Glossary of investment terms
- A -
A round:The first major round of venture funding, usually after seed funding.
Accelerator:A program that provides resources and mentorship to startups in exchange for a percentage of equity.
Acquisition:The purchase of one company by another.
Angel investor:A wealthy individual who provides capital to early-stage startups in exchange for equity.
AngelList:A platform that connects startups with investors.
- B -
B round:The second major round of venture funding.
Board of Directors:A group of individuals elected by the shareholders to oversee the management of a company.
Bootstrapping:Building a company without external funding.
Bridge financing:Short-term financing used to bridge the gap between funding rounds.
Burn rate:The rate at which a company is spending its capital.
Burnout:A state of emotional, physical, and mental exhaustion resulting from long-term work stress.
Business model:The way in which a company generates revenue.
Business plan:A document outlining a company's strategy, operations, and financial projections.
- C -
CAC:LTV Ratio:The ratio of customer acquisition cost to customer lifetime value.
Cap table management:The process of managing a company's cap table.
Cap table:A spreadsheet that lists all the shareholders in a company and their ownership percentages.
Cash flow:The amount of cash a company generates and spends over a given period of time.
Churn rate:The rate at which customers cancel their subscriptions or stop using a product.
Co-founder:A person who starts a company with one or more other people.
Convertible note:A form of debt that can be converted into equity at a later date.
Corporate venture capital:The practice of established corporations investing in startups.
Crowdfunding:The practice of raising capital from a large number of individuals.
Crowdsourcing:The practice of using the collective knowledge or skills of a large group of people to solve a problem.
Customer acquisition cost:The cost of acquiring a new customer.
Customer lifetime value:The total amount of revenue a customer is expected to generate for a company over their lifetime.
- D -
Debt financing:Raising capital through loans.
Debt-to-equity ratio:The ratio of a company's debt to its equity.
Dilution:The reduction in ownership percentage that occurs when new shares are issued.
Due diligence checklist:A list of items to investigate during due diligence.
Due diligence:The process of investigating a potential investment opportunity.
- E -
EBITDA:Earnings before interest, taxes, depreciation, and amortisation.
Equity financing:Raising capital through the sale of equity.
Exit strategy:A plan for how investors will exit their investment in a company, typically through a sale, merger, or IPO.
Exit:The process of selling a company or going public.
- F -
Fintech:Technology-enabled financial services.
Founder:The person or people who started a company.
Founders' agreement:A document outlining the responsibilities and ownership of a company's founders.
- G -
Growth hacking:The practice of using creative and unconventional tactics to rapidly grow a company.
- I -
Incubator:A program that provides resources and support to startups in their early stages.
Initial public offering (IPO):The first sale of a company's stock to the public.
Intellectual property (IP):A company's intangible assets, such as patents, trademarks, and copyrights. On other words intangible creations of the mind, such as inventions, artistic works, and designs, that are protected by law from unauthorised use.
Intellectual property rights:The legal rights granted to the creator of an original work.
Investment banker:A financial professional who helps companies raise capital.
Investment thesis:The strategy a venture capitalist uses to select investments.
Investor:A person or entity that provides capital to a startup in exchange for equity.
- J -
Joint venture:A business arrangement in which two or more parties agree to pool their resources to accomplish a specific task.
- K -
KPI:Key performance indicator, a metric used to measure a company's performance.
- L -
Lead generation:The process of identifying and cultivating potential customers.
Lead investor:The primary investor in a funding round.
Lean startup:A methodology for building companies that emphasises rapid experimentation and iteration.
Liquidation preference:The order in which investors get paid out in the event of a company sale.
Liquidation:The process of selling a company's assets to pay off its debts.
Long tail: A phenomenon where a large number of niche products collectively make up a significant portion of a market.
- M -
Market segmentation:The process of dividing a market into smaller segments based on characteristics such as demographics or behavior.
Market size:The total addressable market for a product or service.
Mergers and acquisitions (M&A):The process of combining two or more companies.
Minimum desirable product:A product that meets the minimum requirements of customers while also being desirable.
MVP:Minimum viable product, the simplest version of a product that can be released to test its viability.
- N -
Non-disclosure agreement (NDA):A legal agreement that prohibits the sharing of confidential information.
- O -
Open source:Software whose source code is available for anyone to use and modify.
Option pool:A percentage of a company's equity set aside for future employee stock options.
- P -
Patent:A legal protection granted to an inventor for their original invention.
Pivot:A significant change in a company's business model or strategy.
Pivoting:Changing a company's business model or product based on market feedback.
Pre-money valuation:The valuation of a company before an investment is made.
Pre-seed:The earliest stage of startup funding, usually before a company has a working prototype.
Product development:The process of designing, testing, and launching a new product.
Product-market fit:The point at which a company's product satisfies the needs of its target market.
Product-market matrix:A tool used to evaluate the potential success of a product in a specific market.
- R -
Revenue model:The way a company generates revenue.
Runway:The length of time a company can continue operating with its current cash reserves.
- S -
SaaS:Software as a service, a software delivery model where software is provided over the internet.
Seed funding:Early-stage funding used to develop a working prototype or proof of concept.
Seed investor:An early-stage investor who provides capital to a company in exchange for equity.
Series A, B, C funding:Stages of financing rounds in which a company raises increasing amounts of capital from investors.
Series A:The first major round of venture funding, used to scale a company's operations.
Series B:The second major round of venture funding, used to further scale a company's operations.
Share vesting:The process by which equity ownership is earned over time.
Shareholder:An individual or entity that owns shares in a company.
Social proof:The influence that other people's opinions and actions have on our own behavior.
Startup accelerator:A program that provides mentorship, resources, and funding to early-stage startups.
Startup:A new company in the early stages of development.
Strategic investor:An investor who provides capital and also brings strategic value to a company.
Sweat equity:The value of work contributed to a company in lieu of cash.
Syndicate:A group of investors who pool their capital to make investments.
- T -
Term sheet:A document outlining the terms and conditions of an investment.
Traction:The rate at which a company is acquiring customers or users.
- U -
Unicorn:A startup with a valuation of $1 billion or more.
Unit economics:The analysis of the profitability of a company's individual products or services.
User acquisition:The process of acquiring new users for a product or service.
- V -
Valuation:The estimated worth of a company.
Valuation:The process of determining the value of a company.
Venture capital: Capital provided to high-growth startups in exchange for equity.
Venture capitalist:An investor who provides capital to startups in exchange for equity.
Vesting:The process by which equity ownership is earned over time.
Viral marketing:A marketing strategy that uses social networks and word-of-mouth to promote a product or service.
- Y -
Yield:The return on an investment, typically expressed as a percentage.