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VC Glossary
Every term founders need to know, explained simply.
All
Fundraising
Legal
Metrics
Operations
A
Accelerator
A fixed-term program that provides startups with mentorship, education, and seed funding in exchange for a small equity stake.
Operations
Angel Investor
A high-net-worth individual who invests personal funds in early-stage startups, often providing mentorship alongside capital.
Operations
Anti-Dilution
A protection mechanism that adjusts an investor's conversion price downward if the company later raises at a lower valuation.
Fundraising
ARR (Annual Recurring Revenue)
The annualized value of recurring subscription revenue, used as the primary growth metric for SaaS companies.
Metrics
B
Board Seat
A position on the company's board of directors, giving the holder voting power on major corporate decisions.
Legal
Bootstrapping
Building and growing a company using personal savings and revenue, without external investment.
Operations
Bridge Round
A smaller fundraise designed to extend a company's runway until it can raise a larger round on better terms.
Fundraising
Burn Rate
The rate at which a startup spends cash each month, used to calculate how long the company can operate before needing more funding.
Metrics
C
CAC (Customer Acquisition Cost)
The total cost of acquiring a new customer, including sales, marketing, and related overhead.
Metrics
Cap Table
A spreadsheet showing who owns what percentage of a company, including all shareholders, option holders, and convertible instruments.
Fundraising
Churn Rate
The percentage of customers or revenue lost over a given period, serving as the inverse measure of retention.
Metrics
Cliff
A waiting period (typically one year) before any equity begins to vest, protecting the company from short-tenure departures.
Legal
Convertible Note
A short-term loan that converts into equity at a future financing round, typically with a discount and/or valuation cap.
Fundraising
D
DAU / MAU
Daily Active Users and Monthly Active Users, measuring product engagement and the percentage of users who return regularly.
Metrics
Dilution
The reduction in existing shareholders' ownership percentage when new shares are issued in a fundraising round.
Fundraising
Down Round
A funding round where the company raises money at a lower valuation than its previous round, signaling setbacks.
Fundraising
Drag-Along Rights
A provision that allows majority shareholders to force minority shareholders to join in a sale of the company.
Legal
E
Exit
The event where founders and investors realize returns on their equity, typically through an acquisition or IPO.
Operations
G
GMV (Gross Merchandise Value)
The total value of goods or services sold through a marketplace, before deducting fees, returns, or costs.
Metrics
Gross Margin
Revenue minus the direct costs of delivering the product, expressed as a percentage of revenue.
Metrics
I
Incubator
An organization that supports early-stage startups with resources, workspace, and guidance over a flexible, longer-term period.
Operations
Information Rights
Contractual rights entitling investors to receive regular financial and operational reports from the company.
Legal
IP Assignment
A legal agreement transferring ownership of intellectual property created by founders and employees to the company.
Legal
L
Lead Investor
The investor who sets the terms for a fundraising round, typically writing the largest check and often taking a board seat.
Fundraising
Liquidation Preference
A term that determines how proceeds are distributed when a company is sold, ensuring investors get paid before common shareholders.
Fundraising
LTV (Customer Lifetime Value)
The total revenue expected from a customer over the entire duration of their relationship with the company.
Metrics
M
Most Favored Nation (MFN)
A clause guaranteeing an investor will receive terms at least as favorable as any subsequent investor in the same or similar round.
Legal
MRR (Monthly Recurring Revenue)
The predictable monthly revenue from active subscriptions, serving as the building block for ARR and growth analysis.
Metrics
MVP (Minimum Viable Product)
The simplest version of a product that can be released to test a core hypothesis with real users.
Operations
N
Net Revenue Retention (NRR)
The percentage of revenue retained from existing customers over a period, including expansions and contractions.
Metrics
NPS (Net Promoter Score)
A customer satisfaction metric measuring how likely users are to recommend the product, scored from -100 to 100.
Metrics
P
Payback Period
The number of months it takes to recoup the cost of acquiring a customer through their revenue contributions.
Metrics
Pivot
A fundamental change in a startup's business model, product, or target market based on lessons learned from the market.
Operations
Post-Money Valuation
The value of a company immediately after a new investment, calculated as pre-money valuation plus the amount raised.
Fundraising
Pre-Money Valuation
The value of a company immediately before a new investment, used to calculate how much equity investors receive.
Fundraising
Priced Round
A fundraising event where the company sells shares at a specific price per share, establishing an explicit valuation.
Fundraising
Pro Rata Rights
An investor's contractual right to participate in future funding rounds to maintain their ownership percentage.
Fundraising
Product-Market Fit
The point at which a product satisfies strong market demand, evidenced by organic growth and high retention.
Operations
R
Right of First Offer (ROFO)
A contractual right requiring a shareholder to offer their shares to existing investors before selling to outside parties.
Legal
Right of First Refusal (ROFR)
A contractual right allowing existing shareholders to match any outside offer for shares before the sale can proceed.
Legal
Runway
The number of months a startup can operate before running out of cash, calculated from current cash balance and monthly burn rate.
Fundraising
S
SAFE Note
A Simple Agreement for Future Equity that lets startups raise money without setting a valuation upfront.
Fundraising
Series A / B / C
Named funding rounds that mark a startup's progression from early product stage (A) through growth (B) to scale (C).
Operations
T
Tag-Along Rights
A provision allowing minority shareholders to join in a sale when majority shareholders sell their stake.
Legal
Take Rate
The percentage of each transaction that a marketplace or platform retains as revenue.
Metrics
TAM / SAM / SOM
A three-level framework for sizing a market: Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market.
Metrics
Term Sheet
A non-binding document outlining the key terms of an investment, serving as the basis for negotiation before legal drafting.
Fundraising
U
Unit Economics
The direct revenues and costs associated with a single unit of the business, proving whether the core model is profitable.
Metrics
V
Venture Capital
A form of private equity financing where funds invest in high-growth startups in exchange for equity, expecting outsized returns.
Operations
Vesting
A schedule by which ownership of shares or options is earned over time, typically four years with a one-year cliff.
Legal