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Founder’s Playbook: Essential Vocabulary for Scaling and Securing Funds – a live document

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In the fast-paced tech universe, jargon can either be your jetpack or your quicksand. If you’re a founder stepping into the Silicon Valley arena, you better know your terms, or you’ll find yourself outpaced and outmaneuvered. This isn’t just about sounding smart in board meetings or on Clubhouse chats; it’s about grasping the very fabric of the startup ecosystem. This glossary? Consider it your decoder ring for the digital age. Dive in, get informed, and let’s disrupt the status quo with knowledge.

Here we go…

SaaS Metrics

1. Monthly Recurring Revenue (MRR): The total amount of predictable revenue that a company can count on receiving every single month.

2. Annual Recurring Revenue (ARR): The value of the contracted recurring revenue components of your term subscriptions normalized to a one-year period.

3. Churn Rate: The rate at which customers stop doing business with an entity in a given period. It’s a measure of the number of individuals or items moving out of a collective group over a specific period.

4. Customer Acquisition Cost (CAC): The cost associated in convincing a potential customer to buy a product/service. This cost is incurred by the organization while convincing a potential buyer.

5. Lifetime Value (LTV): A prediction of the net profit attributed to the entire future relationship with a customer.

6. Average Revenue Per User (ARPU): The measure of the revenue generated per user or unit.

7. Net Promoter Score (NPS): A management tool that can be used to gauge the loyalty of a firm’s customer relationships.

8. Daily Active Users (DAU)/Monthly Active Users (MAU): A performance metric that shows the number of unique users who engage with a product in a day/month.

9. Customer Retention Rate (CRR): The ability of a company to retain its customers over a period of time.

10. Gross Margin: The difference between revenue and cost of goods sold divided by revenue. This represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services.

Venture Capital Funding

1. Term Sheet: A non-binding agreement setting forth the basic terms and conditions under which an investment will be made.

2. Valuation Cap: A clause that protects an investor from downside risk upon conversion of a convertible note.

3. Pre-Money Valuation: The valuation of a company not including external funding or the latest round of funding.

4. Post-Money Valuation: The value of a company after outside financing and/or capital injections are added to its balance sheet.

5. Pro-rata Rights: The right but not the obligation that allows investors to maintain their percentage of ownership in a company during future investment rounds.

6. Dilution: The reduction in the ownership percentage in a certain company as a result of the issuance of more shares.

7. Convertible Note: Short-term debt that converts into equity. In the context of a seed financing, the note holder usually automatically receives shares of preferred stock upon the closing of a Series A round of financing.

8. SAFE (Simple Agreement for Future Equity): An agreement between an investor and a company that provides rights to the investor for future equity in the company.

9. Series A, B, C Rounds: Refers to the different stages of venture capital funding. Each round provides a different level of funding, has different requirements, and offers a different level of risk/reward.

Private Equity Funding

1. Leveraged Buyout (LBO): The acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition.

2. Management Buyout (MBO): A transaction where a company’s management team purchases the assets and operations of the business they manage.

3. Private Investment in Public Equity (PIPE): A type of investment that involves the buying of publicly traded shares that are not publicly offered.

4. Exit Strategy: The method by which a venture capitalist or business owner intends to get out of an investment that they are involved in or have made in the past.

5. Capital Commitment: The amount of money a firm is contractually obligated to invest in a fund.

6. Due Diligence: An investigation or audit of a potential investment or product to confirm all facts.

Vehicles and Mechanisms for Raising Money, Distributing Equity, and Rounds of Funding

1. Equity Financing: The process of raising capital through the sale of shares in an enterprise.

2. Debt Financing: The process of raising capital by borrowing money, typically in the form of a loan from a bank.

3. Mezzanine Financing: A hybrid of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default.

4. Initial Public Offering (IPO): The process of offering shares of a private corporation to the public in a new stock issuance.

5. Crowdfunding: The use of small amounts of capital from a large number of individuals to finance a new business venture.

6. Grants: Non-repayable funds disbursed by one party (grant makers), often a government department, corporation, foundation or trust, to a recipient, often (but not always) a nonprofit entity, educational institution, business or an individual.

7. Small Business Administration (SBA) Loan: U.S. government-backed loans that help small businesses get loans from banks with a portion of the risk taken on by the government.

8. Venture Debt: A type of debt financing provided to venture-backed companies by specialized banks or non-bank lenders to fund working capital or capital expenses, such as purchasing equipment.

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