Startup Glossary

IRS-required independent valuation for setting stock option strike prices. Usually 20-30% of preferred share price. Must be updated annually.

Acquisition primarily for the team, not the product. Usually results in small returns for shareholders. Common for struggling startups with strong talent.

When another company buys your startup. Can be strategic (product/team) or financial (revenue/assets). Most common exit path for startups.

Percentage of signups who complete key onboarding steps and experience core value. Critical for PLG companies. Low activation = onboarding problem.

Annual Contract Value. The annualized value of a contract. For monthly plans, ACV = Monthly × 12. For multi-year deals, ACV = Total Value / Years.

Individual who invests personal money in early-stage startups. Typical check: $25K-$250K. Often successful founders or executives.

Protection that adjusts investor ownership if future rounds are at lower valuations (down rounds). Weighted average is most common type.

Average Revenue Per User. Total revenue divided by number of customers. Used to track pricing effectiveness and customer segment value.

Annual Recurring Revenue. The yearly value of recurring subscription revenue. Calculated as MRR × 12. The primary metric for measuring SaaS company size.

Business-to-business software sold on subscription. Higher ACV, longer sales cycles, lower churn than B2C. Most VC-funded SaaS is B2B.

Cash invoiced to customers in a period. Billings > Revenue indicates growing business (collecting now, recognizing later).

The total value of contracts signed in a period, regardless of when revenue is recognized. Leading indicator of future ARR.

Short-term debt financing to extend runway until the next equity round. Often convertible into equity. Sign of either growth opportunity or distress.

Net Burn / Net New ARR. Measures efficiency of cash spent to generate revenue. Under 2x is good; over 3x is concerning.

The rate at which a company spends cash. Net burn = expenses - revenue. A company with $150K expenses and $50K revenue has $100K net monthly burn.

Customer Acquisition Cost. Total cost to acquire a customer including marketing, sales, and onboarding. Calculated as Total Acquisition Spend / New Customers.

Months to recoup customer acquisition cost. CAC / Monthly Gross Profit per Customer. Under 12 months is healthy for most SaaS.

Capitalization table. A spreadsheet tracking who owns what percentage of a company, including founders, employees, and investors.

The percentage of customers or revenue lost over a period. Monthly churn of 3% = 31% annual churn. Critical metric for subscription businesses.

A period before any equity vests. Standard 1-year cliff means 0% vests until month 12, then 25% vests immediately.

Cost of Goods Sold. For SaaS: hosting, customer support, customer success costs. Excludes sales, marketing, and R&D.

Analyzing metrics grouped by signup date or other characteristic. Reveals trends hidden in aggregate data. Essential for understanding retention.

Basic stock class held by founders and employees. No special rights. Gets paid after preferred in liquidation. Most valuable at successful exits.

Revenue minus variable costs per unit. Shows profitability at the unit level before fixed costs. Essential for understanding unit economics.

Debt that converts to equity at the next funding round. Has interest rate and maturity date. Being replaced by SAFEs for simplicity.

Daily Active Users / Monthly Active Users. Measures engagement and stickiness. Higher ratio = more engaged users. 50%+ is exceptional.

Payments received for services not yet delivered. A liability on the balance sheet that converts to revenue over the contract term.

The reduction in ownership percentage when new shares are issued. A founder with 50% who takes investment at 20% will own 40% after.

Vesting accelerates only if BOTH: 1) Company is acquired AND 2) Employee is terminated without cause. Standard protection for key employees.

A funding round at a lower valuation than the previous round. Triggers anti-dilution provisions and signals trouble.

The investigation process investors conduct before investing. Covers financials, legal, technology, and team. Typically 2-6 weeks after term sheet.

Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating profitability before non-operational expenses.

Selling to large companies with complex procurement. High ACV ($100K+), long sales cycles (3-12 months), requires dedicated sales team.

Event that allows founders and investors to convert equity to cash. Main types: acquisition, IPO, or secondary sale. The end goal of most VC investments.

Additional revenue from existing customers through upsells, cross-sells, or seat additions. Key driver of net revenue retention above 100%.

Vesting schedule applied to founder shares. Protects against co-founder departure. Standard: 4 years with 1-year cliff (or credit for time already served).

Business model offering a free tier with paid upgrades. Common in PLG. Success requires clear upgrade triggers and meaningful free value.

Total shares if all options, warrants, and convertibles were exercised. The real denominator for calculating ownership percentages.

Revenue minus cost of goods sold, divided by revenue. For SaaS, COGS includes hosting, support, and customer success. 70%+ gross margin is typical for software.

Gross Revenue Retention. Revenue retained from existing customers excluding expansion. Can never exceed 100%. Measures pure retention without upsells.

Initial Public Offering. When a private company sells shares to public investors. Rare exit path - only ~0.1% of startups IPO.

Viral coefficient measuring organic growth. K = Invites per User × Conversion Rate. K > 1 means viral growth; each user brings more than one new user.

Sales strategy: start with small deal in one team, then expand to more users/teams. Reduces initial friction while building toward larger contracts.

The VC who sets the terms and contributes the largest amount in a funding round. Takes board seat and helps recruit other investors.

Investor's right to get paid first in an exit. 1x non-participating means investors get their money back OR their ownership percentage, whichever is higher.

Lifetime Value. The total revenue expected from a customer over their entire relationship. Often calculated as ARPU / Churn Rate or ARPU × Average Lifespan.

The ratio of customer lifetime value to acquisition cost. Indicates unit economics health. 3:1 is considered healthy for SaaS. Below 1:1 means you lose money on each customer.

Net New ARR / Sales & Marketing Spend from prior quarter. Measures sales efficiency. Above 0.75 indicates efficient growth; below 0.5 suggests problems.

Monthly Recurring Revenue. The predictable revenue earned each month from subscriptions. Excludes one-time fees and non-recurring charges.

Net Dollar Retention. Same as NRR but measured in dollars. Shows how much revenue from a cohort grows or shrinks over time.

Net Promoter Score. Measures customer satisfaction on -100 to +100 scale. Above 50 is excellent. Calculated from 'Would you recommend?' survey.

Net Revenue Retention. Measures revenue retained from existing customers including expansions minus churn. NRR > 100% means existing customers grow faster than they churn.

Operating Expenses. All costs to run the business: salaries, rent, marketing, software. Excludes COGS and interest/taxes.

Shares reserved for future employee equity grants. Typically 10-20% of fully diluted shares. Usually created pre-money, diluting founders not investors.

Company value after new investment. Investor ownership = Investment / Post-Money. $2M investment at $10M post = 20% ownership.

Company value before new investment. Post-money = Pre-money + Investment. A $10M pre-money with $2M investment = $12M post-money.

Earliest funding stage, typically $100K-$1M. Funds initial product development and customer discovery. Investors: angels, pre-seed VCs.

Stock class typically held by investors with special rights: liquidation preference, anti-dilution protection, board seats. Converts to common at exit.

The right for existing investors to maintain their ownership percentage in future rounds. Standard term in most VC deals.

Growth strategy where the product itself drives acquisition, expansion, and retention. Users experience value before talking to sales.

When customers desperately want what you're building. Signs: organic growth, low churn, high NPS, customers pulling the product. The prerequisite for scaling.

(New MRR + Expansion MRR) / (Churned MRR + Contraction MRR). Measures growth efficiency. Above 4 is excellent; below 1 means the business is shrinking.

Additional equity grant to existing employees, usually annually. Replaces vested shares to maintain retention incentive.

Income recognized according to accounting rules. For SaaS, recognized monthly as service is delivered, not when contract is signed.

Growth Rate + Profit Margin should be ≥ 40%. A benchmark for balancing growth and profitability. 80% growth with -40% margin = 40% (acceptable).

Months of operation remaining before running out of cash. Calculated as Cash Balance / Monthly Burn Rate. 18+ months is comfortable; below 6 is danger zone.

Software as a Service. Software delivered over the internet on a subscription basis. Key characteristics: recurring revenue, low marginal costs, high retention.

Simple Agreement for Future Equity. A convertible instrument that converts to equity at the next priced round. Simpler than convertible notes, no interest or maturity.

Average time from first contact to closed deal. Enterprise: 3-12 months. SMB: 1-3 months. Self-serve: minutes to days.

Selling existing shares to another investor before an exit. Provides liquidity for founders/employees without company-level event.

First institutional funding round, typically $1-5M. Funds team expansion and product-market fit pursuit. Valuation: $5-20M.

Go-to-market model where customers sign up and pay without talking to sales. Lower ACV, higher volume, typical for PLG companies.

First major VC round, typically $5-20M. Requires proven product-market fit and growth trajectory. Valuation: $20-80M.

Growth-stage funding, typically $15-50M. Funds scaling proven business model. Requires strong unit economics and growth rate.

Acceleration of vesting upon acquisition alone. Rare and unfavorable to acquirers. Most VCs and acquirers oppose single trigger.

The price at which stock options can be exercised. Set by 409A valuation. Lower strike price = more valuable options.

Total Contract Value. The full value of a contract including all years and one-time fees. A 3-year $30K/year deal = $90K TCV.

Non-binding document outlining key terms of an investment. Includes valuation, investment amount, board seats, and investor rights. Negotiate before signing.

How long until a new user experiences the core benefit. Shorter TTV = better retention. Focus of PLG product design.

Maximum valuation at which a SAFE or note converts. Protects early investors if company raises at very high valuation. Lower cap = better for investor.

Debt financing from specialized lenders to VC-backed startups. Extends runway without dilution. Usually comes with warrants.

The process of earning equity over time. Standard is 4-year vesting with 1-year cliff. Protects against early departures.

The mechanism by which users naturally invite other users. Strong viral loops have low friction, clear value, and incentive alignment.

The projected date when cash runs out based on current burn rate. The ultimate deadline for startups. Start fundraising 6+ months before this date.