A financial ratio is a numerical comparison derived from a company’s financial statements, used to evaluate its performance, efficiency, liquidity, profitability, and financial health. These ratios are essential tools for analyzing business operations and comparing the company against industry benchmarks or competitors.
AUM, which stands for Assets Under Management, refers to the total value of assets that a venture capital firm manages on behalf of its investors. It serves as a key metric in measuring the size and success of a venture capital firm.
An accelerator is a program designed to support and nurture early-stage startups by providing them with mentorship, resources, and funding. The main goal of an accelerator is to help these startups grow and succeed in their respective industries.
Acquisition refers to the purchase of one company by another, usually involving the acquisition of a controlling stake or all of its assets. It is a strategic business move where one company takes over another to expand its market presence, gain access to new technologies, or eliminate competition.
An advisory board is a group of experienced individuals who provide guidance and expertise to the management team of a startup. They typically offer their services in exchange for equity or compensation.
Agile methodology is a project management and product development approach that emphasizes flexibility, collaboration, and customer feedback. It focuses on iterative progress, where work is broken into smaller, manageable units called sprints to deliver incremental value and adapt to changes quickly.
An agreement in principle refers to a non-binding agreement between a venture capital firm and a startup. It outlines the basic terms and conditions of a potential investment. While not legally binding, this agreement serves as a preliminary understanding between the parties involved.
The Angel Round is the first funding round for a startup, usually involving angel investors. Angel investors are individuals who provide financial support to early-stage companies in exchange for equity or convertible debt.
An angel investor is an individual who provides financial support to startups in exchange for equity ownership. These investors are typically wealthy individuals who are willing to take on high-risk investments in the hopes of earning a significant return on their investment.
The annualized return is a measure of the average rate of return on an investment over a year, considering the effect of compounding. It provides investors with a standardized way to compare the performance of different investment options.
An anti-dilution provision is a clause commonly included in investment agreements to safeguard the ownership stake of existing shareholders. It provides protection against dilution in the event of a future financing round at a lower valuation. This provision ensures that existing shareholders maintain their proportional ownership in the company, even if new shares are issued at a lower price.
Articles of Association serve as the "constitution" of a company, outlining operational rules, such as share transfers, director responsibilities, and the issuance of new shares. This document is filed with Companies House, making it part of the public record.
A balance sheet is a financial statement that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time. It shows what a company owns, owes, and the value left for shareholders.
Benchmarking is a strategic process used by companies to measure their performance, processes, or products against industry standards, competitors, or best practices. It helps businesses identify strengths, weaknesses, and opportunities for improvement by comparing key metrics such as revenue, productivity, or customer satisfaction.
Startups and established businesses alike use benchmarking to drive operational efficiency, improve decision-making, and enhance competitive positioning. By analyzing performance gaps and learning from top performers, companies can adopt proven strategies, set realistic goals, and achieve sustainable growth.
A Board Resolution is a formal decision passed by a startup's board of directors, often required to authorize important actions like issuing new shares, approving a funding round, or other major strategic decisions. It serves as official documentation of the board’s consent, ensuring that all actions comply with governance rules and that shareholders are informed of key company developments.
The Board of Directors is a group of individuals elected by shareholders to oversee the management of a company.
Bootstrapping is the process of building a company using personal finances or its operating revenues rather than relying on external funding like venture capital or loans. This approach allows founders to retain full control over their business but may limit available resources.
Brand awareness refers to the extent to which consumers recognize and recall a brand's name, logo, or products. It measures how familiar your target audience is with your brand and the associations they make with it. High brand awareness means your brand stands out in the minds of customers, which can lead to increased trust, loyalty, and market share.
For startups, building brand awareness is essential for attracting customers, differentiating themselves from competitors, and creating a strong foundation for long-term growth.
Brand equity refers to the value a brand holds in the minds of consumers, based on their perceptions, experiences, and associations with the brand. It is the premium value a company gains from having a recognizable, trusted, and well-regarded brand. Positive brand equity can lead to increased customer loyalty, higher profit margins, and a competitive edge in the market.
For startups, building brand equity is essential to establish credibility, attract customers, and drive long-term business growth.
Brand loyalty refers to the consistent preference and repeat purchases customers make for a specific brand, driven by trust, positive experiences, and emotional connections. It reflects the degree to which consumers choose a brand over competitors, even when faced with alternatives or price differences.
Brand positioning is the process of establishing a unique and compelling place for a brand in the minds of its target audience. It defines how a brand differentiates itself from competitors and highlights its unique value proposition. Effective brand positioning ensures that consumers perceive the brand in a way that aligns with its core values, strengths, and market goals.
For startups, strong brand positioning is essential to stand out, attract the right customers, and build a lasting impression in competitive markets.
The break-even point is the level at which a business’s total revenue equals its total costs, resulting in neither profit nor loss. At this point, a company has covered its fixed and variable expenses through sales. Understanding the break-even point helps businesses determine the minimum sales volume required to sustain operations and begin generating profit.
Bridge financing refers to short-term funding provided to a company with the aim of helping it reach the next major funding milestone. This type of financing is typically used when a company needs immediate cash flow to sustain its operations or bridge the gap between two significant funding rounds.
The burn rate refers to the rate at which a company depletes its cash reserves to cover its operating expenses. It is an important metric for investors and stakeholders to assess the financial health and sustainability of a company.
A Business Angel, also known as an angel investor, is an individual who provides capital to startups or small businesses in exchange for equity ownership or convertible debt. Business angels are typically high-net-worth individuals who invest their personal funds, often during the early stages of a business, when other forms of funding, such as venture capital or bank loans, are less accessible.
These investors often bring not just financial resources but also valuable expertise, mentorship, and networks to help the startup succeed.
A Business Continuity Plan (BCP) is a strategic framework that outlines how a company will continue its critical operations during and after unexpected disruptions, such as natural disasters, cyberattacks, or system failures. The goal of a BCP is to minimize downtime, protect assets, and ensure business resilience in the face of challenges.
A business ecosystem is a network of organizations—including suppliers, partners, customers, competitors, and stakeholders—that interact and collaborate to create value within a specific market or industry. These interconnected entities work both independently and collectively to drive innovation, efficiency, and growth.
For startups, understanding and participating in a business ecosystem is essential to build partnerships, access resources, and thrive in competitive environments.
Business incubation refers to a structured program designed to support early-stage startups and entrepreneurs by providing resources, mentorship, and services to help them grow. Incubators offer a nurturing environment where startups can develop their business ideas, validate their models, and scale operations more effectively.
A business model is a framework that describes how a company creates, delivers, and captures value. It outlines the key elements and activities that contribute to the success of a business.
Business valuation is the process of determining the economic value of a business. It involves analyzing various factors and financial metrics to estimate the worth of a company. This valuation is typically performed when a business is being sold, seeking investment, or undergoing a merger or acquisition.
A buyout refers to the acquisition of a company or a significant portion of its shares, where the buyer gains controlling interest. Buyouts are typically executed to restructure, expand, or improve the acquired company. They can be initiated by individuals, investment firms, or other businesses and often involve leveraging debt to finance the acquisition.
A Cap Table, short for Capitalization Table, is a crucial document that provides an overview of the ownership structure of a company. It displays the ownership stakes and the percentage of shares owned by each investor or shareholder.
A capital call refers to a formal request made by a venture capital fund to its limited partners for additional capital contributions. This request is made when the fund requires additional funds to support new investments or to meet its ongoing operational needs.
Capital Expenditure (CapEx) refers to the funds a business uses to acquire, upgrade, or maintain physical assets, such as property, equipment, or technology. These expenditures are long-term investments aimed at improving or extending the life of an asset to support business operations and growth.
For startups, understanding CapEx is essential for financial planning, managing cash flow, and making strategic investment decisions to scale operations.
Capital gains refer to the profit made from selling a capital asset, such as stocks, real estate, or a business, for more than its original purchase price. The gain is the difference between the asset’s purchase price (cost basis) and its selling price. Capital gains are a key consideration for investors, as they directly impact investment returns and may be subject to taxation.
Capital structure refers to the mix of a company’s debt and equity used to finance its operations and growth. It represents how a business raises capital to fund assets, operations, and expansion, balancing borrowed funds (debt) and ownership capital (equity). The capital structure is a key indicator of a company’s financial health, risk, and long-term sustainability.
Carried interest refers to a share of the profits earned by a venture capital fund. This share is typically paid to the fund managers as compensation for their investment expertise. It serves as an incentive for fund managers to make successful investments and generate positive returns for the fund's investors.
The Cash Conversion Cycle (CCC) measures how efficiently a business manages its cash flow by tracking the time it takes to convert cash invested in inventory and other resources into revenue from sales. It’s a key metric that evaluates how long a company’s cash is tied up in operations before it’s converted into cash flow.
A cash flow statement is a financial document that tracks the inflows and outflows of cash within a business over a specific period. It provides insight into how a company generates and uses cash from its operating, investing, and financing activities. Unlike the income statement, which records revenues and expenses, the cash flow statement focuses solely on cash transactions.
The churn rate is a metric that calculates the percentage of customers who stop using a company's product or service within a specified period. It is a crucial indicator of customer retention and business stability, often calculated monthly or annually. A high churn rate may suggest issues with customer satisfaction, product fit, or competitive positioning.
A cliff period is the initial phase in a stock option or equity vesting schedule during which an employee or founder does not accumulate any ownership rights. Typically lasting one year, this period requires the individual to remain with the startup for a set time before any shares or options vest.
Co-investment refers to a scenario where two or more investors collaboratively invest in the same company or opportunity. It involves pooling resources and sharing the risks and rewards associated with the investment. Co-investors typically contribute capital, expertise, or both, to support the growth and success of the venture.
Cohort Analysis is a method used to analyze groups of users who share common characteristics or experiences within a specific timeframe. By tracking these groups, or "cohorts," over time, startups can better understand customer behavior, identify trends, and improve decision-making for product development, marketing, and retention strategies.
Competitive advantage refers to the unique attributes or capabilities that allow a company to outperform its competitors in the marketplace. This advantage can stem from various factors, such as cost leadership, product differentiation, brand loyalty, or access to superior resources. A competitive advantage enables a business to deliver greater value to its customers, gain market share, and sustain long-term profitability.
The competitive landscape refers to the overall market environment in which a business operates, highlighting the competitors, their strengths, weaknesses, and strategies. It includes direct competitors offering similar products or services and indirect competitors targeting the same customer base with alternative solutions. Understanding the competitive landscape is crucial for developing effective strategies to differentiate and succeed in the market.
Competitive strategy refers to the long-term plan a company adopts to gain an advantage over its competitors and achieve sustainable success in the marketplace. It involves identifying the company’s unique strengths, analyzing market conditions, and implementing actions that differentiate the business. Competitive strategies focus on factors such as cost leadership, differentiation, innovation, and customer focus to outperform rivals and attract target audiences.
A convertible note is a type of short-term debt instrument that has the potential to convert into equity in the future. It is commonly used by startups and early-stage companies to raise funds from investors.
Crowdfunding is a popular method of funding a project or venture by raising small amounts of money from a large number of people. This practice has gained significant momentum, especially with the advent of the internet. It allows individuals or organizations to gather financial support for their ideas, products, or initiatives.
Customer Acquisition Cost (CAC) measures the total expense a company incurs to acquire a new customer, including marketing, sales, and other related costs. CAC is key to understanding the profitability and scalability of customer acquisition efforts.
A customer feedback loop is the process of collecting, analyzing, and implementing feedback from customers to improve products, services, or overall customer experience. This iterative process helps startups understand customer needs, resolve pain points, and make informed decisions that foster loyalty and growth.
Customer Lifetime Value (CLV) refers to the total revenue a business can expect to earn from a single customer over the entire duration of their relationship. It measures the long-term value a customer brings to the company, considering factors like purchase frequency, average transaction value, and customer retention.
Customer retention refers to a company’s ability to keep its customers over time and encourage repeat business. It focuses on building strong relationships, enhancing customer satisfaction, and providing value to ensure customers remain loyal to the brand. High customer retention rates indicate a business’s success in maintaining a satisfied and engaged customer base.
Deal flow refers to the rate at which investment opportunities are presented to a venture capital firm. It is a crucial aspect for venture capital firms as it directly impacts their ability to identify and invest in promising startups and businesses.
Debt financing is a form of funding where a startup borrows money and agrees to repay it with interest, rather than offering equity to investors. This allows the company to raise capital without diluting ownership among existing shareholders.
A debt instrument is a financial tool that represents a loan made by an investor to a borrower, typically a business or government. It outlines the terms of the loan, including the repayment schedule, interest rate, and maturity date. Common types of debt instruments include bonds, loans, promissory notes, and debentures.
Debt restructuring is a process where a company negotiates with its creditors to modify the terms of its existing debt obligations. The aim is to make the debt more manageable by extending repayment periods, reducing interest rates, or converting debt into equity. Debt restructuring helps businesses improve their financial stability, avoid default, and maintain operations during periods of financial difficulty.
The debt-to-equity (D/E) ratio is a financial metric that measures the proportion of a company’s financing that comes from debt versus equity. It is calculated by dividing total debt by total equity and is used to evaluate a company’s financial leverage and stability. A high D/E ratio indicates that a company relies more on debt to finance its operations, while a lower ratio suggests it is less dependent on borrowed funds.
Dilution refers to the reduction in ownership percentage of existing shareholders as a result of the issuance of additional shares.
A Disclosure Letter is a document that details exceptions to the warranties provided in the Shareholders Agreement (SHA). It protects the company by clarifying any inaccuracies or special conditions, reducing the risk of potential legal claims from investors.
Disintermediation refers to the removal of intermediaries, such as distributors, agents, or brokers, from a supply chain or transaction process. This direct-to-consumer (DTC) approach allows businesses to interact directly with their customers, reducing costs, increasing efficiency, and gaining greater control over customer relationships.
Disruptive innovation refers to a groundbreaking concept, product, or service that significantly alters an existing market or creates a new one by displacing established businesses, products, or technologies. Unlike sustaining innovations, which improve upon existing offerings, disruptive innovations often start by addressing overlooked segments or creating entirely new consumer needs before transforming the mainstream market.
Diversification is a growth strategy where a business expands its operations into new markets, products, or services to reduce risks and increase opportunities for revenue. It involves broadening the company’s offerings beyond its core activities to tap into new customer segments or industries.
A down round refers to a financing round in which a company raises funds at a valuation lower than its previous round. It signifies a decrease in the perceived value of the company.
Drag-Along Rights are provisions in an investment agreement that allow majority shareholders to compel minority shareholders to participate in the sale of a company under the same terms and conditions. This ensures a smoother transaction process by preventing minority shareholders from blocking a sale.
Due diligence is a crucial process that involves conducting a comprehensive investigation and analysis of a potential investment opportunity. It is essential for investors to perform due diligence before making any investment decisions to ensure they have a clear understanding of the risks and potential rewards associated with the opportunity.
Early-stage refers to the initial phase of a startup, typically characterized by product development and market validation. It is the early phase of a startup's journey where the focus is primarily on building the product or service and finding the right market fit.
Earnings Before Interest and Taxes (EBIT) is a financial metric that measures a company’s profitability from its core operations before deducting interest and income tax expenses. It highlights how efficiently a company generates income from its operations, excluding financial and tax-related factors. EBIT is also known as operating profit or operating income.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a financial metric that measures a company’s profitability by focusing on its core operations, excluding the effects of financial and non-cash expenses. EBITDA provides a clearer picture of a company’s operating performance by removing variables like interest, taxes, and accounting practices.
Earnings Per Share (EPS) is a financial metric that measures a company’s profitability on a per-share basis. It is calculated by dividing a company’s net income by the number of outstanding shares of its common stock. EPS indicates how much profit is attributed to each share, making it a valuable metric for investors assessing a company’s financial performance.
