A Lean Startup is a business methodology that focuses on creating and managing startups in a way that minimizes waste, maximizes efficiency, and accelerates the path to finding a sustainable business model. It emphasizes rapid experimentation, customer feedback, and iterative development to build products or services that meet customer needs without unnecessary expenditure or delay.
Leverage refers to the practice of using borrowed capital to potentially enhance the return on an investment. It involves utilizing debt or borrowed funds to finance an investment or business activity, with the aim of generating higher profits than would be possible with only the investor's own capital.
A legal contract between two parties, where one party grants the other party the right to use its intellectual property, such as patents, trademarks, or copyrights, in exchange for payment or other considerations.
Liquid assets are cash or assets that can be quickly converted into cash without significant loss in value. These assets are essential for maintaining financial flexibility and meeting short-term obligations. Common examples of liquid assets include cash, stocks, bonds, and marketable securities.
Liquidation preference is a clause in venture capital and private equity agreements that determines the order in which investors get paid in the event of a liquidity event, such as a merger, acquisition, or bankruptcy. It protects investors by ensuring they recoup their investment before common shareholders receive any payouts.
Liquidation preference is typically expressed as a multiple (e.g., 1x, 2x, or 3x), meaning an investor is entitled to 1–3 times their original investment before other shareholders receive funds.
Liquidity refers to the ease with which an asset or security can be converted into cash without impacting its market price. It is an important concept in financial markets as it determines how quickly and easily an investment can be bought or sold.
A liquidity event is a financial milestone that allows investors to convert their equity into cash. Common examples include mergers and acquisitions (M&A) or an initial public offering (IPO), where shares become publicly tradable, giving investors a chance to “cash out.”
A lock-up period is a set timeframe after an initial public offering (IPO) during which certain shareholders, such as founders, employees, and early investors, are restricted from selling their shares. This period is intended to maintain stock price stability and prevent market fluctuations.
Market analysis is a crucial process in understanding and evaluating a specific market. It involves the collection and interpretation of data to gain insights into various aspects of the market, including its size, growth potential, competition, and customer preferences. By conducting a comprehensive market analysis, businesses can make informed decisions and develop effective strategies to maximize their success.
Market capitalization, often referred to as "market cap," is the total value of a company’s outstanding shares of stock. It is calculated by multiplying the current stock price by the total number of outstanding shares. Market capitalization is commonly used to assess a company’s size and overall market value, helping investors compare businesses within the same industry.
Market development is a growth strategy that involves expanding a company’s reach by introducing existing products or services into new markets. This strategy can target different geographic regions, customer segments, or industries that the company has not previously served.
A market entry strategy is a plan or approach that a business uses to introduce its products or services into a new market. It outlines how the company will enter the market, establish its presence, and achieve competitive positioning. Market entry strategies involve decisions about pricing, distribution, marketing, and operational structure to ensure a successful launch and growth in the target market.
Market expansion is a growth strategy where a business increases its reach by offering existing products or services in new geographic regions, customer segments, or industries. It focuses on leveraging current strengths to tap into untapped or underserved markets, thereby increasing revenue and brand visibility.
A market opportunity refers to a favorable combination of circumstances that enables a business to enter and compete in a specific market segment. It represents a chance for a company to capitalize on existing or emerging market conditions and gain a competitive advantage.
Market penetration refers to a strategy aimed at increasing the market share of a product or service within an existing market. It involves driving sales by attracting new customers, encouraging existing customers to buy more, or capturing customers from competitors.
Market research is the process of gathering, analyzing, and interpreting information about a target market, customers, competitors, and industry trends. It provides insights into customer needs, behaviors, and preferences, helping businesses make informed decisions about product development, marketing strategies, and market entry.
Market segmentation is the process of dividing a broader market into smaller, more defined groups of consumers with similar characteristics, needs, or behaviors. These segments allow businesses to tailor their marketing efforts, products, or services to meet the specific demands of each group more effectively.
Market validation is a crucial process for startups to test and validate their product or service in the target market. The objective is to determine the viability and potential for success of the offering. By gathering feedback and insights from the target market, startups can gain valuable information to refine their product or service and make informed business decisions.
Mergers and Acquisitions (M&A) refer to the consolidation of companies through various financial transactions, including mergers, acquisitions, and asset purchases. These transactions involve the combining or buying of companies to create a larger or more competitive entity in the market.
The Minimum Viable Product (MVP) is the most basic version of a product or service that allows a startup to test its hypothesis and gather feedback from early adopters. It is a strategy commonly used in the startup world to validate ideas and minimize the risk of developing a product that may not meet market needs.
Monetization refers to the process of generating revenue from a product or service. It involves implementing various business models to generate income. Some common monetization strategies include advertising, subscriptions, and transaction fees.
A Non-Disclosure Agreement (NDA) is a legal contract that serves as a protective measure for confidential material, knowledge, or information that two or more parties wish to share with each other for specific purposes. The primary objective of an NDA is to restrict access to or by third parties, ensuring that the shared information remains confidential.
Net income, often referred to as the bottom line, is the total profit a company earns after deducting all expenses, taxes, and costs from its revenue. It reflects the company’s financial performance over a specific period and is a critical metric for assessing profitability.
Net Operating Income (NOI) is a financial metric used to evaluate the profitability of an income-generating property or business before accounting for taxes, interest, and other non-operating expenses. It is calculated by subtracting operating expenses from total revenue generated by the property or business.
Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment. It calculates the present value of an investment by subtracting the initial investment cost from the sum of the discounted cash flows over a specific period of time.
Net profit margin is a financial metric that measures the percentage of revenue remaining as profit after all expenses, including operating costs, taxes, and interest, have been deducted. It provides insight into a company’s overall profitability and efficiency in managing expenses relative to its revenue.
Gross profit and net profit are key financial metrics that measure a company's profitability at different levels:
Net Promoter Score (NPS) is a customer satisfaction metric that measures how likely customers are to recommend a company’s product or service to others. It is calculated based on responses to the question: “On a scale of 0 to 10, how likely are you to recommend our company to a friend or colleague?” Customers are categorized as Promoters (9–10), Passives (7–8), or Detractors (0–6).
Networking refers to the process of building and maintaining professional relationships to exchange information, resources, and opportunities. It involves connecting with peers, mentors, industry experts, and potential collaborators to foster mutual growth and success. Networking can occur through events, online platforms, or informal interactions and is a crucial skill for personal and business development.
A non-compete clause is a contractual agreement in which one party agrees not to enter into or start a similar profession, trade, or business in competition with another party. This clause is commonly used in employment contracts, business partnerships, and acquisition agreements to protect the interests of the party with whom the agreement is made.
Non-Dilutive Financing refers to funding obtained by a company without the need to give up equity or ownership. This type of financing provides alternative options for companies to raise capital without diluting the ownership stake of existing shareholders.
An operating agreement is a legal document that defines the rights, responsibilities, and governance structure of a limited liability company (LLC). It serves as a contract between the members of the LLC, outlining how the company will be managed and operated.
Operating cash flow (OCF) refers to the cash generated by a company’s core business operations over a specific period. It measures the cash inflows and outflows directly related to the production and sale of goods or services, excluding financing and investing activities.
Operating Expenses (OpEx) refer to the costs a business incurs during its day-to-day operations. These expenses are necessary to maintain and run the company’s core activities but are not directly tied to the production of goods or services. Common OpEx examples include salaries, rent, utilities, marketing, and administrative costs.
Operating income, also known as operating profit or operating earnings, is the profit a company generates from its core business operations, excluding expenses like taxes, interest, and non-operational gains or losses. It is calculated by subtracting operating expenses (OpEx) from gross profit, providing a clear measure of a company’s profitability from its primary activities.
Opportunity cost refers to the potential benefit that is foregone or sacrificed when an individual or organization chooses one investment or opportunity over another. It is a fundamental concept in economics and decision-making, highlighting the trade-offs involved in making choices.
An option pool refers to a portion of a company's shares or equity that is reserved for future distribution to employees, consultants, or other individuals as part of their compensation or incentive plans.
Overvaluation refers to the situation where the value assigned to a company or asset is considered to be higher than its intrinsic or fundamental value. In other words, it occurs when the market price of a company or asset is inflated beyond its actual worth.
The ownership stake refers to the percentage or portion of a company's shares or equity that is held by an investor or shareholder. It represents the level of ownership and control an individual or entity has over a particular company.
Pari passu is a Latin term meaning "on equal footing." In finance and investment, it refers to different stakeholders having equal rights or claims in terms of payments, debt obligations, or liquidation preferences. When securities or creditors are ranked pari passu, it means they will receive equal treatment without preference over one another.
The payback period is the amount of time it takes for an investment to recover its initial cost through the generated returns or savings. It is a simple metric used to evaluate the feasibility and risk of an investment by determining how quickly the initial expenditure can be recouped.
The payback ratio is a financial metric that measures the proportion of an investment or loan repaid within a given time frame, often expressed as a percentage. It helps assess the speed and efficiency with which funds are being recovered or debt is being paid down.
Payback time is the amount of time it takes for an investment or project to recover its initial cost through cash inflows or savings. This metric is used to evaluate the feasibility and financial efficiency of investments, providing insight into how quickly the initial expenditure will be repaid.
Phantom equity is a type of compensation plan that gives employees or executives the financial benefits of stock ownership without granting actual shares. Instead of owning real equity, recipients receive cash payouts tied to the company’s stock value, typically during a liquidity event such as an IPO, acquisition, or sale. Phantom equity is commonly used by startups and private companies to incentivize employees without diluting ownership.
Phantom stock is a type of deferred compensation plan that gives employees the benefits of stock ownership without actually granting them company shares. Instead, employees receive cash payouts tied to the company's stock value, typically upon a liquidity event (e.g., acquisition, IPO) or after a set vesting period. Phantom stock is often used to motivate employees and align their interests with company growth without diluting equity.
A pivot refers to a strategic change made by a startup in response to market feedback or changing circumstances. This change can occur in various aspects of the business, including the business model, product, or target market. The primary objective of a pivot is to enhance growth and profitability.
A portfolio refers to a collection of investments made by a venture capital firm. It typically includes startups and other high-growth potential companies. The primary objective of creating a portfolio is to generate returns and diversify risk.
Post-Money Valuation refers to the value of a startup or company after external funding has been raised. It takes into account the investment amount and is calculated by adding the investment to the pre-money valuation.
Pre-money valuation refers to the estimated value of a company before it receives external funding or investment. It represents the company’s worth based on its current assets, market position, and potential growth, excluding any new capital injection. Pre-money valuation is a critical metric in determining the equity stake offered to investors in exchange for their funding.
Pre-seed funding refers to the initial stage of funding for startups. It is usually provided by angel investors or friends and family who believe in the potential of the startup. The main purpose of pre-seed funding is to help cover the initial expenses and support the development of a minimum viable product (MVP).
Pre-money valuation and post-money valuation are key concepts in startup funding, representing a company's value before and after receiving external investment, respectively.
Preemption Rights grant existing shareholders the option to maintain their ownership percentage by purchasing additional shares before new investors can do so. This right is typically exercised through a Preemption Notice, allowing shareholders to avoid dilution of their stake.
Preferred equity is a class of investment that sits between debt and common equity in a company’s capital structure. Preferred equity holders receive priority over common shareholders for dividends and liquidation payouts but typically do not have voting rights. It is commonly used in real estate, private equity, and venture capital deals to provide investors with higher returns than debt but lower risk than common stock.
Preferred stock is a class of ownership in a company that combines features of both equity and debt. It provides shareholders with priority over common stockholders in receiving dividends and liquidation proceeds. While preferred shareholders typically lack voting rights, they enjoy other benefits, such as fixed dividend payouts and preferential treatment in the event of company liquidation.
Preferred stock and common stock are two types of equity ownership in a company, each with distinct rights and benefits.
Pro forma financials are financial statements that project a company’s future performance or reflect hypothetical scenarios. These reports include income statements, balance sheets, and cash flow statements and are commonly used in strategic planning, fundraising, mergers, acquisitions, and other financial planning processes.
Product-Market Fit refers to the stage in the lifecycle of a startup where its product or service successfully meets the needs and demands of the market it serves. It is a critical milestone for any company as it signifies the alignment between the offering and the target customers, leading to sustainable growth and customer satisfaction.
Profit margin is a financial metric that measures the percentage of revenue a company retains as profit after accounting for expenses. It is a key indicator of a company’s financial health, efficiency, and profitability. Profit margin is calculated by dividing net income by revenue and multiplying by 100 to express it as a percentage.
Profit sharing is a financial incentive program in which a company distributes a portion of its profits to employees, partners, or stakeholders. This distribution is often based on predetermined formulas, such as an employee’s salary or tenure, and aims to align interests, boost motivation, and reward performance.
A Profit and Loss Statement (P&L or PNL), also known as an income statement, is a financial document that summarizes a company's revenues, expenses, and profits (or losses) over a specific period. It is a key financial statement used to evaluate a business’s performance and profitability.
The profitability index (PI), also known as the profit investment ratio (PIR) or value investment ratio (VIR), is a financial metric used to evaluate the attractiveness of an investment or project. It is calculated by dividing the present value (PV) of future cash flows by the initial investment cost. A profitability index greater than 1 indicates that the project or investment is likely to generate value and is worth pursuing.
A Proof of Concept (PoC) is a demonstration or prototype that validates the feasibility and potential of a startup's idea or product. It provides evidence to investors that the idea or product can be successfully developed and commercialized.
Fore more information, read our full guide on proof of concept.
Qualified Financing refers to a specific type of financing round that occurs in the context of startup funding. In this round, investors must meet certain criteria to participate. It is an important milestone for startups as it often signifies a significant level of progress and validation.
The quorum refers to the minimum number of members required to be present at a meeting in order to conduct official business.
Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment. It measures the gain or loss generated on an investment relative to the amount of money invested. ROI is expressed as a percentage and is a key indicator for assessing the success of an investment.
A revenue forecast is an estimate of the amount of revenue a business expects to generate over a specific period, based on historical data, market trends, and planned strategies. It helps businesses project their financial performance and plan for future growth, investments, and expenses.
A revenue model is a framework that outlines how a business generates income by selling products or services, licensing intellectual property, offering subscriptions, or employing other monetization strategies. It defines the sources of revenue and the pricing mechanisms that drive the business's financial success.
Revenue streams refer to the various sources of income a business generates from selling products or services, licensing, advertising, or other monetization strategies. Each revenue stream represents a specific way in which a business earns money, contributing to its overall financial stability and growth.
Revenue-based financing (RBF) is a funding method where a business secures capital from investors or lenders in exchange for a percentage of its future revenues. Unlike traditional loans, there is no fixed repayment schedule or interest rate. Instead, repayments are tied directly to the company’s revenue, making it a flexible option for startups with fluctuating income.
A revolving loan is a flexible line of credit that allows businesses to borrow, repay, and borrow again up to a specified credit limit. It provides ongoing access to funds, making it ideal for managing cash flow, covering short-term expenses, or addressing unexpected financial needs. Unlike a term loan, which has fixed repayment schedules, a revolving loan offers flexibility in repayment as long as the borrower stays within the credit limit.
A round refers to a specific stage of financing in which a company raises capital from investors. It is a crucial step in the growth and development of a company, allowing it to secure funds to support its operations, expand its business, or invest in new opportunities.
The run rate is a method used to project a company’s future revenue based on its current performance over a short period, typically extrapolated to an annual figure. It helps startups estimate potential earnings by assuming that recent revenue levels will continue consistently.
The runway refers to the length of time a startup can continue operating using its existing cash reserves before it becomes necessary to secure additional funding.
A SAFE, or Simple Agreement for Future Equity, is a financing contract that grants investors rights to future equity in a startup in exchange for an upfront investment. Unlike traditional convertible notes, SAFEs don’t accrue interest or have a maturity date. They’re often used in early-stage fundraising for their simplicity and flexibility.
The SH01 Form is a document filed with Companies House to officially record the issuance of new shares in a startup. Submitting this form is the final step in closing a funding round, providing a public record of the new shares issued and ensuring compliance with regulatory requirements.
Read more:
