Debt financing is a method of raising capital in which a business borrows money and agrees to repay it over time with interest. This can come from banks, financial institutions, venture debt firms, or private lenders. Unlike equity financing, debt financing allows startups to raise funds without giving up ownership, making it a preferred option for businesses that want to retain control.
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.
Visionary users who spot potential before the crowd. They adopt new products soon after launch—not as early as Innovators, but still ahead of the mainstream. Early Adopters are influential, willing to invest in solutions they believe in, and often help bring startups into the spotlight by spreading the word.
Early adopters and laggards are part of the technology adoption lifecycle—a model that shows how different types of users adopt new products over time.
Why it matters for startups
Your first users won’t be the masses—they’ll be early adopters. Knowing how to spot, attract, and learn from them is key to gaining traction. Don’t waste energy convincing laggards too early—they’ll come later (if at all).
Practical users who adopt new products once they’ve proven themselves. The Early Majority is more risk-averse than Innovators and Early Adopters but open to change if the product shows value and reliability. They look for social proof, real-world results, and trustworthy recommendations before jumping in.
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.
An economic moat refers to a sustainable competitive advantage that enables a company to maintain its market position and effectively defend itself against competitors. It acts as a barrier to entry, making it difficult for other companies to replicate or surpass the success of the moat-possessing company.
An Employee Stock Ownership Plan (ESOP) is a program that grants employees ownership interest in a startup through company shares, often used as a method to attract and retain talent. By offering employees a stake in the company, ESOPs align their interests with the company’s success, fostering motivation, loyalty, and long-term commitment.
Equity compensation is a form of non-cash payment where employees, executives, or advisors receive ownership stakes in a company instead of (or in addition to) traditional salaries. This compensation can come in the form of stock options, restricted stock units (RSUs), or performance-based shares. Startups and high-growth companies often use equity compensation to attract talent, align incentives, and preserve cash flow.
Equity crowdfunding refers to the practice of raising capital from a large number of individuals in exchange for equity or shares in a company. It is a method of fundraising that allows entrepreneurs and startups to access funding from a wide pool of investors, often through online platforms or portals.
Equity stake refers to the percentage of ownership or shares that an investor holds in a company. It represents the investor's claim on the company's assets and earnings.
An exit event refers to a significant milestone in the investment journey where investors can realize a return on their investment. This occurs when a company undergoes a specific event that allows investors to cash out their investment and potentially earn profits. Two common types of exit events are acquisitions and initial public offerings (IPOs).
An exit multiple is a factor used to determine a company’s sale price relative to a financial metric, such as revenue or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Commonly used in startup exits, it helps estimate the potential return for investors by assessing the company’s valuation at exit.
Exit planning refers to the strategic process of preparing a business and its stakeholders for a transition of ownership or leadership. This process includes defining financial and personal goals, identifying potential exit options, and ensuring the business is well-positioned for a smooth transition. Exit planning is essential for maximizing value, minimizing risks, and achieving a successful outcome, whether through a sale, merger, acquisition, or other means.
An exit strategy refers to a well-thought-out plan that outlines how investors can realize their investment and achieve liquidity. It is typically executed through either an acquisition or an initial public offering (IPO).
Exit valuation refers to the estimated worth of a business at the time of its exit, such as through an acquisition, merger, or initial public offering (IPO). It determines the financial returns for founders, investors, and stakeholders based on the company’s financial performance, market position, growth potential, and industry trends.
Fair value is the estimated price at which an asset, liability, or business would be exchanged between willing buyers and sellers in an open and competitive market. It reflects the asset’s true worth based on market conditions, financial performance, and comparable valuations.
Financial modeling is the process of creating a detailed, numerical representation of a company’s financial performance and projections. It involves building models, typically in spreadsheets, to analyze past performance, forecast future outcomes, and evaluate the financial impact of strategic decisions. Financial models are used to assess scenarios such as funding needs, valuations, acquisitions, and market expansions.
Financial projections are forward-looking estimates of a company’s future financial performance based on historical data, market trends, and strategic plans. These projections typically include forecasts for revenue, expenses, profit margins, and cash flow over a specified period.
Founder vesting is a mechanism used to gradually transfer ownership of a startup to its founders over a specific period of time. This process is often tied to the founders' continued involvement in the company. It helps align the interests of the founders with the long-term success of the startup and protects the company in case a founder decides to leave prematurely.
Founder-Investor Fit is the alignment between a startup founder's goals, values, and vision with an investor's strategy, expectations, and approach to growth. This fit is essential to fostering a productive, long-term partnership where both parties are aligned on business objectives, company culture, and strategic direction, minimizing conflicts and maximizing mutual support.
Founder-Market Fit refers to the alignment between a founder's skills, experience, and passion, and the needs and characteristics of the target market. It is a crucial factor in the success of a startup as it ensures that the founder has the necessary understanding and expertise to address the market's demands effectively.
A Founders' Agreement is a legal document that plays a crucial role in outlining the roles, responsibilities, and ownership structure of the founders of a startup. It serves as a foundation for the relationship between the founders and helps establish a clear understanding of each founder's rights and obligations.
Founder’s equity refers to the ownership stake held by the founders of a startup, represented by shares in the company. It reflects the value of the founders’ initial contributions, such as cash, intellectual property, or effort, and serves as a reward for their risk and dedication in starting the business. Founder’s equity is typically allocated at the company’s inception and may change over time due to investments, dilution, or restructuring.
Founder’s stock refers to the initial shares allocated to a startup’s founders when the company is formed. These shares represent the founders’ ownership and are typically issued at a nominal value to reflect their contributions, such as capital, intellectual property, or time. Founder’s stock often comes with specific rights, restrictions, and vesting schedules to ensure long-term commitment to the company.
The freemium model is a business strategy where a company offers a basic version of its product or service for free while charging for premium features, advanced functionalities, or enhanced experiences. This model is commonly used in digital products, such as software, apps, or online services, to attract a large user base and convert free users into paying customers over time.
Fully vested means that an individual has 100% ownership of their granted equity, stock options, or retirement benefits. Once fully vested, the person can exercise, sell, or transfer their shares without restrictions. This term is commonly used in startup equity plans, stock options, and employee retirement benefits.
Vesting schedules are often structured over multiple years to incentivize long-term commitment.
Fundraising refers to the process of seeking and securing funding from investors for a startup or early-stage company. It is a crucial step in the growth and development of a business, as it provides the necessary capital to fuel operations, expand the team, develop new products or services, and scale the business.
A Funds Tracker is a tool that startups use to record and organize the dates and amounts of investment funds received. Keeping this updated ensures transparency and organization throughout the fundraising and closing process.
A Go-to-Market (GTM) strategy is a comprehensive plan that outlines how a company will launch a product or service, reach its target audience, and achieve a competitive position in the market. It covers critical aspects like customer segmentation, value proposition, marketing channels, sales strategy, and pricing.
A Golden Parachute is a contractual agreement that provides a substantial financial payout to executives if they are terminated due to a merger, acquisition, or company restructuring. This compensation package often includes cash bonuses, stock options, and other benefits. The purpose of a golden parachute is to attract top talent and ensure stability during leadership transitions.
Gross sales and net sales are key financial metrics that measure a company's revenue:
Growth equity is a type of private equity investment that targets established companies with a track record of consistent revenue growth. This investment strategy aims to provide capital to these companies, enabling them to expand their operations and reach new levels of growth.
Growth Hacking is a marketing technique that emphasizes rapid experimentation across various channels and product development to discover the most effective strategies for growing a business.
Growth metrics are quantitative measurements used to track and evaluate the growth of a startup. These metrics provide valuable insights into the performance and progress of a business. By analyzing growth metrics, entrepreneurs can make informed decisions and identify areas for improvement.
Growth rate refers to the percentage increase or decrease in a company’s revenue, user base, or other key metrics over a specific period. It is a critical measure of a company’s performance and momentum, providing insights into its ability to scale and succeed in its market.
The growth stage is a crucial phase in a company's lifecycle. It signifies the point at which the company has successfully achieved product-market fit and is now dedicated to scaling its operations and expanding its customer base.
Harvesting refers to the process of exiting or realizing the return on investment in a startup.
Hockey Stick Growth refers to a specific growth trajectory that starts off slowly and then experiences a sudden and significant rise, resembling the shape of a hockey stick. This term is often used in business and marketing to describe a company or product's growth pattern.
Horizontal integration is a growth strategy for startups where they acquire or merge with another company in the same industry. This approach helps startups quickly increase market share, reduce competition, and expand their product or service reach.
A horizontal market refers to a type of market that caters to a broad range of industries or customers, as opposed to a vertical market that focuses on a specific industry or customer segment.
A hub refers to a geographic location or ecosystem that serves as a center for startups, investors, and supporting resources. It is characterized by a high concentration of these entities, creating an environment conducive to innovation and entrepreneurship.
The hurdle rate is the minimum rate of return that a pre-seed venture capital investor expects to receive before they will invest in a startup. It acts as a benchmark for evaluating investment opportunities and helps investors determine if a particular startup is worth investing in.
The IPO (Initial Public Offering) refers to the first sale of a company's stock to the public. It is a significant milestone for a company as it allows them to raise capital from external investors and transition into a publicly traded entity.
The incubation period is the phase during which a startup receives support from an incubator, gaining access to resources, mentorship, and networking opportunities. This period helps startups develop their business model, refine their product, and prepare for growth.
An incubator is an organization that offers support, resources, and mentorship to early-stage startups with the goal of helping them grow and scale their businesses.
An Initial Exchange Offering (IEO) is a fundraising method where a cryptocurrency exchange facilitates the sale of a startup’s tokens to investors. Unlike an Initial Coin Offering (ICO), where the startup manages the sale independently, an IEO is conducted on a trusted exchange platform, which acts as an intermediary. This provides greater credibility, security, and access to the exchange’s user base.
Early adopters who thrive on being the first to try new tech. They’re curious, open to risk, and happy to test unproven products—often giving valuable feedback that helps shape future versions. Startups love them for their enthusiasm and influence.
An intellectual asset is a valuable intangible resource owned by a business, encompassing knowledge, ideas, or proprietary information that provides a competitive advantage. Intellectual assets include intellectual property (such as patents, trademarks, and copyrights), trade secrets, brand reputation, and know-how. Unlike physical assets, intellectual assets are intangible but critical for driving innovation, market positioning, and long-term growth.
Intellectual capital refers to the intangible assets and resources that contribute to a company’s value and competitive advantage. It encompasses human knowledge, skills, relationships, and intellectual property that drive innovation, efficiency, and growth. Intellectual capital is often categorized into three main components: human capital, structural capital, and relational capital.
Intellectual Property Rights (IPR) are the legal protections granted to creators and owners of intellectual property, such as inventions, designs, brand names, artistic works, and trade secrets. These rights allow individuals and businesses to safeguard their creations, control their use, and benefit financially from them.
An investment memo is a structured document used by venture capitalists (VCs), private equity firms, and angel investors to evaluate and justify an investment opportunity. It outlines key details about a startup or company, including its business model, market potential, financials, risks, and exit strategy. Investment memos help investors make informed decisions and serve as internal records for due diligence.
An investment thesis refers to a set of criteria and principles that investors use to guide their decision-making process when evaluating potential investment opportunities. It serves as a framework that helps investors determine whether an investment aligns with their goals and risk tolerance.
Investor Consent is the approval required from previous investors, as specified in earlier Shareholders Agreements, before issuing new shares. This consent is formalized through an Investor Consent Notice to ensure compliance with prior agreements.
The J-Curve is a graphical representation of the financial performance of a venture capital fund. It illustrates the pattern of returns over time, showing initial negative returns followed by a steep upward trajectory.
Joint liability refers to a legal obligation where two or more parties are equally responsible for fulfilling a debt, contract, or other legal responsibility. In the context of business, this means that each party involved is individually and collectively liable for the entire obligation. If one party cannot meet their share of the responsibility, the other parties are required to cover the shortfall.
A Joint Stock Company (JSC) is a type of business entity where ownership is divided into shares that are held by shareholders. Each shareholder owns a portion of the company proportional to the number of shares they hold, and their liability is typically limited to the value of their shares. Joint stock companies can be publicly or privately held, with publicly traded shares available on stock exchanges.
For startups, transitioning to a joint stock company structure can facilitate fundraising, enhance credibility, and provide opportunities for growth through equity investment.
A joint venture is a business arrangement where two or more parties agree to pool their resources and expertise to achieve a specific goal. It is a strategic partnership between companies or individuals who work together to leverage their strengths and minimize risks.
A key differentiator is a unique feature, attribute, or capability that sets a business, product, or service apart from its competitors. It highlights what makes the company stand out in the market, providing customers with a compelling reason to choose it over alternatives. Key differentiators can include innovation, quality, pricing, customer service, branding, or specialized expertise.
Key metrics are the specific, quantifiable measures that businesses use to track their performance, evaluate progress, and achieve strategic goals. These metrics vary depending on the industry, business model, and objectives, and they help identify areas for improvement and growth. For startups, key metrics often include data on customer acquisition, revenue growth, user engagement, and operational efficiency.
Key Performance Indicators (KPIs) are quantifiable measures used to evaluate the success or progress of a company or project. They provide a way to assess the performance of various aspects of a business or project and determine whether they are meeting the desired goals and objectives.
A Key Value Proposition (KVP) is the core benefit or unique value that a business promises to deliver to its customers. It communicates why a customer should choose the company’s product or service over competitors, focusing on solving specific problems or fulfilling needs in a way that provides superior value.
Kickstarter is an online crowdfunding platform that enables individuals or businesses to raise funds for creative projects or products. It provides a space for creators to present their ideas and connect with potential backers who can contribute financially to support the project. Kickstarter has gained popularity as a platform that fosters innovation and allows creators to bring their visions to life.
A Limited Partner (LP) is an investor in a venture capital (VC) or private equity fund who provides capital but has limited liability and no active role in fund management. LPs typically include institutional investors, pension funds, family offices, and high-net-worth individuals. They entrust fund management to General Partners (GPs), who make investment decisions and oversee the fund’s operations.
