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An accelerator is a fixed-term program designed to help early-stage startups and growing businesses accelerate their growth by offering them resources such as mentoring, capital, guidance, networking, and operational support. Accelerators normally work with a chosen few companies for a certain duration of time and assist them in developing their business model, product testing, customer acquisition, and even fundraising.
The accounting equation is the fundamental formula that keeps the company’s books in balance.
Accounting software is a digital tool that businesses use to record, manage, and process their financial transactions, replacing manual ledgers and spreadsheets with an automated centralized system. It includes fixed asset management, expense management, revenue management, accounts receivable, accounts payable, subledger accounting, reporting, and analytics.
Accounts payable(AP) refers to the money that the company owes to its suppliers, vendors, or service providers for the goods and services it has purchased on credit, but has not yet paid. Within a company’s financial statement, accounts payable is a liability, but it isn't normally described as debt in the same sense as loans or other financing obligations. These are short-term obligations, typically due within 30–90 days, although payment terms can vary.
Accounts Receivable(AR) is the term used to describe the money owed to a business by its customers for purchases made on credit. It is a current asset on the balance sheet and is the total value of the outstanding invoices for goods or services the business has sold but for which it has not yet received payment.
Accrued interest is the interest amount that is either earned or due on a debt obligation or investment and has not been received or paid at the end of the accounting period. Unlike cash interest, accrued interest is recognized when it is earned or incurred, even if the related cash payment has not yet occurred.
Acquihire is the type of business acquisition in which the company primarily acquires another company to gain access to its talented employees, expertise, and specialized skills rather than its products, technology, or customer base.
Acquisition is a business deal through which a firm acquires another firm, or an asset, or majority ownership of another business firm. This may be a business that operates as an independent unit, merges with the purchasing business, or integrates its products, technology, customers, and staff into the purchasing firm.
Advisory shares are a form of equity compensation granted to company advisors in exchange for their expertise, strategic guidance, industry knowledge, or professional connections. They are commonly used by startups to attract experienced advisors without relying entirely on cash compensation. Advisory shares are seen most at startup companies in their initial stages because there’s a lack of cash flow, but there is an ability to utilize equity to recruit experienced operators or industry veterans without putting pressure on finances.
Allocation is the process of assigning resources such as money, costs, time, employees, or other assets to specific departments, products, or business activities. In accounting and finance, allocation allows companies to know which places are using the company's resources and expenses, thereby making reporting and budgeting better.
An angel round is an early-stage funding round in which startups raise money from individual investors, called angel investors. In exchange for funding, investors may receive equity or invest through instruments such as SAFEs or convertible notes. Angel funding is commonly used to support product development, hiring, market expansion, and other early business needs.
Annual Percentage Yield is the effective annual rate of return earned on a savings account, certificate of deposit(CD), or other interest-bearing account, including the effect of compound interest.
An asset is a resource owned or controlled by a business or an individual that has economic value and is expected to provide future benefits. An asset can include cash, accounts receivable, inventory, property, equipment, investments, intellectual property, and other resources that are expected to provide future economic benefits. Assets can either be tangible, which includes cash, stocks, buildings, and machinery, or intangible, including patents, copyrights, trademarks, and goodwill.
Asset Financing refers to the process whereby a business is able to raise finances through which to purchase, lease, or refinance its assets without meeting the total cost of those assets upfront. This depends on how the financing will be structured as either the asset being financed or some asset already owned by the business may act as security against the finance.
The asset turnover ratio is a financial efficiency ratio that measures how effectively a business uses its assets to generate sales. It shows how many dollars of revenue a business generates for every dollar invested in its average total assets during a specific time period.
Balance sheet financing is a type of funding in which a business borrows money directly from the lender based on its financial strength, assets, cash, and overall balance sheet rather than selling the debt to another investor. A balance sheet lender holds the loan on its balance sheet and takes the credit risk involved in the process. The loan that is made through balance sheet lending is known as a balance sheet loan.
Bookings represent the total value of a single contract; the point at which the customer decides to pay for the product or service being offered by the organization. It is said that “the bookings have been made,” although nothing tangible has happened just yet. When it comes to SaaS and subscriptions, bookings are perhaps the most important indicator of momentum in the business.
Bootstrap funding is an alternative source of funding for setting up and expanding a business without external sources of funding. The entrepreneur uses personal savings, initial income from clients, or venture revenue. Bootstrap funding for startups usually involves keeping full control and ownership over the firm and utilizing all available funds to grow the business.
The bottom line is the company’s net income or net profit after all revenues, expenses, interest, and taxes have been accounted for. It comes up on the last line of the income statement and indicates if the company had a profit or loss for the period under consideration.
Budget Variance Analysis is the process of comparing a company’s budgeted financial results with its actual performance to identify, measure, and understand the differences. That is not simply finding one figure that has gone wrong; the true essence is in finding out why the difference has occurred so that the organization can take action before the little problem becomes a bigger one.
Business expenses are the costs a company incurs to operate its business and generate revenue. They are also referred to as business spending or business expenditures and can include employee salaries, rent, software subscriptions, advertising, travel, professional fees, office supplies, and other expenses incurred.
A business model is the framework a company uses to create value for customers and turn that value into revenue and sustainable profit. It shows what is being sold by the business, whom it serves, how it connects to the customers, how it makes money, and what it costs to run the business.
Calculating the Compound Annual Growth Rate(CAGR) is the way to measure the average annual rate at which a business, investment, or financial metric grows over a specific period of time, assuming the growth compounds every year. CAGR, or compound annual growth rate, is a standard metric for measuring revenue CAGR, investment returns, and the long-term growth of a business.
The California Sales Tax Exemption is a legal exception that allows certain purchases or transactions to be made without paying California sales or use tax when specific requirements are met. Examples include exemptions for resale transactions, certain food items, sales to the United States Government, and certain manufacturing and research equipment. Companies seeking an exemption have to be able to satisfy the necessary eligibility criteria for the tax exemption along with providing the necessary documentation, such as an exemption or resale certificate.
California Statement of Information (SOI), which can also be referred to as California's Annual Report or LLC-12 form for LLCs, is an important document that should be filed by corporations, LLCs, and other business entities in order to make sure the state has updated information regarding the business. It should contain such information as the company’s address, the names of the officers and directors, its agent, and the description of the nature of its business
The term 'cap table' refers to the capitalization table, which is a table listing all the details about your company's equity ownership. It lists every individual who is a shareholder, how many shares they have, what type of equity they hold, and any convertible securities like SAFEs or convertible notes that might become equity in the future. The cap table is the only record that your startup will have regarding your ownership.
Capital employed is a financial measure that is used to measure the total funds that a company has employed in its business to generate profits, which include both equity and debt. It is a measurement of the true financial resources available to the company, which includes the fixed assets of the company as well as its working capital.
Cash disbursement is the act of paying money out of a business’s bank account to meet a variety of financial obligations. These payments may be made in different ways, such as cheques, electronic funds transfer (EFT), wire transfer, or cash. The main goal of cash disbursement is to ensure that a company is able to meet its financial obligations and that all payments are properly recorded.
A cash out date is the estimated date when a business will run out of available cash if its current cash inflows, expenses, and spending patterns remain unchanged. It helps companies determine how long their current cash reserves will support operations and when they need to increase revenue, cut costs, or secure additional financing.
Chief Executive Officer (CEO) is an organizational position within a corporation that has the responsibility of overseeing the strategic planning of the organization as well as organizing the activities of people within the organization to implement such plans. The chief executive officer is also the principal link between the board of directors and the corporation.
A Chief Operating Officer(COO) is a senior executive who oversees the company’s day to day operations and converts the CEO's vision into efficient business processes and results. Sometimes working hand-in-hand with the CEO, the COO could be responsible for managing teams, ensuring efficiency in operations, setting performance targets, overseeing business processes, and ensuring that the company is in a sustainable position to grow.
Churn, also known as customer attrition, is the number or proportion of customers a firm loses over a particular period. This is an important aspect for firms, especially those working under subscription and recurring revenue models. In simple terms, churn means the rate at which a business loses customers, subscribers, or recurring revenue over a specific period.
Cliff Vesting is the term that refers to the situation where an employee vests fully on a specific day rather than in increasing amounts over time.
Common stock is an equity security that represents ownership in a corporation. Once the common stock has been issued by the corporation, shareholders will own a portion of the company. The owners of the common stock can vote on certain matters, earn dividends if any are issued, and see their investment grow in value.
Company officers are senior individuals appointed or elected to manage specific areas of a corporation's operations and carry out responsibilities on behalf of the business. Their roles and authority depend on the company's structure, governing documents, and applicable corporate laws.
Compounded Monthly Growth Rate(CMGR) is a metric that averages a company's growth on a month-by-month basis into a single, even rate of growth. Rather than seeing 12 individual (and often inconsistent) monthly rates of growth, the CMGR shows the single even rate at which a metric had to grow every month in order to achieve a certain level of growth between two numbers.
Contra revenues represent amounts that subtract from the total sales revenues of a business to calculate the net revenues of the company. While regular revenues have a credit balance, contra revenues are entered into an accounting record with a debit balance that is contrary to revenues.
Contraction refers to a stage in the business cycle where there is a general downturn in economic activities. This stage is characterized by low levels of production, low employment, reduced consumption, and low GDP growth rates.
Convertible equity refers to startup financing whereby an investor obtains the rights to receive shares in the form of equity at a future date during another funding cycle instead of obtaining shares straight away. It makes it possible for startups to obtain funding without having to set a valuation.
The cost of debt is the effective interest rate that an enterprise pays on all sources of debt, including loans, bond issues, lines of credit, and other debt securities, as a percentage. It shows how costly the financing of the enterprise through debt rather than equity is, and it serves as one of the main elements used in financial analysis, such as the calculation of WACC.
Cost Structure is an all-encompassing term that represents the various approaches taken by a company for meeting its expenses, and there are some different kinds of costs involved: the fixed cost of construction, rent, the variable cost of hourly pay, and the potentially unexpected cost of repairs or recovery from disasters.
Debt Capital is a form of financing obtained through borrowings by a firm from different lending sources like banks, bonds, and financial institutions. The borrower agrees to repay the loan principal together with the agreed interest at the end of an agreed period. Debt capital is one of the most essential parts of any corporation's financing system.
The Debt-to-Equity ratio, or the Debt/Equity ratio (D/E ratio), is an accounting term that refers to a measure of financial leverage that involves determining whether a business uses more debt financing as compared to the amount of equity financing it has. It is one of the most commonly used measures of financial risk.
Dilution is the reduction in the ownership interest of an existing shareholder when a corporation issues more shares of stock. Even though the same amount of stock is held by the investor, its ownership interest becomes diluted because there are now more shares outstanding.
DCF, which stands for Discounted Cash Flow, is a financial tool that determines the present value of a business, venture, or investment according to the cash flows it can make in the future. DCF uses a discounting factor for future cash flows since cash received in the future is always less valuable than cash received in the one at present.
If you’re asking “what is the dividend yield?, it is a financial metric that shows how much annual dividend income a stock generates relative to its current market price. In simple terms, it helps investors understand the potential dividend return they may receive from an investment.
Business Name Registration, otherwise known as DBA (Doing Business As), refers to the name used by the business other than the legal name. The abbreviation for DBA can be d/b/a or dba. This gives a business an opportunity to conduct its activities under another name without necessarily having a separate legal entity.
Earnings Before Interest and Tax (EBIT) is an indicator of a company’s operating profits before taking into account its interest expenses and taxes. This indicator reflects the profits a business makes, regardless of how it finances its activities and pays its taxes.
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. This is a measure of profitability that indicates the core operating performance of a business entity by ignoring the financing expenses (interest), taxes, and depreciation and amortization.
Earnings Before Taxes (EBT) refers to a measure of profitability that illustrates the income earned by a company before any taxes are deducted. This is a measure that encompasses all items of income apart from taxes; hence, it includes the interest expense (which is not included in EBIT), but does not go up to net income, which is after the tax deduction.
Entrepreneur in Residence (often called EIR) is a person who comes from the entrepreneurial world and takes a consultative and temporary role in the company, venture capitalist organization, or an accelerator without joining it in an executive capacity permanently. The definition of an entrepreneur in residence implies the process of combining the two worlds, gaining the opportunity to work in a new environment where an entrepreneur can use his experience in the field and find resources for his future projects.
Equity capital refers to the financial resources raised by a firm through the sale of its ownership interests, like shares of stock. Equity capital is different from debt capital in that it does not require the company to make repayment of its financial resources after a certain period of time. The shareholders of a firm invest in order to get ownership interest in it.
An equity stake can be described as an investment in which an investor has an ownership position within a firm. The equity stake will give the investor a claim on a portion of the firm, which in some cases will include some rights like voting or distribution of profits from selling the business.
ETC Financing, standing for Equipment Trust Certificate Financing, refers to asset-based loans used to fund expensive and durable equipment such as airplanes, trains, or boats. In such financing, investors buy the certificates sold by the trust, which then buys the equipment with the funds raised from the sale and leases it to the firm, which makes periodic payments until the loan is fully paid off.
An exit strategy is defined as an approach or a plan through which an owner or an investor plans to get out of a business or sell his stake in the business. Some examples of exit strategies include selling off the business, transferring ownership to family members, merging with another business, and selling stocks to other investors.
Expansion is the process of growing a business through the increase of operations, new market entry, new customer acquisition, addition of product/services, and establishment of a new physical location. Expansion in business involves scaling up the business operations to generate new chances of earning revenue.
Expenses are the expenditures incurred by a company in carrying out its operations, earning revenues, and managing daily activities. Examples of expenses are salary, rent, utility bills, marketing expenditure, subscription fees for computer software, travel expenses, insurance premiums, and others.
The factor rate is a method used by certain lenders, primarily in MCAs and other short-term finance facilities, to show the cost of borrowing money. Unlike an interest rate that accrues over time, the factor rate is a one-time multiplier used to calculate the total repayment amount.
Fair Market Value (FMV) is defined as the price at which an asset can be sold in an open market by a willing seller and willing buyer, where neither is being coerced to do the deal, and each is fairly informed about the transaction. It is a fundamental principle in the areas of accounting, finance, and taxation, applicable to all types of valuations of all kinds of assets.
Finance as a Service (FaaS), also known as finance-as-a-service and financing as a service, is an approach where organizations outsource their finance and accounting capabilities to a specialist third-party firm, instead of developing them within the organization. Rather than employing a dedicated internal finance department, firms have access to high-end finance functions that are provided on a flexible and scalable basis, usually on a subscription model similar to Software as a Service (SaaS).
A financial instrument is any agreement or document that gives rise to an asset of money to one party and a liability or equity interest to another party. In layman’s language, a financial instrument is a tradable asset, which can either be money or a right to receive money or proof of ownership that can be created or exchanged among two or more parties.
Financial operations (also known as "fin ops" or "FinOps") is an umbrella term for all of the ongoing activities that companies do to handle the flow of money both coming into and going out of the company, including bookkeeping, paying invoices, receiving payments, running payroll, closing the books, and ultimately using all those activities to produce reporting.
A fixed asset can be defined as a physical, long-term resource owned by a business entity that it uses to earn revenue and not something it intends to sell or convert into cash in the coming year. Examples of fixed assets include buildings, machines, vehicles, computers, and furniture. As fixed assets give value to an entity over more than one accounting period, they are classified as balance sheet accounts and depreciated over time, not expensed in full in the first year.
Follow-on investment, which is also known as Follow on Investment refers to additional money raised by a company after a previous funding round. Follow-on funding is normally meant for financing the growth of the company through expansion, hiring more people, product development, entering into new markets, among other things.
Form 5472 is an information form filed by some U.S. corporations and foreign corporations for reporting certain transactions between themselves and their foreign or domestic related parties. It is applicable in general to a 25% foreign-owned U.S. corporation, including certain foreign-owned U.S. disregarded entities, or a foreign corporation conducting a trade or business in the United States.
Form S-1 refers to the registration statement that a corporation needs to file with the SEC before issuing securities to the public. It is the primary filing document that contains all the information that potential investors would require prior to the public trading of the company's securities.
A founder is an individual who begins a business venture, the one who develops an idea and builds an enterprise out of it, thus shouldering the risk of doing so. The founders are the first people on the cap table; usually, they fill out all the forms related to incorporating the company, invest the first capital, and lay the foundation of the company’s culture and product.
A Fractional Chief Financial Officer (CFO) (also known as a virtual CFO or outsourced CFO) refers to a highly experienced financial executive who is involved in the work of an organization on a part-time, contractual, or subscription basis, hence giving the benefits of a CFO without necessarily paying for the executive’s full-time position. “Fractional” refers to the fact that the organization gets a fraction of this individual’s services, usually measured in hours per week or month.
Free cash flow (FCF) is the cash a company generates from its operations after accounting for capital expenditures required to maintain or grow its business. In other words, free cash flow is the excess cash that remains after a company spends the money on all things it requires to sustain its operations.
Full-Time Equivalent
The funding gap, alternatively referred to as the financing gap, is the discrepancy between the amount of capital a business requires to finance its activities and the amount of capital it currently possesses. It is the gap that exists between how much a company needs to spend and the amount of capital that it actually possesses and can easily spend.
A funding round is a fundraising event in which a company raises capital from one or more investors to finance its business, growth, or other objectives. The form of financing may depend on the stage of the company and may be made either in the form of equity financing, convertible financing, or some other type of investment.
Going concern is an accounting assumption that a business will continue operating for the foreseeable future and will be able to meet its obligations as they become due. The concept of going concern is very important in financial accounting as it impacts the measurement, classification, and presentation of all the items on the financial statements.
Gross margin refers to a financial measure that depicts the percentage of income left after accounting for the direct expenses incurred in creating the product or service sold by the entity. The percentage is derived from total revenues generated, and it helps a company know how effectively it can create profit from its core operations.
The Gross Merchandise Value (GMV) – alternatively known as gross merchandise volume – represents the total value of goods and services sold via a particular marketplace or online platform during a certain time frame, excluding all sorts of charges or discounts. This is an expansion metric and not a profitability one.GMV does not take into account how much of the total value is accounted for as revenue by the firm.
Growth capital, also referred to as growth equity or expansion capital, is an investment in a company already generating sales and that needs capital to help grow its business by expanding into new markets, increasing its operations, making acquisitions, or developing its products or services without undertaking a buyout or venture capital risks.
Interest is the price paid for borrowing money or the amount generated by lending money or investing. In situations where a firm or individual borrows money, interest is the extra cost charged as compensation for the use of the money. When one deposits his/her money in interest-bearing accounts or investments, the amount of money generated constitutes interest.
The Interest Coverage Ratio (ICR) is a ratio used in financial analysis to measure a firm's capacity to service interest payments on existing debts by using operating earnings. The Interest Coverage Ratio is an indicator of the number of times that a firm's earnings are able to pay for its interest costs.
An investment memo (or investor memo or deal memo) is a written report typically generated by a venture capitalist or private equity firm outlining whether to invest in a particular business venture or not. The memo describes the company, the industry, the terms of the deal, the risks involved, and whether the venture is worth investing in or not.
An investment round is a fundraising event in which a company raises capital from one or more investors in exchange for equity, convertible securities, or another agreed investment instrument. In an investment round, the company provides investors with the opportunity to invest in the company for their money in one way or the other, depending on the nature of the transaction.
The term Last Twelve Months (LTM) denotes the latest 12 months for which financial figures of a firm are available. The LTM term is also referred to as Trailing Twelve Months (TTM).
Liquidity preference is a contractual right that specifies the manner in which an investor can be paid in case of a liquidity event in a business. Liquidity preference is usually applied to preferred stock belonging to venture capital and private equity investors.
A local tax is any tax levied by a local subnational governmental entity such as a city, town, county, school district, or special district, and not by the federal government or the state. Local taxes help finance locally provided public services such as law enforcement, schools, road maintenance, parks, and sanitation.
A lock-up period refers to an agreed-upon amount of time, usually post-IPO, when certain members of the company, such as founders, employees, or early shareholders, cannot sell their stocks. The typical lock-up period ranges from 90 to 180 days and helps ensure that there won't be a rush of insider selling causing the price to fall.
Marginal revenue (MR) is the extra revenue that a business makes from selling an extra unit of goods or services. It describes how the total revenue changes when there is an increase in the quantity sold by one unit.
Market capitalization, or simply market cap, refers to the total market value of all the outstanding shares of a publicly held firm. This is calculated by multiplying the firm’s current share price by the number of outstanding shares.
Traction, also referred to as market traction or business traction, refers to evidence showing a product or service is being accepted and used by the market. In essence, traction refers to the gap between merely having an idea and having proof that the market wants the idea. Traction is what makes investors, partners, and employees interested in your business.
The markup is the sum added to the cost of production to get the selling price of the product, and it is always presented as a percentage of cost. It seeks to answer the question, "What is the extra charge that I'm putting above my cost?", and it is one of the most misunderstood ideas of pricing for many businesspeople.
Material procurement is the process of searching for, procuring, purchasing, and controlling materials that are required by an organization in order to manufacture products or conduct its operations. It includes locating appropriate suppliers, price and quality comparisons, negotiations, placing orders, and receiving materials at the right time.
Month-over-Month (MoM) is a form of comparison where an organization compares a particular business metric in one month to that of the prior month. It gives an indication of how a business metric has grown within a relatively short span of time.
Net Dollar Retention (NDR) is a financial KPI that reflects how much recurring revenue a company generates from its existing customers during a certain period, taking into account churn, downgrades, and expansion revenue.
Net Operating Income (NOI) refers to a financial measure used to determine the income earned by an organization from its primary activities after subtracting operating expenses. This financial measure emphasizes the profitability of the core activities carried out by a company and excludes interest payments, income tax, and other non-operating expenses.
Non-dilutive funding is a type of financing that lets a business raise capital and not have to give investors an ownership stake in the company. Compared with equity financing, non dilutive funding is the type that does not directly reduce the ownership percentage of existing shareholders.
Non-liquid assets represent assets of the physical property type that cannot be turned into cash quickly at or near their current value. Unlike cash or investments that are easily liquidated, such assets may involve the seller waiting for some time before getting the full market value, plus there will be a possibility of valuation uncertainty, transaction costs, or a loss in market price.
Operating income is the profit a business makes that is the result of its principal (core) line of business activities, such as selling goods or services, after expenses such as salaries and rent, etc., for the operation of the business have been accounted for from the gross profit. In other words, operating income does not comprise a company's earnings from or payments to its non-operational functions, e. g., income, financial expenses.
Operating leverage definition describes how changes in a company's sales can affect its operating income based on the proportion of fixed and variable costs in its cost structure. The operating leverage meaning is simple: businesses with higher fixed costs can see operating profits increase faster when sales grow, but they may also face greater pressure when sales decline.
An outsourced CFO (chief financial officer) is a highly experienced financial consultant who works as the CFO of a company without officially being hired as a senior executive. Such service is usually provided to businesses needing top-level management support in the area of finance but not willing to commit to the full-time hiring of the CFO.
An outsourced controller is typically an accountant's expert or external finance staff member who handles the company's accounting and financial control activities. Still, the controller is not a full-time, permanent staff member of the company. If a company wants experienced financial supervision but is not going to hire a senior accounting professional immediately, the company may resort to an outsourced controller.
P&L management is the process of monitoring and managing a business's revenue, costs, and expenses to understand and improve its profitability. P&L stands for profit and loss, and the P&L statement summarizes the financial results of a business over a specific period.
A partnership is a type of business formation that consists of at least two parties collaborating in running a venture, sharing the profits and bearing losses as well as dividing responsibilities. Each partner's rights and liabilities vary according to the type of partnership and the stipulations made in the partnership agreement.
Payables financing is a form of working capital finance, where a business has the capability to manage the payment to its suppliers and still offer the possibility of early payment for suppliers. It is also quite frequently referred to as supplier financing or reverse factoring.
What is a payout ratio? It means the proportion of dividends to earnings that a company gives back to its shareholders. For investors, this is a key metric as it can tell them what portion of the company's profits will be returned to them versus what the company will keep for its own uses like reinvestment, debt payoff, or growth investment.
A payroll system refers to the procedure or computer software that a business employs to determine employees' gross pay, take care of the deductions and taxes, keep track of the payroll expenses in a company, and make sure employees are paid accurately and on time. It can be a great place to combine information from different places like salaries, working hours, bonuses, taxes, benefits, and any other adjustments related to payroll.
Petty cash refers, quite literally, to a small amount of physical money that a business holds for a number of minor expenses to be paid quickly, and for the convenience of the person paying it to avoid writing a check, making a bank transfer, or using a company card. Petty cash is mostly used for buying small things like stationery that goes to the office, small transportation such as a cab ride, snacks and drinks to be made available for the staff, or even small business purchases. All such things fall under what petty cash is all about.
Post-money valuation is the estimated value of a company immediately after a financing round or new investment. It is commonly used in startup fundraising to determine the ownership percentage received by new investors and understand how the investment affects existing shareholders.
Pre-money valuation is a rough estimation of a company's value at the moment, right before it gets new investments through a financing round. This value is used to assess what proportion of the company ownership investors will get in return for their financing and gives a basis for discussion about the investment terms.
Pre-seed funding refers to raising external capital at a startup's very beginnings. The main purpose is to raise money so founders can turn a business concept into a working product, gauge market demand, build an initial team, and set up the essentials that will support later growth.
A Preferred Return is a clause in an investment agreement that gives certain investors priority to receive profits or distributions before other equity holders have a chance to share the profits. This is the way it is mostly used in private equity, venture capital and other investment contexts.
Present value is a financial concept used to determine what a future amount of money or series of cash flows is worth today, based on a specific discount rate. The concept reflects the time value of money—a dollar available today can generally be invested and therefore may be worth more than a dollar received in the future.
Primary shares are those that are newly issued or brought in by a company that intends to sell them directly to the shareholders to get money. The money comes out of the company and is usually allocated for purposes including growing the business, covering operational expenses, settling debts, launching new projects, or achieving strategic goals.
A private placement is a type of capital-raising activity in which a company issues securities, including, but not limited to, stocks, bonds, and other investment products, exclusively to a limited number of chosen investors rather than publicly offering them and allowing anyone to buy them. Companies typically turn to private placements as a means to fund their expansion, acquisitions, working capital or some other important corporate strategies without resorting to a public offering.
The ramp time period, also known as the productivity ramp period, is the time a new employee, in particular a salesperson, needs to become fully productive and consistently be up to their target performance level. Starting at the very first day of the job and extending through onboarding, training and learning new products, it refers to the time before the employee actually hits their productivity level.
Return on Assets, also known as ROA, is a very common financial metric that shows how well a company's management is using its assets to turn a profit. This figure is a very useful tool for company executives, businessmen and investors to assess whether or not a company is able to generate profit from its resources effectively.
Return on Equity is one of the important financial ratios used to understand a company's performance through different aspects. ROE can tell how well a firm is using its shareholders' equity; in fact, through such funds it is able to produce net profit. Investors, business owners, and management use ROE as an important tool to judge if the funds supplied by the shareholders are being utilised wisely or not.
Return on Invested Capital (ROIC) is a financial measurement used to assess a company's ability to generate operating profit using its invested capital. It allows businessmen, executives, and investors to understand whether the money that has been put into the business is still a good investment to make profits.
Return on Revenue (RoR) is a profit indicator that gives you the breakdown of how much net income a company gets from its revenue. It can let the company know how good it is, in general, at converting its revenue into profit and taking the costs and expenses into account.
Return on Sales is essentially a profitability metric that shows how well a company can turn sales revenue into an operating profit. It is used mainly by management and investors to see how much a company's sales are generating after they pay for the costs of operations.
Risk capital is a type of capital that investors, both individual and business, expose to the risk of losing from investing in ventures that might yield substantial profits or losses. The risk of losing capital is compensated to some extent by the potential gain from the ventures being backed.
A Roll-Up Vehicle (RUV) or a special purpose vehicle (SPV) is a special purpose company that is used for merging the investment of several investors into a joint entity. This entity after that will then invest in a new company. It is likely that, instead of each investor being an individual owner appearing on the business' cap table, a RUV is holding the shares for the individual investors.
A rolling budget is a financial strategy where the budget is constantly reviewed and updated to always maintain one year ahead as the target of planning. Rather than creating one budget for the year and ignoring changes, a company will regularly update its budget. They will do this by introducing and developing a month, a quarter or other period into the existing period when they are finished.
A round of funding is a process that occurs when a business seeks to raise funds from outside sources to expand, carry on with its operations, or to realize strategic goals. Usually, external investors in return for funding, will get either ownership, shares in convertible securities, or other specified interests of the company monetarily.
Run rate is a financial prediction tool that extrapolates the company's current financial state to project a larger horizon, mainly 12 months. In short, the company's run rate definition is to take the recent financial outcome and annualise it, which means the company, if its performance continues at a similar pace, would probably achieve an estimated figure that would be derived with this method. To put it in a nutshell, it's the company's way of forecasting a business scenario for a period, assuming current performance remains the same.
Forming an S Corp calls for filing a federal tax election with the U. S. Internal Revenue Service (IRS). Once approved, the corporation will be treated as an S Corp for U. S. income tax purposes. Instead of the company being taxed on business income, shareholders receive the business profit (and/or loss) amounts, and those amounts must then be added to personal income tax returns as part of their taxes owed.
An S Corporation (S Corp) is a U. S. business entity that enables a corporation to choose a special federal tax treatment. This way, typically the corporation's earnings, losses, deductions, etc., and credits are passed on to its shareholders, and they are responsible for being taxed personally rather than being taxed at the company level. This arrangement can be really beneficial to eligible businesses since they can skip double taxation, a major disadvantage of C corporations.
SaaS churn is the percentage of customers or recurring revenue that a SaaS (Software-as-a-Service) business is losing over a time span. The loss of customers can happen when, for example, they cancel the SaaS service, do not renew it, or their subscriptions drop in value.
Sales and marketing efficiency is one of the key indicators that businesses can use to measure the return on their sales/marketing investments. It is a tool that companies use to find out if their spending on getting new customers and growing an existing customer base is giving them a good financial return.
Secondary shares refer to the selling or transferring of pre-existing company shares by existing shareholders to another party. Compared to a primary share issue, whereby a company issues and sells newly created shares to generate funds for its operations, in a secondary share deal an existing shareholder sells their stake, either partially or entirely.
A secured loan is basically borrowing where you are not likely to face any problem if the lender goes after your possessions in exchange. Collateral that a borrower may provide could be tangible goods such as property, cars, equipment, or intangible assets like investments or other suitable assets. In case the borrower does not pay off the loan as per the terms agreed to, the collateral might be seized by the lender to settle the remaining debt after getting the court's permission and subject to the loan agreement terms.
Seed funding refers to a funding stage in which a start-up company raises a small amount of capital mainly to carry out product or service development, test the business idea, and set the stage for successful future growth. Generally, you raise this type of funding before going public with Series A rounds or larger institutional rounds, but that's not an absolute rule, and the way of funding may vary greatly among entrepreneurs.
A seed round is the earliest step in financing a startup company, and it serves as the stage whereby the capital needed by the young company to develop ideas, create the product, hire the team, and gain some market presence is provided.
Series B typically represents the phase when a startup that has already passed the initial product validation phase and shown significant results is raising equity financing. At this stage, the company is very likely to have a working product or service, a steady set of satisfied customers, and a profitable business model that can be further scaled if needed. Series B financing is about taking the traction you have and growing sustain it.
Series C represents a funding round aimed at companies that have previously succeeded; they have shown strong demand for their product, have built up a solid business model and are now looking to greatly expand their operations. Series C startups are already recognised and have a loyal group of customers, it brings in a good chunk of revenue and also have a well-defined plan to expand their presence in the market.
Serviceable Obtainable Market (SOM) represents a segment of the Serviceable Available Market (SAM) that a company can capture. The SOM can be defined as potential customers and revenue that a company can target within a specific period of time by considering the company's strategies, resources, geographical spread, pricing competition, sales capacity, and existing business.
Shareholders' equity is the part left of company assets after deducting all liabilities. Shareholders' equity is a part of a company's financial position that shows the total worth available to a company's shareholders or stockholders. This is what remains for the shareholders after all the company's debts are paid off from the assets.
Short-term debt includes debts that a company anticipates to be paid very shortly, probably within a single accounting period, or 12 months, at most. The business usually lists such a type of debt as a current liability on its balance sheet, in addition to considering it as an element reflecting its ability to convert short-term assets into cash and meet short-term obligations.
A short-term investment is a monetary asset or an investment tool expected to be held for a short period and converted or sold for cash/cash equivalent when needed. Businesses and people might invest surplus money that brings them a return but still be quite liquid in nature.
Single trigger acceleration is an equity provision that allows some or all of an employee's unvested equity to vest immediately when a specified triggering event occurs, most commonly a change of control, such as an acquisition, merger, or sale of the company.
A Special Purpose Vehicle (SPV) is a company with a separate legal identity set up for a particular purpose, business, or investment. SPVs are most often made up of limited liability companies (LLCs), limited partnerships (LPs), or other types of legally recognised entities, which depend on the laws of a certain region and the reason for establishing such an SPV.
A startup ecosystem basically refers to a network of individuals, businesses, organisations, and other relevant resources that collectively provide support and encouragement for startups, so that they can not only take off but also grow and thrive over time. Besides, it can encompass such people as entrepreneurs, investors and mentors; institutions like universities, accelerators and incubators; government representatives; professionals in various service sectors and even larger corporations.
Startup incubation is a structured support process designed to help early-stage businesses develop, validate, and grow their ideas. A startup incubator typically provides entrepreneurs with resources such as mentorship, business guidance, networking opportunities, workspace, technology, and access to potential investors.
A statutory audit is an independent examination of an organization's financial statements and records that is required by applicable law or regulation. The purpose is to determine whether the financial statements present a fair and reliable view of the organization's financial position and performance in accordance with the relevant accounting and reporting requirements.
A stock warrant is a financial instrument that gives its holder the right, but not the obligation, to buy a company's shares at a predetermined price, known as the exercise or strike price, before or on a specified expiration date. Unlike most stock options, which are typically created between investors or issued by exchanges and financial institutions, stock warrants are generally issued by the company itself.
A strategic investor can be an individual, company, or fund that invests in a business for more than just financial gain but to either create or capture strategic value. Sometimes the main interest of a strategic investor is the complementation of its operations, technologies, product lines, customer base, market position, or long-term business objectives with an investment opportunity.
A subscription business model is one where customers consistently pay fees, like once a month, every three months, or even once a year, for uninterrupted access to a product, service, or many other perks. Comparing the subscription model with the one-time purchase, it becomes a great strategy on the customer retention side for a business and relatively consistent revenue for the company as well.
Sweat equity is essentially a means through which the work of an individual creates value for the company and not merely a form of monetary investment. This type of equity is often seen in ventures like startups, small businesses, partnerships, and real estate development, where a person's work, in a significant way, is the only asset contributed for an ownership interest or a share of the value down the line.
A group of investors, lenders, businesses, or other financial participants that collaborate in a transaction or investment that is too large, complex, or risky for a single player to manage on their own is referred to collectively as a syndicate. In a syndicate, members pool their capital, expertise and resources and agree to share the related risks and potential returns.
T&E stands for Travel and Entertainment and refers to business expenses employees incur while traveling for work or entertaining clients, customers, business partners, or other stakeholders. If you're asking “what is T and E?, it is essentially a category of business spending that covers costs associated with business travel and related activities.
A target company is a business that another company, investment group, or private equity firm identifies as a potential candidate for acquisition, merger, or another strategic transaction. The company being considered is known as the target because the acquiring party is evaluating whether purchasing or combining with it would support its financial or strategic objectives.
A tax allowance is an amount that may be excluded from taxable income or otherwise receive favorable treatment under a tax system, potentially reducing the amount of income subject to tax. The exact rules depend on the country, tax year, taxpayer, and type of allowance.
A tax bracket is a range of taxable income that is subject to a specific income tax rate. In the U.S., federal income taxes generally use a progressive tax system, meaning different portions of taxable income can be taxed at different rates as income increases.
Total Addressable Market (TAM) represents the maximum potential revenue opportunity available for a product or service if a business could reach and sell to every potential customer within its defined market. It gives businesses a broad view of market opportunity before narrowing the focus to the customers they can realistically serve.
Transactional funding is a short-term financing arrangement used primarily by real estate investors to fund the purchase of a property when they already have an identified end buyer or a simultaneous resale transaction. The funding provides temporary capital for the purchase, which is repaid when the property is resold.
Underwriting in finance is the process of evaluating and accepting financial risk before approving a transaction, issuing insurance coverage, or offering securities. An underwriter reviews relevant financial and other information to determine the level of risk involved and establish appropriate terms, pricing, interest rates, or premiums.
Valuation is the process of estimating the economic worth of a business, asset, investment, or other financial interest at a particular point in time. In simple terms, what is valuation? It is an assessment of what something may reasonably be worth based on its financial performance, assets, market conditions, future potential, and other relevant factors.
A Variable Interest Entity (VIE) is a business or legal structure in which an investor can have controlling financial interests through contractual arrangements, even without holding a majority of the entity's voting rights. Under U.S. GAAP, a VIE is generally identified when the entity's equity holders do not have enough power, resources, or exposure to direct its activities and absorb its expected losses or benefits.
Variance Reporting is a financial management process that compares a company's actual results with its budgeted, planned, or forecasted figures. It helps businesses identify differences in revenue, expenses, profitability, and cash flow and understand why those differences occurred.
The roles and responsibilities of a venture capital partner are largely dependent on the VC organization. At a senior level in a VC firm, partners are entrusted to spot promising investment targets, screen and analyze startups, decide on capital allocation, and work with the companies that their firm owns. Besides, they are more powerful than senior and junior staff of the firm. They are not only the leaders of the investment team, but also play a big part in fundraising, determining investment policies, and building connections with company founders and external investors.
A venture capital principal is a senior investment professional at a venture capital (VC) firm who typically works between associates and partners. Principals play an important role in identifying promising startups, evaluating investment opportunities, conducting due diligence, supporting portfolio companies, and helping the firm execute investment decisions.
If you are searching for “what is a warrant in finance, a warrant is a financial instrument that gives its holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price before or on a specified expiration date. The underlying asset is often a company's stock, although warrants can be linked to other securities or assets.
Weighted Cost of Capital is the average rate a company pays for the different types of capital such as stocks and bonds that it uses to fund new projects and expand its operating activities. WACC or Weighted Average Cost of Capital is the sum of the different capital costs weighted by the market value of each capital component.
A year over year (YOY) financial measure is used by comparing a business performance metric to the same period of the previous year to see how it changed. Companies make use of YOY data analysis as a means to review the change in different areas like income, costs, gains, customer numbers, and other major business performance indicators.
A zombie company is essentially a business that's still alive but barely hanging on because of its bad financial situation, very low profitability, and its inability to even pay off its debts. Although a zombie company can bring in enough money to make the necessary expenses and interest debt payments, it does not have sufficient funds to really make financial investments, to grow, or to even meaningfully lower its debt level.
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