Last updated: 2 October 2024.
You’ve dreamt of becoming the founder of a successful startup, you’ve found your co-founder and have a great product raring to go.
As you enter the startup world, it’s only a matter of time before you come across questions like, “Have we got a POC?”, “What is the churn rate?” and “What’s the CAC for this customer?”
You’re scratching your head trying to understand this jargon, while already learning so much. It can be overwhelming, but the below glossary of terms will help you on your way. And prepare you for a potential grilling by investors.
Here are 44 terms you're likely to come across and what they all mean.
Advanced assurance is a formal confirmation from tax authorities that a startup qualifies for specific tax incentives or relief programs like SEIS and EIS, providing upfront assurance or eligibility.
An angel investor is an individual who provides financial backing to startups or entrepreneurs, typically in the early stages of a business.
Angel investors use their funds to support promising ventures in exchange for equity ownership or convertible debt.
They often contribute valuable advice, mentorship and industry connections to help the startup grow and succeed.
ARR is the total yearly income a company expects from its subscription-based services. See MRR too.
Being cash flow positive means that a business has more cash coming in than going out over a specific period.
In other words, the company generates enough operational income to cover its operating costs, investments and debt obligations.
Churn rate is a metric that measures the percentage of customers or subscribers who stop using a product or service within a given period. It is often used in the context of subscription-based businesses.
A high churn rate indicates a higher rate of customer attrition, which can impact a company’s revenue and growth.
Cliff vesting is used in share (stock) options or other equity-based compensation plans. Effectively, employees start to earn their shares or options (they vest) after a specific period known as the “cliff”. This approach is often used to encourage employee retention by rewarding loyalty over a set initial period.
CAC is the total expense a business incurs to acquire a new customer. Includes costs related to marketing, advertising, sales efforts and other expenses.
CAC is calculated by dividing the total acquisition costs by the number of new customers acquired within a specific period.
A data room is a secure space where confidential documents for business transactions are stored digitally for due diligence by authorised parties.
For instance, you may grant investors access to a data room during negotiations.
Debt financing involves borrowing money such as loans or bonds to raise capital for a business. The borrowed amount is repaid with interest over a specific period, offering a way to secure funds without diluting ownership.
Dilution in business is when new shares are issued, reducing the ownership percentage of existing stakeholders. While it's important to manage carefully, share dilution isn't always something to avoid.
EIS is a government-backed scheme that incentivises investors to support more established startups with attractive tax breaks, helping to reduce their investment risk. With EIS, you can raise up to £12 million in funding - ideal if you're ready to scale.
Equity refers to ownership or interest in a company, represented by shares or share options (stocks). If someone has equity in your business, they own a (usually a small) portion of your company.
Depending on the type of share and the rights of those shares, that person may have rights to capital, dividends and voting.
Equity financing usually means issuing new shares in exchange for a cash injection. Your business gets the funds it needs, and in return, the investor gets a piece of your company and shares in its ultimate success.
An exit refers to the process of selling or divesting ownership in a company. It can include selling the business to another company, going public through an initial public offering (IPO), or a management buyout. An exit is often a strategic move to provide liquidity for the business owners or investors.
In business, a flywheel is a strategic approach where initial efforts create momentum that compounds over time, driving sustained growth through self-reinforcing dynamics.
GTM refers to the strategic plan and execution of launching a product or service into the market. It involves activities such as product positioning, marketing, sales and distribution strategies aimed at reaching and acquiring customers.
A GTM strategy will outline how a company will introduce and promote its offerings, considering factors like target audience, pricing, channels and competitive landscapes.
Also called 'gross revenue', the gross margin is the percentage of revenue that exceeds the direct costs of producing goods or services.
It gives a quick look at how profitable a company's main operations are, before considering other expenses. A higher gross margin suggests better profitability.
Growth hacking is a marketing strategy focussed on rapid experimentation and creative techniques to identify the more effective ways to grow a business. Often, it involves unconventional and data-driven approaches.
Lean startups favour rapid experimentation over elaborate planning. So, iterating a product or service as you go along (based on customer feedback) and deploying resources super efficiently.
LTV or customer lifetime value is a metric that estimates the total revenue a business can expect from a customer throughout the entire relationship.
A liquidation preference determines the order in which shareholders receive proceeds during a company’s sale or liquidation, prioritising certain investors and other preferred shareholders.
MQLs are potential customers acquired through marketing activities that need a little more nurturing to get them over the line.
An MVP is the most basic version of a product that includes essential features to meet the initial needs of early adopters. The goal is to quickly release a functional version, gather feedback and iterate based on user response.
A moonshot in business or technology refers to an ambitious, groundbreaking project or goal that aims for significant innovation - often with high risks and uncertainties.
MRR is the consistent and predictable income a business receives each month from its subscription-based services. It's a key metric for SaaS companies.
Also known as "net profit" or plain "profit", this is the final amount of money a company has after deducting all its expenses from its revenue.
Or simply "revenue", is the total income generated by a company from its primary business activities.
The network effect is when the value of a product or service rises with more users, creating a positive feedback loop that enhances overall utility.
A portion of shares the company authorises and sets aside for its option holders, usually employees. This is a necessary step to set up an EMI, CSOP or unapproved options scheme.
A pitch deck is a presentation that provides an overview of a business or startup to potential investors or stakeholders.
It typically includes key information such as the business model, market opportunity, product or service details, financial projections and team background.
Pitch decks are used to convey the business concept and persuade the audience to support or invest. You can grab a free pitch deck template here.
A pre-money valuation refers to a company’s estimated value before external funding. Post-money valuations refer to a company’s estimated value after external funding, including new investment.
POC refers to a demonstration of a product, idea or technology to validate its feasibility and functionality. It serves to test the viability of the concept before committing to full-scale development.
The run rate is the extraction of a company’s current financial performance to estimate its annual performance, providing a snapshot based on recent trends.
A step beyond an MQL, an SQL is somebody the sales team believe is ready to take the next step and become a paying customer.
SEIS is a government-backed venture capital scheme that encourages investors to support early-stage startups by offering generous tax breaks that reduce the risk. With SEIS, you can raise up to £250,000 in funding.
SAM is a more realistic view of the portion of the Total Addressable Market (TAM) a business can target and service.
Capturing 100% of your Serviceable Addressable Market (SAM) is highly unlikely, even if you currently have no competitors (yet).
SOM is a closer estimate of what proportion of the market you can confidently serve, taking into account any business model limitations or competition.
A company share scheme is a programme that enables employees to buy shares in the company, often in the form of share options.
We explain share scheme-specific terms in this glossary.
As the name suggests, a solopreneur is an individual who runs and manages their business independently. Assuming roles such as planning, execution and decision-making without the need for a co-founder or a team.
TAM is a broad view of the total potential sales opportunity for your product or service in your target market. Investors will expect to know your TAM, SAM and SOM.
In business, a unicorn is a successful startup valued at over one billion dollars that's yet to go public. Startups reaching unicorn status have defied the odds - hence the name.
VC refers to a form of financing where investors provide funding to early-stage or emerging companies in exchange for equity ownership.
Venture capitalists typically seek high-growth potential and play an active role in guiding the companies they invest in.
The goal is to achieve significant returns when the invested companies succeed and go through subsequent rounds of funding.
Valuations come in all shapes and sizes. If you plan on seeking investment, devising an exit strategy or you're preparing for a merger or acquisition, you will need a business valuation.
You may need a specific type of valuation if you're setting up an employee share scheme. For example, with EMIs and CSOPs, a HMRC valuation is necessary.
And if you're awarding options to folks over in the US, you'll need a 409A valuation.
Waterfalls are structures outlining the distribution of financial returns among stakeholders, following predetermined terms and priorities in investment or partnership agreements.
We hope this glossary of acronyms, mind-boggling metrics and perplexing phrases will be a useful tool for you and a valuable resource to share with colleagues as you embark on an exciting journey ahead.
For a deeper dive into which metrics the UK's top businesses use to measure success, tune into FounderMetrics, a podcast hosted by Vestd founder and CEO, Ifty Nasir.
Best of luck! And if we can support you along the way, let us know. We offer free, no-obligation consultations.
Whether it's incorporating your company, completing a funding round or managing equity as effectively as possible, do it on Vestd.