Startup Glossary

> This glossary defines common startup terms in plain English. It is educational information, not legal or financial advice.

Fundraising

SAFE (Simple Agreement for Future Equity) -- A short legal document where an investor gives you money now in exchange for the right to receive shares later, usually when you raise a priced round.

Convertible Note -- A loan that converts into equity (ownership shares) at a future fundraising event, typically with interest and a discount for the early risk the investor took.

Priced Round -- A fundraising event where a specific dollar value is placed on the company and investors buy shares at a set price per share.

Pre-Money Valuation -- The agreed-upon value of your company right before new investment money comes in.

Post-Money Valuation -- The value of your company right after new investment money is added; equals pre-money valuation plus the amount invested.

Dilution -- The reduction in ownership percentage that existing shareholders experience when new shares are issued to new investors or employees.

Cap Table (Capitalization Table) -- A spreadsheet or document that lists every owner of the company, how many shares they hold, and what percentage of the company they own.

Pro Rata Rights -- The right of an existing investor to participate in future funding rounds to maintain their ownership percentage.

Liquidation Preference -- A term that determines which investors get paid first (and how much) when the company is sold or shut down.

Anti-Dilution -- A protection clause that gives investors additional shares if the company later raises money at a lower valuation than what they paid.

Drag-Along Rights -- A provision that lets majority shareholders force minority shareholders to join in the sale of the company.

Tag-Along Rights -- A provision that lets minority shareholders join a sale initiated by majority shareholders on the same terms.

Valuation Cap -- The maximum company valuation at which a SAFE or convertible note will convert into equity, protecting early investors from excessive dilution.

Discount Rate -- A percentage reduction on the share price that early investors receive compared to later investors when their note or SAFE converts.

Term Sheet -- A non-binding document that outlines the key financial and governance terms of a proposed investment before the full legal paperwork is drafted.

Lead Investor -- The investor who sets the terms for a funding round, typically investing the largest amount and often taking a board seat.

Follow-On Investment -- Additional money invested in a later round by an investor who already participated in an earlier round.

Bridge Round -- A small fundraise designed to keep the company running until it can complete a larger funding round.

Down Round -- A funding round where the company raises money at a lower valuation than its previous round, signaling the company's value has decreased.

Flat Round -- A funding round at the same valuation as the previous round, meaning the company's perceived value has not changed.

Angel Investor -- An individual who invests their own money in early-stage startups, usually before venture capital firms get involved.

Venture Capital (VC) -- Professional investment firms that pool money from institutions and wealthy individuals to invest in high-growth startups in exchange for equity.

Seed Round -- The first significant round of institutional funding, typically used to build the product and find initial customers.

Series A -- The first major venture capital round, usually raised after the company has demonstrated product-market fit and early traction.

Series B -- A later funding round focused on scaling the business, often used to expand the team, enter new markets, or accelerate growth.

Pitch Deck -- A short presentation (usually 10-15 slides) that explains your business to potential investors.

Due Diligence -- The investigation process investors go through to verify your company's claims, finances, legal standing, and market opportunity before investing.

SPV (Special Purpose Vehicle) -- A separate legal entity created specifically to pool multiple smaller investors into a single line on your cap table.

Syndicate -- A group of investors who pool their money together, typically led by one person, to invest in a startup as a single entity.

MFN (Most Favored Nation) -- A clause in a SAFE that guarantees the investor will receive any better terms that are given to future SAFE holders.

Metrics

MRR (Monthly Recurring Revenue) -- The predictable revenue your business earns every month from subscriptions or ongoing contracts.

ARR (Annual Recurring Revenue) -- Your monthly recurring revenue multiplied by 12, representing the yearly value of your recurring revenue stream.

CAC (Customer Acquisition Cost) -- The total amount of money you spend on sales and marketing to acquire one new customer.

LTV (Lifetime Value) -- The total revenue you expect to earn from a single customer over the entire time they remain your customer.

LTV:CAC Ratio -- The relationship between how much a customer is worth and how much it costs to acquire them; a ratio of 3:1 or higher is generally considered healthy.

Churn Rate -- The percentage of customers (or revenue) you lose over a given time period, usually measured monthly or annually.

Net Revenue Retention (NRR) -- A measure of how much revenue you keep from existing customers over time, including upgrades and downgrades; above 100% means existing customers are spending more over time.

Burn Rate -- The amount of cash your company spends each month beyond what it earns; essentially how fast you are spending your money.

Runway -- The number of months your company can continue operating at its current burn rate before running out of cash.

GMV (Gross Merchandise Value) -- The total dollar value of goods or services sold through a marketplace before deducting fees, returns, or costs.

NPS (Net Promoter Score) -- A customer satisfaction metric based on one question: "How likely are you to recommend us?" Scores range from -100 to 100.

DAU (Daily Active Users) -- The number of unique users who engage with your product on a given day.

MAU (Monthly Active Users) -- The number of unique users who engage with your product at least once during a month.

DAU/MAU Ratio -- The percentage of monthly users who use your product daily; a higher ratio indicates stronger user engagement and habit formation.

Cohort Analysis -- A method of grouping users by when they signed up and tracking their behavior over time to spot trends in retention and engagement.

Gross Margin -- The percentage of revenue remaining after subtracting the direct costs of delivering your product or service.

Contribution Margin -- The revenue remaining after subtracting all variable costs associated with serving a customer, showing whether each additional customer is profitable.

ARPU (Average Revenue Per User) -- The average amount of revenue each user or customer generates, typically measured monthly.

ACV (Annual Contract Value) -- The average annualized revenue per customer contract, commonly used in enterprise software sales.

TCV (Total Contract Value) -- The full value of a customer contract over its entire duration, including all years and one-time fees.

Payback Period (CAC Payback) -- The number of months it takes for the revenue from a new customer to cover the cost of acquiring them. Calculated as CAC divided by (ARPU times gross margin). Under 12 months is healthy for most SaaS.

Burn Multiple -- The ratio of net cash burned to net new ARR added. Measures how efficiently you convert spending into growth. Calculated as Net Burn divided by Net New ARR. Under 2x is efficient; over 3x means you're burning cash faster than you're growing.

Magic Number -- A measure of sales efficiency. Calculated as net new ARR in a quarter divided by sales and marketing spend in the prior quarter. Above 0.75 means your GTM spend is efficient enough to invest more aggressively.

Rule of 40 -- A benchmark where your revenue growth rate plus your profit margin should exceed 40%, indicating a healthy balance between growth and profitability.

Activation Rate -- The percentage of new sign-ups who complete a key action that indicates they are getting value from the product.

Virality Coefficient (K-factor) -- A number that measures how many new users each existing user brings in; a K-factor above 1 means your product is growing through word of mouth alone.

Revenue Run Rate -- An estimate of future annual revenue based on current monthly performance, assuming no changes in growth or churn.

MoM Growth (Month-over-Month) -- The percentage change in a key metric from one month to the next, used to track short-term momentum.

Quick Ratio (SaaS) -- The ratio of revenue added (new plus expansion) to revenue lost (churn plus contraction); a ratio above 4 indicates very healthy growth.

Legal & Structure

LLC (Limited Liability Company) -- A business structure that protects the owner's personal assets from business debts while offering flexible taxation options.

C-Corp (C Corporation) -- A business structure where the company is taxed separately from its owners; the standard structure for venture-backed startups because investors prefer it.

S-Corp (S Corporation) -- A tax election that lets a corporation pass profits and losses through to the owners' personal tax returns, avoiding double taxation, but with restrictions on number and type of shareholders.

83(b) Election -- A tax filing that lets founders and employees pay taxes on stock at its current (low) value rather than at a potentially much higher future value when it vests.

Vesting -- A schedule that determines when you actually earn your shares over time, designed to keep founders and employees committed to the company.

Cliff -- A waiting period (usually one year) before any shares vest; if you leave before the cliff, you get nothing.

QSBS (Qualified Small Business Stock) -- A federal tax benefit that can exclude up to 100% of the capital gains from selling stock in a qualifying small business, potentially saving millions in taxes.

409A Valuation -- An independent appraisal of your company's fair market value required by the IRS to set the exercise price of stock options.

EIN (Employer Identification Number) -- A unique number assigned by the IRS that identifies your business for tax purposes, similar to a Social Security number for your company.

Stock Option -- The right to buy shares in the company at a fixed price (the strike price) at a future date, commonly used to compensate employees.

ISO (Incentive Stock Option) -- A type of stock option that receives favorable tax treatment for employees, but comes with specific IRS rules and limitations.

NSO (Non-Qualified Stock Option) -- A type of stock option that is taxed as ordinary income when exercised; available to employees, contractors, and advisors.

RSU (Restricted Stock Unit) -- A promise from the company to give you shares at a future date, typically when they vest; commonly used by later-stage companies.

Exercise Price (Strike Price) -- The fixed price per share that an option holder pays to buy their shares when they exercise their options.

Bylaws -- The internal rules that govern how a corporation operates, including meeting requirements, voting procedures, and officer responsibilities.

Operating Agreement -- The governing document of an LLC that defines ownership percentages, profit sharing, and decision-making rules among members.

Articles of Incorporation -- The legal document filed with the state to officially create a corporation.

Registered Agent -- A person or company designated to receive official legal and government documents on behalf of your business.

Board of Directors -- A group of individuals elected by shareholders to oversee the company's management and make major strategic decisions.

Board Observer -- An individual who can attend board meetings and listen but does not have voting rights.

Fiduciary Duty -- The legal obligation of directors and officers to act in the best interest of the company and its shareholders.

IP Assignment Agreement -- A legal document where founders and employees transfer ownership of any work-related intellectual property to the company.

Non-Compete Agreement -- A contract that restricts someone from starting or working for a competing business for a specified time period after leaving the company.

Non-Solicitation Agreement -- A contract that prevents a departing employee from recruiting the company's other employees or customers.

CIIA (Confidential Information and Inventions Assignment) -- A standard employee agreement covering confidentiality and ensuring the company owns all work-related inventions.

Product & Engineering

MVP (Minimum Viable Product) -- The simplest version of your product that lets you test your core idea with real users and learn whether it solves their problem.

PMF (Product-Market Fit) -- The point where your product clearly satisfies a strong market demand, evidenced by organic growth and enthusiastic customers.

Sprint -- A fixed time period (usually 1-2 weeks) during which a team completes a planned set of work items.

Iteration -- The process of making repeated small improvements to a product based on user feedback and data.

Pivot -- A fundamental change in your business strategy, target customer, or product approach based on what you have learned from the market.

Feature Flag -- A software technique that lets you turn specific features on or off for different users without deploying new code.

A/B Test -- An experiment where you show two different versions of something to different user groups and measure which performs better.

User Story -- A short, plain-language description of a feature from the user's perspective, typically following the format "As a [user], I want [action] so that [benefit]."

Technical Debt -- The accumulated cost of shortcuts or quick fixes in code that will need to be cleaned up later, slowing down future development.

Scrum -- A framework for organizing work into sprints with defined roles (product owner, scrum master, developer) and regular ceremonies (standups, retrospectives).

Kanban -- A visual workflow management method that uses a board with columns to track tasks as they move from "to do" to "done."

Agile -- A philosophy of building software through short cycles, frequent feedback, and continuous adaptation rather than long planning phases.

API (Application Programming Interface) -- A set of rules and tools that lets different software programs communicate with each other and share data.

Microservices -- An architectural approach where a large application is broken into small, independent services that each handle one specific function.

Monolith -- A single, unified codebase where all parts of the application are tightly connected; simpler to start with but harder to scale.

CI/CD (Continuous Integration/Continuous Deployment) -- An automated process that tests code changes and pushes them to production quickly and reliably.

SaaS (Software as a Service) -- A software delivery model where customers access the application through the internet and pay a recurring subscription fee.

PaaS (Platform as a Service) -- A cloud computing model that provides a platform for developers to build, run, and manage applications without managing the underlying infrastructure.

Open Source -- Software whose source code is publicly available and can be used, modified, and distributed by anyone under a specific license.

Dogfooding -- The practice of using your own product internally to find bugs, understand the user experience, and demonstrate confidence in what you are building.

North Star Metric -- The single most important metric that best captures the core value your product delivers to customers.

Scope Creep -- The gradual expansion of a project beyond its original goals, usually caused by adding features or requirements without adjusting timeline or resources.

Wireframe -- A basic visual layout of a page or screen that shows structure and functionality without detailed design, used for early planning.

Prototype -- A working model of your product (or part of it) built to test concepts and gather feedback before investing in full development.

Sales & Marketing

ICP (Ideal Customer Profile) -- A detailed description of the type of company or person who gets the most value from your product and is most likely to buy.

TAM (Total Addressable Market) -- The total revenue opportunity available if you captured 100% of your target market with no competition.

SAM (Serviceable Addressable Market) -- The portion of the total market that your product can realistically serve given its features, geography, and delivery model.

SOM (Serviceable Obtainable Market) -- The realistic share of your serviceable market that you can capture in the near term, given your current resources and competition.

GTM (Go-to-Market) -- Your plan for how you will reach customers, sell your product, and generate revenue when you launch or enter a new market.

Funnel -- The step-by-step path a potential customer takes from first hearing about you to making a purchase; each step typically has fewer people than the last.

Conversion Rate -- The percentage of people who complete a desired action (like signing up or buying) out of the total who had the opportunity.

Lead Generation (Lead Gen) -- The process of attracting and identifying potential customers who might be interested in your product.

MQL (Marketing Qualified Lead) -- A potential customer who has shown interest through marketing activities (downloading content, attending webinars) but is not yet ready for a sales conversation.

SQL (Sales Qualified Lead) -- A potential customer who has been evaluated by the sales team and is considered ready for a direct sales conversation.

Pipeline -- The collection of all active sales opportunities at various stages of the sales process, representing potential future revenue.

AE (Account Executive) -- A salesperson responsible for managing deals from initial qualification through closing the sale.

SDR (Sales Development Representative) -- A salesperson focused on outbound prospecting and qualifying leads before handing them to an account executive.

BDR (Business Development Representative) -- A role similar to an SDR, often focused on identifying and developing new business opportunities through outreach and partnerships.

ARR Booking -- The annualized value of a new subscription contract at the time it is signed.

Churn (Customer) -- When a customer stops paying for your product and cancels their subscription.

Expansion Revenue -- Additional revenue earned from existing customers through upselling, cross-selling, or usage increases.

Upsell -- Selling a more expensive plan or tier to an existing customer.

Cross-Sell -- Selling additional, complementary products or features to an existing customer.

PLG (Product-Led Growth) -- A business strategy where the product itself is the primary driver of customer acquisition, conversion, and expansion, rather than a sales team.

SLG (Sales-Led Growth) -- A business strategy where a dedicated sales team is the primary driver of customer acquisition through direct outreach and relationship building.

Inbound Marketing -- Attracting customers to you by creating valuable content, SEO, and social media presence rather than reaching out directly.

Outbound Sales -- Proactively reaching out to potential customers through cold emails, calls, or LinkedIn messages.

CRM (Customer Relationship Management) -- Software that tracks all interactions with prospects and customers, managing your sales pipeline and customer data.

CAC Payback -- The number of months of revenue needed to recover the cost of acquiring a customer.

Retention Rate -- The percentage of customers who continue using and paying for your product over a given time period.

SEO (Search Engine Optimization) -- The practice of improving your website's visibility in search engine results to attract more organic (non-paid) traffic.

SEM (Search Engine Marketing) -- Paid advertising on search engines where you bid on keywords to show ads to people searching for relevant terms.

Content Marketing -- Creating and distributing valuable content (blog posts, videos, guides) to attract and retain a clearly defined audience.

Demand Generation (Demand Gen) -- Marketing activities focused on creating awareness and interest in your product category and brand, building long-term pipeline.

ABM (Account-Based Marketing) -- A strategy that focuses marketing and sales resources on a specific set of high-value target accounts rather than casting a wide net.

Quick Reference: Acronym Index

This glossary is educational information only. It is not legal, financial, or tax advice. Consult qualified professionals for your specific situation.