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.
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.
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.
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).
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 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.
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.
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A sales funnel is a visual representation of the customer journey, illustrating the stages a potential customer goes through from initial awareness of a product or service to making a purchase. It typically includes stages such as awareness, interest, decision, and action.
A sales pipeline is a visual representation of the stages a sales team follows to convert potential leads into paying customers. It tracks the progress of prospects through the sales process, helping businesses forecast revenue, prioritize efforts, and identify areas for improvement.
Sales revenue is the total income a business earns from selling its products or services during a specific period. It is a key component of a company’s financial performance and is often referred to as "top-line" revenue because it appears at the top of the income statement.
Scalability refers to a business model's ability to increase revenue without a corresponding rise in operational costs. A scalable business can handle growth efficiently, often by leveraging technology, streamlined processes, or economies of scale.
Seed funding refers to the initial capital that is provided to a startup in exchange for equity. It is the first round of funding that a startup receives to help get their business off the ground. Seed funding is typically provided by angel investors, venture capitalists, or even friends and family of the founders.
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Series A funding refers to the initial round of financing that a startup receives after seed funding. This funding round is crucial for startups as it allows them to scale their operations and further develop their product or service.
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Share dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders. This often happens during funding rounds, stock option exercises, or convertible securities conversions. While dilution decreases the proportional ownership of existing shares, it can also increase the company’s overall value if the new shares raise significant capital.
A share repurchase, also known as a stock buyback, is a corporate action where a company buys back its own shares from the market. This reduces the number of outstanding shares, increasing the ownership percentage of remaining shareholders and potentially boosting the stock’s value. Share repurchases are often used as a way to return capital to shareholders or signal confidence in the company’s financial health.
Shareholder value refers to the financial worth delivered to a company’s shareholders through increased stock prices, dividends, and overall company performance. It is a measure of a company’s ability to generate returns for its investors, either through capital appreciation or direct payouts.
A Shareholders Agreement (SHA) is a legally binding contract that defines the relationship between a company, its shareholders, and its investors. It outlines the terms and conditions agreed upon in the term sheet, ensuring that all parties are aligned on their rights, obligations, and responsibilities.
A Shareholders Resolution is a formal document signed by a startup’s shareholders to approve significant business decisions, typically requiring a 75% majority. This resolution is commonly used for key actions like issuing new shares, approving mergers, or making changes to the company’s structure, ensuring that shareholders are informed and aligned on these impactful decisions.
Software as a Service (SaaS) is a software delivery model where applications are accessed through the internet. Instead of installing and maintaining software on individual computers or servers, users can access the software through a web browser.
Startup valuation refers to the process of determining the worth or value of a startup. It is typically based on the startup's potential for growth and future success. Understanding the valuation of a startup is crucial for investors, founders, and stakeholders as it helps in making informed decisions regarding investments, partnerships, and overall business strategies.
Stock options are a form of compensation that gives employees, founders, or investors the right to purchase a company’s shares at a predetermined price, known as the exercise or strike price, within a specified time frame. These options become valuable if the company’s stock price increases, allowing the holder to buy shares at a lower price and potentially sell them at a profit.
A strategic alliance is a formal agreement between two or more businesses to collaborate and achieve mutually beneficial goals while remaining independent entities. These partnerships can involve sharing resources, expertise, or market access to enhance competitiveness, expand market reach, or drive innovation.
A strategic partnership is a mutually beneficial arrangement between two or more businesses that collaborate to achieve shared objectives while maintaining their independence. These partnerships often focus on leveraging each other’s strengths, resources, or market access to drive growth, innovation, and competitive advantage.
Strategic planning is the process of defining a company’s direction and making decisions on allocating resources to achieve its long-term goals. It involves setting objectives, analyzing internal and external environments, and crafting strategies to guide the organization toward success.
Sweat equity is the ownership stake that founders or employees receive in exchange for their labor and contributions, rather than a financial investment. It represents the value of their hard work and dedication in building the company.
A sweat equity agreement is a legal contract that outlines the terms under which an individual or group receives ownership or equity in a company in exchange for their time, effort, or expertise instead of monetary investment. It is commonly used in startups to reward founders, early employees, or advisors who contribute significantly to building the business.
Sweat equity shares are equity shares issued by a company to individuals in exchange for their labor, expertise, or other non-monetary contributions, rather than a direct financial investment. These shares are typically granted to founders, employees, or advisors who play a significant role in building the business and are rewarded for their efforts with ownership in the company.
