Talk the Talk — Basic Startups Dictionary

If you are an entrepreneur and it’s your first rodeo, you may come across different VC’s and startup terms you are not going to be familiar with and while many of the terms are technical not being familiar with them may cost you in losing points in the eyes of the VC. Therefore, you should want to learn the relevant language of funding. There are several terms and abbreviations that are used for evaluating your company, understanding your growth and your business plans.

We collected some of the most important of them so you can find your way in the investing and venture capital community.

You’re invited to write us in the comments about more terms that you think are essential.

Good luck!

Startup Economy

• CAC: Customer Acquisition Cost
  The marginal cost of obtaining a new customer, the price paid to persuade a customer to use the company’s product or service. You can read more about how to calculate CAC here.
• Retention Rate
  The number of customers that continue to use the company’s product over time. This can allow us to predict the revenue. More about calculating retention rate here.
• Churn Rate
  Percentage of customers the company loses in each period (usually per month or year).
• Burn rate
  The rate at which a start-up company consumes the capital resources it has raised from investors to cover expenses.
• Cash Flow
  The amount of cash and cash equivalents that is received by a company or given out.
• Break even
  When a company does not burn cash, and is on the verge of profitability.
• IRR: Internal Rate of Return
  The rate of return on investment recorded by the investor. Is often used as a measurement tool for the performance of venture capital funds.
• Profit Margins
  Profitability ratios that are used to evaluate the ability of the business activity to make money.
• Vesting
  Period of maturity of the right to convert an option per share.
• Pro rata rights
  Describes the option that an investor can be given which allows him to maintain their initial percentage of ownership during advanced financing rounds.
• Liquidation Preferences (Liq perf)
  Determines how a company’s assets will be distributed upon the occurrence of a liquidation event. If an investor is holding a preferred stock that has a liquidation preference he has the right to get his money before the other holders.
• Bridge Financing
  A convertible loan for a short term to help a company reach the next round of funding.
• ACV: Annual Contract Value
  A metric that represents the average annual income from an ongoing customer contract.
• ARR: Annual Recurring Revenue
  A metric that represents the recurring income from a life of a contract/ subscription. You can read more about the difference between ACV and ARR here.
• ARPU: Average Revenue Per User
  Used to represent the average income received from one user, is calculated by dividing total revenue by average users during a period.
• LTV: Lifetime Value
  An estimation of the total income to a company from a customer during their whole period as a customer.
• NDR: Net Dollar Retention
  An important growth indicator which represents the revenue and churn in a certain period of time. More about NDR.

Business Model

• SaaS: Software as a Service
  A business model whereby software or service is sold in the form of a monthly subscription, instead of a one-time payment.
• Target Market
  The group of people that a company identifies as potential customers for their product. The product development, marketing etc. will be planned according to the target market.
• Pivot
  A significant change in the business model or the product of a company, according to the needs of the market.
• Business Plan
  Discussion of the essence of the business, technology, market, competition, management team, business results and financial forecasts.

Product Development

• MVP: Minimum Viable Product
  The most abstract and minimal version of the product the company offers. It includes the essential features to be used by early customers who can then provide feedback for future product development.
• KPI: Key Performance Indicator
  Measurements that display the performance of a company.

Investments

• Pitch
  When an entrepreneur is presenting an investment opportunity to a potential investors or partners.
• Angel
  A wealthy private investor who invests in startup companies in their initial stages, in exchange for percentages of the company and its future profits.
• Pre-Seed
  Raising stage in which the entrepreneur raises an initial amount of money, sometimes will be based on an idea only .
• Seed
  Advanced fundraising phase, usually from venture capital funds.
• Term sheet
  An agreement that specificates the terms of a company’s fundraising round.
• Due Diligence
  Examination of an investment or acquisition of a company. The test goes through the business and marketing model, technology, finances, legal elements, and manpower.
• IPO: Initial Public Offering
  A term that describes the issuance of the company’s shares to the general public. The issuance of shares allows issuers and investors to sell their shares to the general public