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.
AML (Anti-Money Laundering) and KYC (Know Your Customer) are regulatory frameworks designed to prevent financial crimes such as money laundering, fraud, and terrorist financing.
APIC (Additional Paid-In Capital) is the amount investors pay above the par value of a company's stock when purchasing shares during an equity offering. It represents excess capital that a company raises beyond the stock’s nominal value and is recorded under shareholders’ equity on the balance sheet.
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.
Advisory shares and equity both represent ownership in a company, but they differ in terms of purpose, structure, and benefits:
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 or business angels are individuals who provide financial support to early-stage companies in exchange for equity or convertible debt.
An angel fund is a pool of capital raised from multiple angel investors to invest in early-stage startups. Unlike individual angel investors who invest directly, an angel fund operates as a collective investment vehicle, allowing multiple investors to contribute smaller amounts while benefiting from shared deal flow, due diligence, and risk diversification.
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.
A base salary is the fixed amount of compensation an employee receives before bonuses, benefits, or other incentives. It is typically expressed as an annual or monthly salary and does not include variable pay such as commissions, stock options, or performance-based bonuses.
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.
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 Extension is a marketing strategy where a company leverages its existing brand name to launch a new product or enter a different market category. The goal is to capitalize on brand recognition, trust, and customer loyalty to reduce marketing costs and increase the chances of success. Successful brand extensions align with the core brand identity and maintain a strong connection with existing products.
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.
Budget variance is the difference between projected financial figures and actual financial performance over a specific period. It helps businesses analyze whether they are over or under budget by comparing actual revenue and expenses to planned estimates.
Budget variance can be favorable (better than expected) or unfavorable (worse than expected), influencing financial decisions and strategy adjustments.
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 business angel network is a structured group of angel investors who collectively invest in early-stage startups. These networks facilitate connections between entrepreneurs and angel investors, providing funding, mentorship, and strategic support. By pooling resources and expertise, a business angel network increases investment opportunities and mitigates risks for individual investors.
For startups, joining an angel investments network can improve access to capital, industry knowledge, and investor networks, making it easier to secure funding and scale effectively.
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.
CEE (Central and Eastern Europe) refers to the region encompassing countries in Central and Eastern Europe, including Poland, Hungary, Czech Republic, Slovakia, Romania, Bulgaria, and the Baltic states, among others. The term is often used in economic, political, and business contexts to describe the emerging markets and investment opportunities in this region.
For startups and investors, CEE is known for its growing tech ecosystem, skilled talent pool, and increasing venture capital activity, making it an attractive hub for innovation and expansion.
xThe COGS formula (Cost of Goods Sold) is a financial metric that calculates the direct costs of producing goods sold by a company. It includes the cost of raw materials, labor, and manufacturing but excludes indirect expenses such as marketing and distribution. The standard formula for COGS is: COGS = Beginning Inventory + Purchases − Ending Inventory
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.
Cap table management refers to the process of maintaining, updating, and organizing a company’s capitalization table, which tracks equity ownership, stock options, convertible notes, and investor stakes. Effective cap table management is crucial for fundraising, equity distribution, and investor relations, ensuring transparency and compliance as a company grows.
A Cap Table (Capitalization Table) is a detailed breakdown of a startup’s ownership structure, showing who owns shares, how much they own, and the impact of dilution over time. It typically includes founders, investors, employees with stock options, and other stakeholders. A cap table is essential for managing fundraising, equity distribution, and exit planning.
Capital Expenditures (CapEx) refer to the funds a company invests in acquiring, maintaining, or upgrading fixed assetssuch as property, equipment, or infrastructure. The CapEx formula is used to calculate these expenses based on financial statements. The standard formula is:
CapEx = \text{PP&E (current period)} - \text{PP&E (previous period)} + \text{Depreciation}
Where:
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.
Carried interest, also known as "carry," is a share of the profits that investment fund managers, particularly venture capital (VC) and private equity (PE) firms, receive as compensation for managing a fund. It is typically a percentage of the fund’s profits and serves as an incentive for fund managers to generate high returns for 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.
A cash sweep is a financial mechanism where excess cash generated by a company is automatically used to pay down outstanding debt instead of being held as free cash flow. This is often a condition in loan agreements or credit facilities, ensuring lenders receive early repayments when a business generates surplus revenue. Cash sweeps help reduce interest expenses and overall debt obligations.
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 short-term debt instrument that startups use to raise capital, with the debt converting into equity at a later date, typically during a subsequent funding round. Rather than repaying the principal and interest in cash, the note converts into shares of the company based on agreed-upon terms, such as a discount rate or valuation cap.
Convertible notes are popular for early-stage startups due to their simplicity, speed, and flexibility compared to traditional equity financing.
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.
Convertible debt is a type of loan that startups and companies issue to investors, which can later be converted into equity (company shares) instead of being repaid in cash. It is commonly used in early-stage startup funding, allowing investors to receive equity at a discounted rate in future financing rounds. Convertible debt typically includes a conversion discount, valuation cap, interest rate, and maturity date.
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.
A dataroom is a secure online repository used to store, organize, and share confidential business documents during due diligence, fundraising, mergers and acquisitions (M&A), or legal audits. It allows startups, investors, and legal teams to review key company information in a structured and controlled environment.
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.
