline ValueThe value of all sales opportunities existing within a funnel.
pitchPitch is the set of activities intended to persuade someone to buy a product or take a specific course of action.
PivotThe act of a startup quickly changing direction with its business strategy. For example, an enterprise server startup pivoting to become an enterprise cloud company.
To change the direction of a project, or pursue a different strategy.
Part of the lean methodology, a pivot is a calculated change in a startup’s business plan that will test a new hypothesis about its product, market, or strategy in an attempt to find better product/market fit and [higher paying/more] customers.
Placement Agenta third-party firm that identifies potential investors for private equity funds or other securities.
PlatformUnless you have an API, or another way for people to build on your software, it’s just an app.
portfolio companyA portfolio company is a company or entity in which a venture capital firm or buyout firm invests. All of the companies currently backed by a private equity firm can be spoken of as the firm�s portfolio.
A company that a specific Venture Capital firm has invested in is considered a “portfolio company” of that firm.
A company in which a venture capital firm has invested in (and thus, is a part of their portfolio of companies).
a company that has received an equity investment from a private equity firm.
Positioning StatementAn detailed expression of the way a brand, company, or product fills customers’ needs.
PositioningThe way in which a company differentiates itself from competitors. (see Tips on Naming Your Startup from the Founder of Mint.com to learn more)
Post-Money Valuation“The product of the price paid per share in a financing round and the shares outstanding after the financing round. As a rule of thumb, the pre-money value plus the new money raised. This rule of thumb is true only if there are no stock redemptions or warrants issued.” (Lerner, Leamon, and Hardymon 2012)
The value of a company, determined after an investment has been made.
Pre-/post-money valuationpre-money valuation refers to the value investors place on the company before they add their capital; post-money valuation is how much the company is valued at after the capital infusion. Most references are to a company’s post-money valuation, or post val. Pre vals can be determined by subtracting the investment amount from the post val.
Pre-AcceleratorProgram that offers advice for companies that have not yet entered an accelerator.
Pre-Emptive RightA clause in an investment agreement that grants investors the right to maintain the same percentage of equity after restructuring.
Preferred stockA stock that carries a fixed dividend that is to be paid out before dividends carried by common stock.
A stock that carries a fixed dividend and takes sale-order priority over other forms of stock.
Pre-money and post-money valuationpre-money valuation refers to what your company is worth before it receives any sort of funding. Let’s say the agreed upon valuation is $3 million. If a venture capital firm then invests another $1 million, the post-money valuation would of your company would be $4 million (or, the sum of the pre-money valuation, and the additional funding).
Pre-Money ValuationThe valuation placed on a company prior to any additional investment in its current financing round.
The value of a company, determined before an investment has been made.
Pre-SalesA product for which customers have dedicated money and made purchases before the product has actually been shipped. Sometimes, pre-sales take place before products have been produced or finalized.
Pre-seedthe stage before the seed stage. As seed-stage investing has become more popular, investors have started to look to invest in these types of companies in hopes of finding them early on. A pre-seed company is often just the founder(s) and an idea.
Present ValueThe current value of a future sum of money, as that money could be more effective in the short
Press ReleaseA public relations announcement sent to the news media in order to let the media know of company developments or decisions.
Price PointThe suggested retail price of a product, often designed to be competitive with the price of alternatives. (see How to Build a Relatively Accurate Startup Budget)
Price to Sales RatioA ratio comparing a business’ market capitalization with its revenue.
Primary Domain NameThe first domain name that has been mapped to a particular hosting account.
Principal / Vice PresidentPrincipals will typically sit on a few boards of the fund’s portfolio companies and will help scout out opportunities for these companies to be acquired. The Principal position is typically the next rung on the ladder to Partner status.
PrincipalThe total value of the original sum invested.
private equityPrivate equities are equity securities of unlisted companies. Private equities are generally illiquid and thought of as a long-term investment. Private equity investments are not subject to the same high level of government regulation as stock offerings to the general public. Private equity is also far less liquid than publicly traded stock.
Shares of a company that are not traded on a public market.
Private Equity InvestorPrivate Equity Investors are institutional investors who deploy relatively large amounts of capital into later-stage technology companies to fuel expansion, finance M&A activity, or to tide the company over prior to their initial public offering.
Investments in private companies whose equity is not publicly traded.
Private Investment in Public Equity (PIPE)an investment in stock of a publicly traded company made by a private investor, typically at a discount to the current market price.
Private IPOa term coined to define the venture rounds in which private companies have taken-on large amounts of capital at high valuation during the time they would have normally gone through a public offering.
private limited partnershipPrivate limited partnership is a limited partnership having no more than 35 limited partners and thus able to avoid SEC registration.
private placementPrivate placement is a term used specifically to denote a private investment in a company that is publicly held. Private equity firms that invest in publicly traded companies sometimes use the acronym PIPEs to describe the activity. Private placements do not have to be registered with organizations such as the SEC because no public offering is involved.
Pro rata rightsAlso known as supra pro rata rights. Pro rata is from the Latin ‘in proportion.’ A VC with supra pro rata rights gives him or her the option of increasing his or her ownership of a company in subsequent rounds of funding.
Product/Market FitThe extent to which a product satisfies a market demand.
Production EnvironmentA term describing the setting where a product is put into use by customers on a regular basis.
Profit and Loss (P&L)A financial statement summarizing a company’s revenue, expenses, and profit during a particular period with the intention of indicating a company’s performance.
Project TeamThe individuals assigned to work on a given project. They are held responsible for understanding the work required and executing upon this knowledge. (see The Ultimate Guide to Project Management Fundamentals for more info)
Promissory NoteA legal document detailing the amount of debt owed along with an obligatory repayment plan.
Proof of conceptA demonstration of the feasibility of a concept or idea that a startup is based on. Many VCs require proof of concept if you wish to pitch to them.
Pro-RataDivision of stocks or equity based on equal proportions.
PrototypeEarly stage product that tests if a concept is scalable.
Public market equivalenta set method of analysis that is used to evaluate private fund performance against a public benchmark or index.
Public RelationsThe communication strategy that builds a relationship between a company and the public.
Public-to-Private Transactiona buyout of all the shares of a publicly traded company, effectively changing the company’s status from public to private.
Purchase FunnelA model for the steps an individual goes through before decided to use a product and become a customer. (see more)
Purchase PretzelSimilar to the Purchase Funnel, but this model takes the inherent complexity of customer decision
Qualifying OpportunitiesThe process of determining if a particular lead has a specific characteristic that would classify that lead as a member of the target market.
Quality Assurance (QA)The process of determining whether or not a product meets required specifications and customer expectations.
Quartile Rankinga system of ranking funds based on performance. The top one-quarter of performers are in the upper quartile, and so on.
QuorumThe minimum acceptable amount of stockholders or directors needed to hold a corporate meeting or vote.
raising capitalRaising Capital refers to obtaining capital from investors or venture capital sources.
Ramen ProfitableA company that is profitable enough to cover expenses of all the employees’ basic living requirements.
recapitalizationRecapitalization is a financing technique used by companies to defend against hostile takeovers. By recapitalization, a company restructures it’s debt and equity mixture without affecting the total amount of balance sheet equity.
A corporate reorganization of a company’s capital structure, changing the mix of equity and debt. A company will usually recapitalize to prepare for an exit, lower taxes, or defend against a takeover.
a restructuring of a company’s debt and equity mixture often used as an investment strategy in private equity.
A corporate reorganization of capital structure by changing the mix of equity and debt.
Recurring (Net) RevenueNet Revenue that contractually repeats at the beginning or end of each month for a set duration.
A measurement of revenue streams that are recurring. This excludes one
Referral MarketingThe spreading of information about a product via existing customers. This process is often incentivized by companies.
Registered UsersThe number of users registered for a product or service.
ReleaseA functional product sent to customers.
Remaining Value to Paid-In (RVPI)the value of a fund’s unrealized investments divided by money paid-in to the partnership
RepositioningMarketing strategy to re
Request for Proposal (RFP)A form of bidding solicitation wherein a company announces the availability of funding for a particular project. This allows other companies to bid upon who will fund this project.
RequirementsDescriptions of the qualities, traits, abilities and specifications that a product ought to possess.
Response BiasA set of biases that can undermine self
Responsive DesignA website design strategy focused on usability across all access platforms and interfaces.
resyndication limited partnershipResyndication Limited Partnership is a limited partnership in which existing properties are sold to new limited partners, so that they can receive the tax advantages that are no longer available to the old partners.
RetargetingA form of marketing in which users who have previously expressed interest in a given product are presented with banner ads about that product on various other web pages.
Retention RateA metric derived by analyzing the number of customers at the start of a period, the number of customers at the end of a period, and all customers gained during the course of that period. (see formula)
return on investmentReturn On Investment or ROI is the profit or loss resulting from an investment transaction, usually expressed as an annual percentage return. ROI is a return ratio that compares the net benefits of a project verses its total costs.
Return on Investment (ROI)the profit or loss resulting from an investment transaction as a percentage of the original investment, usually expressed on an annualized basis.
A metric to gauge company performance versus amount of money invested. It is calculated by dividing net profit by the cost of the investment, and is often expressed as a percentage.
The money the investor would get back from their initial investment.
Revenue ModelA framework for creating revenue, detailing pricing and the intended customer. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
RevenueThe amount of money generated. (see How to Create a Basic Financial Model: An Entrepreneur’s Guide)
Reverse Merger/Takeovera transaction in which a private company acquires a publicly traded company in order to forgo the IPO process.
Reverse Termination Feea fee paid by the buyer if it breaches or decides to terminate a definitive acquisition agreement.
riskRisk is the quantifiable likelihood of loss or less-than-expected returns. Risk includes the possibility of losing some or all of the original investment. Risk is usually measured using the historical returns or average returns for a specific investment.
risk capitalRisk capital are funds made available for startup firms and small businesses with exceptional growth potential.
Risk ToleranceThe amount of risk that an investor is willing to accept.
Road Showthe process of presenting financial opportunities to potential investors in numerous cities. The road show is a common aspect of private equity fundraising and the IPO process.
RoadmapA strategic plan to create a product or complete a project. A roadmap describes the individual steps required to meet a set of goals or objectives. (see Startup Land: A Roadmap for Entrepreneurs for more info)
ROIThis is the much-talked-about “return on investment.” It’s the money an investor gets back as a percentage of the money he or she has invested in a venture. For example, if a VC invests $2 million for a 20 percent share in a company and that company is bought out for $40 million, the VC’s return is $8 million.
RoundStartups raise capital from VC firms in individual rounds, depending on the stage of the company. The first round is usually a Seed round followed by Series A, B, and C rounds if necessary. In rare cases rounds can go as far as Series F, as was the case with Box.net.
round of fundingRound of funding is the stage of financing a start-up company is in. The usual progression is from startup to first round to mezzanine to pre-IPO.
Rounds of FinancingStartups raise money from venture capital firms in different rounds. These rounds are called Series A, B, C, etc.
Run RateAnnual recurring revenue without factoring in churn. (see If You Don’t Run Your Company Based on Metrics, Here’s How You Can)
Runway. The amount of operating capital left in a startup, usually expressed in months. Sound financial projections are necessary to understand future resource requirements, and form the foundation of a capital formation strategy (i.e., how much capital to raise, when, and from whom).
S CorporationA special type of corporation allowing the protection of limited liability, but also enabling direct flow
SaaSSoftware as a service. A software product that is hosted remotely, usually over the internet (a.k.a. “in the cloud”).
Sales Cycle TimeThe average number of days that a potential customer sits in the sales funnel.
Sales DraftOften used in the discussion of sales involving credit cards, a sales draft is a summary document indicating that a cardholder has made a purchase.
Sales Funnel LeakageA term for the amount of potential customers who are eliminated from the sales funnel at different stages.
Sales Mix VarianceThe difference between actual purchased quantity per customer and expected sales quantities.
Sales MixA term used by company who sell multiple products to gauge the relative amount of sales for each given product type.
Sales per ShareA ratio comparing total sales over a given period to the value of an individual share of the company.
Sales PipelineThe steps a salesperson takes from original contact with a customer to the closing of a sale. (see The Sales and Partnerships Playbook: Your Guide to Early Growth)
Sales to Cash Flow RatioA ratio comparing a company’s sales of a particular product to its overall cash flow.
SandboxAn environment or location where experimentation is acceptable, without consequences for failure.
ScalabilityThe potential for a product or service to be expanded.
ScaleWhat’s wrong with the word “grow” anyway?
ScaleableA company that can maintain or improve profit margins while sales volume increases.
Scheduled VestingThe schedule by which an employee is granted access to equity.
ScopeThe boundaries of a given project.
ScrumAn iterative product development method, often introduced to manage software development projects. In scrum
Search Engine Marketing (SEM)Marketing method that focuses on purchasing ads that are prominently featured on search engine results pages.
Search Engine Optimization (SEO)The process of attracting attention to a product or company by increasing visibility on search engines. (see Startup Marketing 101: An Entrepreneur’s Guide)
second stage capitalSecond Stage Capital is the capital provided to expand marketing and meet growing working capital need of an enterprise that has commenced production but does not have positive cash flows sufficient to take care of its growing needs.
Secondary Marketa market that facilitates the sale of private equity assets from one limited partner to another. Limited partners often sell some or all of the private equity holdings for a variety of reasons, including raising cash and adjusting their asset allocation.
secondary public offeringSecondary Public Offering refers to a public offering subsequent to an initial public offering. A secondary public offering can be either an issuer offering or an offering by a group that has purchased the issuer’s securities in the public markets.
When a company offers up new stock for sale to the public after an IPO. Often occurs when founders step down or desire to move into a lesser role within the company.
When a company presents stock for sale to the public after an IPO.
secondary purchaseSecondary Purchase is purchase of stock in a company from a shareholder rather than purchasing stock directly from the company.
The act of purchasing stock from a shareholder rather than from the company itself.
Secret SauceThe factor which gives a company or product a unique competitive advantage.
SectorThe market that a startup companies product or service fits into. Examples include: consumer technology, cleantech, biotech, and enterprise technology. Venture Capitalists tend to have experience investing in specific related sectors and thus tend not to invest outside of their area of expertise.
SecuritiesAll types of equity or debt.
SeedThe seed round is the first official round of financing for a startup. At this point a company is usually raising funds for proof of concept and/or to build out a prototype and is referred to as a “seed stage” company.
seed capitalSeed Capital is the money used to purchase equity-based interest in a new or existing company. This seed capital is usually quite small because the venture is still in the idea or conceptual stage.
the earliest stage of venture capital. Typically, smaller amounts are invested in seed rounds for startups, but that does not necessarily mean smaller stakes.
Seed InvestorInstitutional investors who deploy capital into very early-stage startup companies. Seed investors are considered a subset of venture capitalists.
Seed roundis the first official round and it happens relatively early on. At this point, the startup is looking for money to prove their concept, and that money can be helpful in building a prototype of their product. Depending on a variety of metrics that measure a company’s growth and development—for example, how they are acquiring and retaining customers, their revenue streams, and the amount of money they spend each month—the seed round may be followed by others.
The first round of financing for a startup. Usually funds raised in the seed round are intended to be spent on producing a prototype or proof of concept.
Usually the first round of outside funding raised by a startup, before turning to Series A venture capital or debt financing. With the growth of angel investors and micro VCs, many companies found it relatively easy to raise a seed round, only to discover that a subsequent Series A venture round was much more difficult – this is the “Series A crunch” that many industry watchers have referred to. Whatever word you wish to attach to it—crunch, crisis, bust—it is important to remember that failure has always been the most likely outcome for startups, and follow-on rounds are never guaranteed.
Seed StageThe stage of a startup where profitability is extremely unlikely and seed funds are required to gain customer insights.
Selling, General and Administrative Expenses (SG&A)The most common examples: advertising expense, commissions, engineering expense, marketing expense, selling expense including salaries of the salesforce, employee benefit expenses, R&D expenses, software expense, administrative office expense and other expenses related to sales but not included in cost of goods sold.
Senior Debtdebt that takes priority over other securities in the event of liquidation.
Separate Accounta customized private equity fund created for a single entity. Currently rising in popularity, separate accounts are utilized by the largest limited partners to mitigate fees and gain deeper involvement with the investing process.
SeriesRefers to the specific round of financing a company is raising. For example, company X is raising their Series A round.
Series A – D+venture rounds that typically occur around certain milestones: a Series A round is raised after a seed investment has taken a company as far as it can go; a Series B may be when the company is reaching close to profitability but needs capital for hiring/development needs; Series C and D+ rounds are commonly known as late-stage rounds, and generally fall into the time when a company has a defined business model that has taken hold, is making significant revenues and is looking to expand at a large scale.
series a preferred stockSeries A Preferred Stock is the first round of stock offered during the seed or early stage round by a portfolio company to the venture capitalist. Series A preferred stock is convertible into common stock in certain cases such as an IPO or the sale of the company. Later rounds of preferred stock in a private company are called Series B, Series C and so on.
Series AThe first major round of venture capital funding wherein preferred stock is issued.
Series B/C/D/ELater rounds where preferred stock is issued.
Serviceable Available Market (SAM)Possible market targeted by a product within geographic or logistical reach. (see more)
Session LengthThe amount of time individuals spend on a given site.
Share ConsentA legal clause requiring an investor’s consent in order for a business to sell shares at a later date.
Sharing economyan economic model in which individuals borrow or rent assets owned by other individuals, rather than businesses. This model is normally employed when assets are underutilized (e.g. cars, apartments, parking spaces).
silent partnerA silent partner is an investor who does not have any management responsibilities but provides capital and shares liability for any losses experienced by the entity. Silent partners are liable for in any losses up to the amount of their invested capital and participate in any tax and cash flow benefits. Silent partner is also known as a “sleeping
Sitcom Startup IdeaA forced startup idea born of desire to create something rather than to solve a real problem.
SitemapAn XML file listing all URLs for a website, allowing search engines to more easily determine useful keywords.
small business investment companiesSmall Business Investment Companies or SBIC are lending and investment firms that are licensed and regulated by the Small Business Administration . The licensing enables them to borrow from the federal government to supplement the private funds of their investors. SBICs prefer investments between $100,000 to $250,000 and have much more generous underwriting guidelines than a venture capital firm.
Social EntrepreneurA person who notices a social problem and attempts to bring about social change as a solution.
Social Media MonitoringThe process of using social media channels to gauge attitudes and collect information on the public’s perception of a company.
Soft SellAdvertising and sales with subtle language and suggestion.
Software as a Service (SaaS)Technological service that is virtually hosted.
SolutionYour product, naturally
Sovereign Wealth Funda state-owned investment fund designed to protect and/or grow a range of financial assets, such as stocks, bonds and natural resources.
SpaceApparently the word industry has become too corporate
SpecificationsThe exact customer needs that must be satisfied by a product in order for that product to be considered a success.
SprintA set time period during which milestones must be reached and work must be completed and ready for review.
StageThe stage of development a startup company is in. There is no explicit rule for what defines each stage of a company, but startups tend to be categorized as seed stage, early stage, mid-stage, and late stage. Most VCs firms only invest in companies in one or two stages. Some firms, however, manage multiple funds geared toward different stage companies.
StakeholderA person or group of people who have an interest or concern with a company.
Staple financinga pre-arranged financing package offered to potential acquirers that includes all the details of a lending package. This name derives from the simple fact that the financing details are stapled to the back of the acquisition term sheet.
startupStartup is a new business venture in its earliest stage of development.
A startup company is a company in the early stages of operations. Startups are usually seeking to solve a problem of fill a need, but there is no hard-and-fast rule for what makes a startup. A company is considered a startup until they stop referring to themselves as a startup.
A company in an early stage of development.
Statutory VotingA voting method for a Board of Directors in which a board member receives 1 vote for each share they own.
Stealth ModeA startup in a phase of secrecy. (see more)
Steps to RevenueA revenue roadmap detailing the exact steps a company must take in order to begin generating revenue.
Step-up multiplea term used to define the difference in the post-valuation of a company’s previous VC round and the pre-money valuation of its new round.
StickinessUser retention rate.
Stock OptionsThe right to sell or purchase stock for a set price during a pre-defined period of time. (see How Tech Startups Can Recruit And Keep Awesome Employees)
StockholderIndividuals or entities who own stock in a corporation.
Story PointA measurement used by scrum teams to determine how much effort is required to achieve a goal.
Strategic Acquisitionan investment made by a corporation in order to access new technology, products or services, as opposed to a financial transaction.
Strategic InvestorsInvestors who add value to their investments via industry ties or experience.
Subdomain NameA second website with unique content but residing under the Primary Domain Name.
Subordinated Debtloans that have a lower priority than senior debt in the event of liquidation.
Subscription ModelPayment model requiring a monthly or yearly charge in order to fully utilize a product.
Super angels.Over the past decade, a small group of prodigious angel investors achieved superstar status and are often called “super angels.” From an entrepreneur’s point of view, there is little practical difference between super angels and micro VCs, and many people use the terms interchangeably.
Sweat EquityShares in a company given in exchange for completed work.
SWOTAn analysis of a team’s strengths, weaknesses, opportunities, and threats. (see more)
SyndicateThe network of investors that are also participating in a given round.
a group of investors who invest in a startup together.
AngelList recently launched the AngelList Syndicates platform, enabling one angel investor (the “lead investor”) to pool money from other accredited investors (the “follow-on investors”) to make investments. The lead investor earns a “carry,” or a percentage of the fund’s total profit, before distributing the rest to the follow-on investors.
syndicationSyndication is the process whereby a group of venture capitalists will each put in a portion of the amount of money needed to finance a small business.
The venture capital practice of each individual investor contributing a small portion of money required to fund a company.
SynthesisCombining different elements to make a united whole.
Tag-Along RightsAgreed stipulation stating that if a founder decides to sell their shares to a buyer, an existing investor can offer their shares to the buyer for the same amount.
Target Market ProfileThe set of attributes possessed by a target population intended to be buyers of a product.
Technical RequirementsA set of technical properties that a product must fulfill.
TentpoleA project whose success uplifts other similar projects.
term sheetTerm sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made. The term sheet is a template that is used to develop more detailed legal documents.
A non-binding agreement that outlines the major aspects of an investment to be made in a company. A term sheet sets the groundwork for building out detailed legal documents.
An outline of the structure of a partnership or stock purchase agreement that is typically negotiated and agreed upon before more formal language is drafted in a final binding contract.
A non-binding agree designed to provide a layout of the basic terms and conditions of an investment. Term sheets are often used as templates for later legal documents.
A non-binding document that details the terms and conditions of the investment. It’s sort of like the quick introduction to the investment opportunity, highlighting some of the more complex legal documents that will follow.
The One Metric That Matters (OMTM)A focused, single
third stage capitalThird Stage Capital is the capital provided to an enterprise that has established commercial production and basic marketing set-up, typically for market expansion, acquisitions, product development, etc.
Thought leaderNatural habitat is at a TED Conference
Total Available Market (TAM)All existing market demand for a product. (see more)
Total Value to Paid-In (TVPI)money returned to limited partners plus the fund’s unrealized investments, divided by money paid-in to the partnership — TVPI should equal RVPI plus DPI. Also called “investment multiple” or MOIC.
TractabilityA measurement of how hard it will be to launch a functional version 1.0.
TractionProof that people are buying and using a product.
Trade SecretProtected information within a company that derives independent economic value from its exclusivity. (see Paying It Forward: How to Help New Startups Rise to the Top)
Tranchea portion of an investment more commonly seen/used in venture rounds. In many agreements (especially in healthcare), a second portion/tranche of a round is made upon specified milestones, such as regulatory approval. Every tranche of a round will be part of the same round.
Transaction Feessometimes referred to as deal fees, transaction fees are charged by a private equity firm to the companies they acquire and typically range between 1% and 2%.
Trend NamingAnalyzing on
Trust economy (social trust economy)a confluence of social and technological trends uniting to form the foundation of a new value system.
turnaroundTurnaround is the term used when the poor performance of a company or the business experiences a positive reversal.
Uber for XCould be anything really
Uncapped NotesA funding practice designed to protect founders. Uncapped notes provide no guarantee that investors will be granted a specific amount of equity per dollar invested.
underwriterUnderwriter is an investment banking firm committing successful distribution of a public issue, failing which the firm would take the securities being offered into its own books. An underwriter may also be a company that backs the issue of a contract, agreeing to accept responsibility for fulfilling the contract in return for a premium.
An investment bank with a contractual obligation to take any securities into their own books if the company in which they are vested has failed.
Underwritingthe issuance of debt and equity securities by investment bankers on the behalf corporations and governments in order to generate investment capital.
UnicornBillion dollar valuation. Usually, not lasting or taken seriously by investors.
in the VC industry, unicorns (a term credited to Aileen Lee of Cowboy Ventures) refer to startups that reach valuations of at least $1 billion, through either private or public investment.
A tech company with a value higher than $1bn. (see more)
Uniform Commercial Code (UCC)The basic set of business laws regulating financial contracts.
Unique Value Proposition (UVP)A clear statement that describes the benefit of a product and how a product solves customer needs.
Unit EconomicsDirect revenue and costs associated with a certain business model expressed on a per unit basis.
UnparalleledNo one is like us, not even beside us (which in geometry is parallel)
Unqualified ProspectsA potential client who has not been previously vetted.
User AcquisitionThe transition of an individual into a user of a product or service.
User ExperienceThe overall experience of an individual using a given product, often discussed in terms of the easiness or difficulties with this experience.
ValuationThe process by which a company’s worth or value is determined. An analyst will look at capital structure, management team, and revenue or potential revenue, among other things.
the value ascribed to a startup by an investor
The process by which a company’s value is determined.
The process of determining a company’s value. (see Financial Tips For Avoiding Startup Failure to learn more)
Value PropositionQuantifiable benefits of a product.
Vanity MetricsMetrics that bolster a company’s self
VaporwareA product that is advertized as being sold while still in prototype or pre
Variable CostsThe opposite of fixed costs, variable costs fluctuate depending on what a company is producing. Therefore, variable costs are difficult to predict.
VendorA supplier required to create a product. (see How to Choose a Vendor for Your Startup)
ventureVenture is often use for referring to a risky start-up or enterprise company.
venture capitalVenture Capital is the money and resources made available to startup firms and small businesses with exceptional growth potential. Most venture capital money comes from an organized group of wealthy investors.
1. “Independently managed, dedicated pools of capital that focus on equity or equity -linked investments in privately held, high-growth companies. […] Outside of the United States, this phrase is often used as a synonym for private equity and/or leveraged buyouts.” (Lerner, Leamon, and Hardymon 2012)
Money provided by venture capital firms to small, high-risk, startup companies with major growth potential.
a type of private equity that focuses on investments in startup and early stage companies with long-term, high-growth potential.
Venture Capital / Private Equity FirmAn organization set up to manage one or more venture capital funds.
Venture Capital / Private Equity Fund“A pool of capital raised periodically by a private equity organization. Usually in the form of limited partnerships, private equity funds typically have a ten year life, though extensions of several years are often possible.” (Lerner, Leamon, and Hardymon 2012)
venture capital firmVenture Capital Firm is an investment company that invests its shareholders’ money in startups and other risky but potentially very profitable ventures.
venture capital fundsVenture capital funds pool and manage money from investors seeking private equity stakes in small and medium-size enterprises with strong growth potential.
venture capital limited partnershipVenture Capital Limited Partnership is a limited partnership which is formed to invest in small startup businesses with exceptional growth potential.
venture capitalistVenture Capitalist is a term used of an investor who provides capital to either start-up ventures or support small companies who wish to expand but do not have access to public funding.
An individual investor, working for a venture capital firm, that chooses to invest in specific companies. Venture capitalists typically have a focused market or sector that they know well and invest in.
Institutional investors who deploy capital into private, early-stage technology companies. Venture Capitalists are usually the next group of investors to commit capital after Seed Investors.
An individual investor who works at a venture capital firm and makes investment decisions.
Venture Partner“A Venture Partner is a person who a VC firm brings on board to help them do investments and manage them, but is not a full and permanent member of the partnership,” according to Fred Wilson. Venture Partners, unlike Entrepreneurs in Residence, will usually source multiple deals for the firm over the course of their tenure.
VentureAn endeavor involving a degree of risk and reward.
Version ControlThe task of organizing a system or product containing many versions.
VerticalSee “space
Vertical Search EngineSearch engines that use a focused crawlers, only focusing on relevant web pages by limiting the amount of topics on resulting web pages.
VestingWhen an employee of a company gains rights to stock options and contributions provided by the employer. The rights typically gain value (vest) over time until they reach their full value after a pre-determined amount of time. For example, if an employee was offered 200 stock unites over 10 years, 20 units would vest each year. This gives employees an incentive to perform well and stay with the company for a longer period of time.
The act of a company granting stock options to an employee.
Vintage Yearindicates the year that a fund held its final close and/or began making investments.
Viral CoefficientA measure of virality designed to gauge how often users of a product introduce that product to others.
Viral Cycle TimeThe amount of time required for a customer to see a product, use it, and invite others to try it.
Viral LoopAn incentive
Viral MarketingA marketing technique that encourages users to pass on marketing information, creating exponential growth. (see The Art of the Hustle: Unconventional Methods for Building a Startup for more info)
VisionaryEspecially concerning are: “visionary social media experts”
Voting RightA stockholder’s right to vote on matters of corporate management.
vulture capitalistVulture Capitalist is a slang word for a venture capitalist who deprives an inventor of control over their own innovations and most of the money they should have made from the invention.
WantrapreneurSomeone who wants to be an entrepreneur or enjoys the status of calling themself an entrepreneur, but lacks the direction, determination, or work ethic required to actually execute and build an impactful business.
Warranta security that provides the holder with the option to purchase a company’s stock at a predetermined price for a specified period.
The right to buy or sell a given security at a certain price during a specified period.
The option to buy shares of stock issued directly by the company at a certain price at some point in the future.
WasteHuman activity that brings no value.
Waterfall MethodologyA product life cycle strategy including Analysis, Design, Development, Testing, and Deployment phases.
Website PageviewsThe accessing of a page by a visitor or user.
Weekly Active Users (WAU)The amount of users of a service or product in a seven day period.
WellA narrow startup that aims to do one thing very effectively and caters to a specific audience.
White LabelA product or service produced by a single company that another company chooses to rebrand for their own use or distribution.
Wicked ProblemA problem that is difficult to solve because of constantly changing criterion or problem sources.
WidenessAn estimation of how many people will eventually use a product.
WidgetA small application that provides information in a customizable manner.
WireframeA representation of the virtual framework of a website. Wireframes allow people to easily arrange elements to optimize ease of use.
Wizard of Oz Minimum Viable Product (WoOMVP)A version of a product that looks functional, but it actually operated by a human behind the scenes, granting the appearance of automation.
Yak ShavingA seemingly pointless task that must be completed in order to progress.
Zombie Funda fund that has invested all of its committed capital and continues to collect management fees despite little or no hope of achieving higher returns for investors. Many so-called zombie funds hold portfolio investments for several years past their predetermined investing period to continue garnering their management fee.
Zone of InsolvencyThe state in which a company is very close to being insolvent with insufficient money or assets to pay off its liabilities
ANGEL INVESTOR (ANGEL)Individuals who invest in businesses looking for a higher return than they would see from more traditional investments. In return for their investment they often are highly involved in the business. Usually they are the bridge from the self-funded stage of the business to the point that the business needs the level of funding that a venture capitalist would offer.
BLUE SKY LAWS.The name applied to the securities laws of various states enacted to protect investors. While the SEC regulations are national in application, various states have securities laws that affect private and/or public offerings.
BROKER.A commonly used term applied to individuals or firms that trade securities. Brokers execute trades of securities between buyers and sellers in return for a fee or commission. Brokers do not own the securities in which they trade and, accordingly, do not share in the risks or rewards of ownership.
BUSINESS VALUATION.An estimate of the worth of a business entity and its assets.
CLOSELY HELD COMPANY.A company where the equity interests are held by a few shareholders.
DUE DILIGENCE.An investigation conducted by investors or others on their behalf that the assumptions are reasonable and that sales data, profit projections, listed assets, liabilities and other factors of a business plan contain no significant untrue or misleading information and that no material information has been omitted. For high-tech ventures, due diligence will include a feasibility review of critical technologies (will the gadget really do what the inventor claims and is the product or process superior to alternatives?) and whether the owner of the intellectual property hold an iron-clad patent protecting the companies exclusive rights to the technology.
EARLY STAGE.Seed Financing, Start-up Financing and First-Stage Financing
GOING PUBLIC.The process of a privately owned company selling its ownership shares to the investing public. See Initial Public Offering.
INITIAL PUBLIC OFFERING (IPO).The offering or sale of a company’s securities to the investing public for the first time (i.e., converting a company from private to public ownership).
INSTITUTIONAL INVESTORS.Non-individual shareholders that invest on a regular basis. Institutional investors include pension funds, mutual funds, and trusts.
INTRASTATE OFFERING.A securities offering limited to investors residing in the state in which the issuer is doing a significant portion of its business. Such offerings are usually exempt from registration with the SEC.
INVESTMENT BANKER.A person or (usually) a firm that, among other things, underwrites securities, functions as a broker/dealer, and performs corporate finance and merger and acquisition advisory services. Investment bankers are usually full-service firms that perform a range of services, as opposed to an underwriter or broker/dealer, which only provides one specific service. Investment bankers typically are not direct investors but find investors for a fee. Usually a percentage of the amount raised. There may also be a fixed fee or minimum charge for their services.
JOINT VENTURE.An arrangement whereby two or more parties (the venturers) jointly control a specific business undertaking and contribute resources towards its accomplishment.
LEVERAGED BUYOUT.An acquisition of a company financed largely by debt.
LIMITED OFFERING.An offering of securities exempt from registration due to exemptions for the limited size of the offering and the limited number of purchasers.
MERGERS.A business combination where one entity becomes a part of another entity.
OFFERING CIRCULAR.Sometimes referred to as a private offering memorandum. A document used in certain securities offerings that are exempt from SEC registration requirements.
OPTIONS.A security giving its owner the right to purchase or sell a company’s shares at a fixed date and agreed-upon price. (See also Warrant.)
PRIVATE PLACEMENT.An offering that is exempt from the requirements of registration and is limited in distribution.
PRO FORMA.Financial statements or financial tables prepared as though certain transactions had already occurred. For example, a registration statement might include a pro forma balance sheet that reflects the anticipated results of the offering.
PROSPECTUS.The primary selling document in an offering distributed to potential investors. The prospectus provides information about the company and the offering. See also Preliminary Prospectus and Final Prospectus.
ROAD SHOW.A presentation to potential investors, brokers, and dealers by the company’s management and underwriters in order to facilitate a securities offering.
RULE 144A.An SEC exemption permitting the sale of certain restricted stock without registration.
RULE 504.A rule under Regulation D that permits an issuer to raise up to $1,000,000 within a 12-month period. Under Rule 504, a company may offer securities to an unlimited number of investors and need not provide an offering circular to them.
RULE 505.A rule under Regulation D that exempts from registration offers and sales of securities of up to $5,000,000 during any 12-month period. Rule 505 limits the number of non-accredited investors to 35; however, there can be an unlimited amount of accredited investors.
RULE 506.A rule under Regulation D that allows for the private placement of securities with an unlimited number of accredited investors and up to 35 “sophisticated” nonaccredited investors regardless of the dollar amount of the offering.
S CORPORATIONS.Corporations that have 35 or fewer shareholders and meet certain other requirements of the Internal Revenue Code. An S corporation is taxed by the federal government and some states in a manner similar, but not identical, to a partnership.