Designed to support the development of startups through resources (office space and mentorship). Oftentimes a seed investment (usually $20-50K) is made in return for equity. Startups are admitted in classes and work in groups for 3-6 months, learning to pitch and develop their startup. Accelerator programs end with a demo day in which startups pitch to investors.
Investing with own money in early stage companies in exchange for ownership equity. An angel typically invests $25-$100K per deal.
A short-term loan (up to one year) that a company uses in between times when financing is needed. For startups, this type of loan is intended to fund the company to an anticipated future event e.g., long-term financing.
The amount that a startup is spending, typically expressed as a monthly figure. For a deeper dive, check out what Mark Suster has to say
Capitalization Table (Cap Table):
Denotes how much stock ownership is held by each entity/person. Typically includes founder/investor equity, and employee stock option pool.
Sometimes called attrition rate, this is the percent of customers leaving a startup in a specified period (usually monthly or annually). It is the opposite of a retention rate. More
on how a small change in churn rate has big impacts.
A class of ownership that has lower claims on earnings and assets than preferred stock. It is riskier to own common stock because in the event of liquidation, common stock shareholders are the last to claim rights to assets.
Customer Acquisition Cost (CAC):
Calculated by dividing total sales & marketing cost by the number of customers acquired in that period.
Customer Lifetime Value (CLV):
Sometimes referred to as life-time value (LTV). This is the total amount of value that a customer brings in while they remain a customer, taking into account things like number of repeat orders and churn. Note that some experts define the “value” as revenue, and some as profit, so make sure to clarify how this is computed. Case study
Daily Active Users (DAU):
Total number of users that engage in some way with a web or mobile product on a given day. Sometimes founders also track Monthly Active Users (MAU). Read this article
for how this number can be manipulated.
Where the graduating class of an accelerator is given a chance to pitch to investors.
Issuing more shares of a company dilutes the value of holdings of existing shareholders.
Preferred stock holders receive dividends before common stock holders. Dividends can be cumulative or non-cumulative.
Majority shareholders can force minority shareholders to join in the sale of a company. Minority shareholders will receive the same price, terms, and conditions.
The key characteristic is market development. The business is focused on sales and marketing and proving business viability.
Friends and Family:
A common way for a startup to fund their initial round of capital before raising an institutional round.
Refers to the legal responsibility (often times of a board member) to act in the best interest of the start-up.
Initial Public Offering (IPO):
The initial sale of a privately held company’s stock to the public.
When a business is bankrupt or terminated, its assets are sold and the proceeds pay creditors. Anything left over is distributed to share holders.
A blend of debt and equity financing, requiring no collateral and does not necessarily involve giving up interest in the company. This capital is typically used to fund growth or to enable management to buy out company owners for succession purposes. The interest rate is high, ranging from 20-30% and lenders can convert their stake to equity or ownership in the event of default.
Monthly Recurring Revenue (MRR):
Measure of the predicable and recurring revenue components of a subscription business. Not to be confused with monthly revenue, which includes one-time and one-off sales.
Minimum Viable Product (MVP):
A new product that most easily provides a greater understanding of the customers.
Net Promoter Score (NPS):
A score between -100 and 100 used to calculate how loyal your customers are and how likely they are to recommend your product or service. Learn more here
Non-Disclosure Agreement (NDA):
A legal agreement between parties not to disclose confidential information that they have shared with each other.
A class of ownership that has a higher claim on assets than common stock. In the event of liquidation, preferred stock shareholders have priority over earnings and assets and generally earn dividends, but forego voting rights.
The company’s value immediately before funding. If post-money valuation = $2.5M and the company raised $500K, then the pre-money valuation = $2M.
The company’s value immediately after funding. If pre-money valuation = $2M and the company raises $500K, then the post-money valuation = $2.5M.
A right to partake in future rounds of funding, oftentimes to maintain initial percentage ownership of the company.
Right of First Refusal:
A right is given to enter into a business transaction before others. For example, preferred stockholders have the right to purchase additional shares issued by the company.
The key characteristic is product development. A venture in this stage is sometimes (but not always) generating revenue, and customers are interacting with the product. The business model is not yet fully developed, and seed capital is needed for research and development. This stage generates the first round of capital for the venture.
A company’s first significant round of venture funding (though angels often participate in this round).
Stock Option Pool:
Shares of stock reserved for employees of a company. The option pool is a way of attracting talented employees to a startup company – if the employees help the company do well enough to go public, they will be compensated with stock. Employees who get into the startup early will usually receive a greater percentage of the option pool than employees who arrive later.
A right that allows a minority shareholder to sell his/her minority stake in the company in the event that a majority shareholder sells his/her stake.
A non-binding document that outlines the terms of the deal. Once the parties agree, more detailed legal documents are drafted consistent with the terms laid out in the terms sheet.
Capital provided to early-stage, high potential, high risk, growth startups.
A process in which you “earn” your stock over time. The purpose of vesting is to grant stock to people over a fixed period of time so they have an incentive to stick around. A typical vesting period for an employee or founder might be 3 – 4 years, which would mean they would earn 25% of their stock each year over a 4 year period. If they leave early, the unvested portion returns back to the company.