Startup glossary

59 words you’ll meet in startup and funding news, in plain English. For the bigger ideas, read the Founder Playbook. Definitions explain how things generally work; they aren’t legal, tax or investment advice.

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Raising money

Bootstrapping #: Building a company on its own revenue and the founders’ savings instead of outside investment, so the founders keep all the ownership. Stories
Pre-seed and seed #: The earliest rounds. Pre-seed money often comes from founders, friends, family and angels; a seed round funds the first product, hires and customers. Stories
Series A, B, C #: Successive priced rounds, usually led by venture capital firms. Series A funds a company that has shown early traction; later letters fund growth. The letters describe the order, not a fixed size. Stories
Venture capital (VC) #: Money from investment firms that pool funds from institutions and wealthy individuals and invest in young, fast-growing companies in exchange for equity, expecting a few big winners to pay for many losses. Stories
Angel investor #: An individual who invests their own money in early-stage startups, often before venture capital firms do. Angels sometimes invest together in groups or syndicates. Stories
Accelerator #: A program that gives a batch of early startups a small investment, mentoring and a fixed schedule — usually a few months — ending in a demo day where they pitch investors. Y Combinator and Techstars are well-known examples. Stories
Incubator #: A program or space that supports very early companies, often for longer and with less of a fixed schedule than an accelerator. Many are run by universities or cities. Stories
Demo day #: The event at the end of an accelerator batch where each startup pitches to a room of investors. Stories
SAFE #: Simple agreement for future equity: the investor pays now and gets shares later, usually when the company raises a priced round. Created by Y Combinator and common in early rounds because it is short and quick to sign. Stories
Convertible note #: A short-term loan to a startup that converts into shares at a later round instead of being repaid in cash. Unlike a SAFE, it is debt, with an interest rate and a maturity date. Stories
Priced round #: A round where investors buy shares at a set price per share, which fixes the company’s valuation. Series A and later rounds are usually priced. Stories
Term sheet #: A short document setting out the main terms of an investment — amount, valuation, investor rights — before the full legal paperwork is written. Most of it isn’t binding. Stories
Lead investor #: The investor that sets the terms of a round and usually puts in the most money. Others “participate” on the same terms. Stories
Bridge round (extension) #: A smaller raise between major rounds to keep a company going until it hits its next milestone. Stories
Venture debt #: Loans made to venture-backed startups, usually alongside an equity round, often with warrants (rights to buy shares) for the lender. Stories
Revenue-based financing #: Funding repaid as a percentage of future revenue until a set total is reached, instead of giving up equity. Stories
Down round #: A round at a lower valuation than the company’s previous one — a sign that expectations have fallen. A flat round is at the same valuation. Stories

Ownership & valuation

Equity #: Ownership in a company, usually in the form of shares. Stories
Valuation #: What investors agree a company is worth in a round. For private startups it is a negotiated number, not a market price, and it often isn’t made public. Stories
Pre-money and post-money valuation #: Pre-money is the company’s value just before new money comes in; post-money is that plus the new money. An investor who puts $2 million into a company at an $8 million pre-money valuation owns 20% of the $10 million post-money company. Stories
Valuation cap #: The highest valuation at which a SAFE or convertible note turns into shares, which protects early investors if the company’s value rises sharply before the next round. Stories
Discount #: A SAFE or note term that lets early investors convert into shares at a lower price than new investors pay in the next round. Stories
Dilution #: The shrinking of each owner’s percentage when a company issues new shares. Owning a smaller slice can still be worth more if the company has grown. Stories
Cap table #: Short for capitalization table: the list of who owns what in a company — founders, investors, employees with options — and how that changes with each round. Stories
Option pool #: Shares set aside to give employees stock options. Investors often ask for the pool to be created or enlarged before they invest, which dilutes the existing owners. Stories
Vesting and cliff #: Vesting means shares or options are earned over time, often four years. A cliff is the first stretch, often a year, before any of them vest. Stories
Liquidation preference #: An investor’s right to get their money back (or a multiple of it) before common shareholders such as founders and employees see anything when a company is sold or wound down. Stories
Pro rata rights #: An investor’s right to invest in later rounds to keep their ownership percentage from shrinking. Stories
Unicorn #: A private startup valued at $1 billion or more. A decacorn is valued at $10 billion or more. Stories

Running the business

MRR and ARR #: Monthly and annual recurring revenue: the subscription revenue a company expects to repeat. ARR is often MRR times 12. Startups usually report these themselves. Stories
Burn rate #: How much cash a company spends each month beyond what it brings in. Stories
Runway #: How long a company can keep operating before it runs out of cash: the money in the bank divided by the monthly burn. Stories
Churn #: The share of customers or revenue lost over a period, such as a month or a year. Stories
CAC #: Customer acquisition cost: what a company spends on sales and marketing to win one new customer. Stories
LTV #: Lifetime value: the total gross profit a company expects from a customer over the whole relationship. Investors compare it with CAC. Stories
Gross margin #: Revenue minus the direct cost of delivering the product, as a share of revenue. Software companies usually have higher gross margins than hardware or services businesses. Stories
Product-market fit #: The point at which a product clearly meets a strong need — customers keep using it, pay for it and tell others — so growth comes more easily. Stories
Pivot #: A major change in a startup’s product, customers or business model after the original plan doesn’t work. Stories

Getting out

Exit #: The moment founders and investors can turn their shares into cash, usually through an acquisition or a public listing. Stories
Acquisition #: One company buying another. The price is often not disclosed when the companies are private. Stories
Acqui-hire #: Buying a startup mainly to hire its team, often shutting down the original product. Stories
IPO #: Initial public offering: a company sells new shares to the public and lists on a stock exchange, after filing a registration statement (in the U.S., usually an S-1) with the regulator. Stories
Direct listing #: Going public by letting existing shareholders sell on an exchange, without the company issuing new shares the way it does in a traditional IPO. Stories
SPAC #: Special purpose acquisition company: a listed shell company that raises money to merge with a private company, taking it public without a traditional IPO. Stories
Secondary sale (tender offer) #: Existing shareholders — often employees and early investors — selling some of their shares to new buyers, so they get cash without the company raising money. A tender offer is an organized round of such sales. Stories
Wind-down #: Closing a company in an orderly way: stopping operations, paying debts and returning any money left to shareholders in order of their preferences. Stories

Rules for investors (U.S.)

Accredited investor #: A person or firm that meets income, net-worth or professional tests set by the Securities and Exchange Commission and can invest in many private offerings that are closed to everyone else. Stories
Form D #: A short notice a company files with the SEC after selling shares in a private offering. Reporters often spot funding rounds in these filings before they are announced. Stories
Equity crowdfunding (Reg CF) #: Regulation Crowdfunding lets startups raise limited amounts from the public, including non-accredited investors, through SEC-registered funding portals, with yearly caps on how much people can invest. The investments are high-risk and hard to sell. Stories
Regulation A+ #: A route sometimes called a mini-IPO: a company files an offering statement with the SEC and can raise larger amounts from the public than with crowdfunding, without a full IPO. Stories

Small business money (U.S.)

SBA #: The U.S. Small Business Administration, a federal agency. For most of its loan programs it doesn’t lend directly: it guarantees part of loans that banks and other lenders make, which makes lenders more willing to say yes. Stories
SBA 7(a) loan #: The SBA’s main loan program: SBA-guaranteed loans from approved lenders for working capital, equipment, real estate, refinancing or buying a business. Stories
SBA 504 loan #: Long-term, fixed-rate financing for major fixed assets such as buildings and heavy equipment, made with a bank and a nonprofit Certified Development Company. Stories
Microloan #: A small loan for a new or small business, often from a nonprofit community lender. The SBA’s Microloan program works through such lenders. Stories
Small business grant #: Money that doesn’t have to be repaid, usually tied to a purpose, a place or a kind of owner, with strict eligibility rules. Real grant programs don’t charge an application fee to “guarantee” approval. Stories
SBIR and STTR #: Federal programs in which agencies fund small businesses’ research and development in competitive phases; STTR projects partner with a research institution. Congress sets how long they run, so check an agency’s current solicitations. Stories
CDFI #: Community development financial institution: a lender certified by the U.S. Treasury to serve people and places that banks underserve, often making small-business and microloans. Stories
Line of credit #: A set amount a business can borrow as needed, repay and borrow again, paying interest only on what it uses. Stories
Merchant cash advance #: Upfront cash repaid from a share of a business’s future card sales. It isn’t a loan in the legal sense and can cost far more than one. Stories

Worldwide

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