Investment Terms You Should Know

The Pitchago Venturepedia will give you a good understanding of the language of startups, venture capitalists, angel investors, and incubators. Some are well-known terms in investment, SaaS, and growth startups; others are just catching on.  You’ll find definitions for all of the business terms that tend to be confusing and you will encounter while running your business on this page. Don’t worry. We won’t test you!

409A Valuation (US)

The third-party valuation of a company’s common stock. Generally used by startup companies to help determine the exercise price for company stock options.

ARR to End User or MRR to End User (AEU or MEU)

Enterprise SaaS companies use this metric to evaluate the value add of their service if the pricing is based upon the end-user count. The calculation is simply the ARR or MRR divided by the active end-user count. If a service is priced correctly, the price per user will indicate the actual cost of the solution for your customer. The greater the number of active end-users, the lower the customer’s cost per seat. Which means a higher degree of engagement and a higher value add. Take special care in defining an active user as one would when doing so for the DAU/MAU calculation.


A program that provides mentorship and the capital necessary to accelerate the growth and success of young startups. Typically, the program will provide some capital and take an equity stake in the startup exchange. Accelerator programs usually last three to six months (instead of incubators, which have more extended periods). They help startups that are already performing, scale-up, and create the organizational framework they’ll need to thrive. Accelerators will bring a cohort of start-ups into what is typically an on-site program. At the end of the program, companies will ‘graduate’ from the accelerator program and present their company to potential investors at the respective accelerator’s Demo Day.

Account Executive (AE)

The Account Executive is the key customer-facing member of the Direct Sales team, responsible for closing deals to create new customers. AE earns a base salary and a commission on the sales of the company’s product. The sales commission compensation is designed to generate 50% of the AE’s total earnings if the AE meets a specific sales target, called a quota.

Accredited Investor

An individual or institution that meets specific wealth criteria (as defined regulators) is therefore deemed sophisticated enough to participate in private, non-public investments. For most up-to-date definitions, visit


The size of a round that is set aside for a specific investor. It can be a fund or group of investors, usually communicated in a dollar amount.

Anchor investor

The first investor in a fund; can also be referred to as the lead investor.

Angel Investor

Wealthy individuals invest in startups in their early stages of development or seed round of fundraising and sometimes even in Series A. Due to the inherent risk of loss of capital or significant dilution in subsequent fundraising, angel investors typically pursue investments with returns that they believe may have the potential to return multiples of the initial investment. They operate solo or in smaller groups/syndicates.

Annual Contract Value (ACV)

The annual value of a customer’s Subscription Revenue only. It does not include non-recurring activities. The SaaS business model relies on Subscription Revenue because it is recurring revenue delivered at a very high gross margin. Providing software as a service generates value for the company over a much more extended period than perpetual software. This is the principal value of the SaaS model. Therefore, nearly all SaaS metrics use Subscription-related terms. Recurring revenue such as maintenance and customer support should not be included in ACV; these are low-margin activities that do not add significant value to the business model.

Annual Recurring Revenue (ARR)

The Subscription Revenue of a given period is expressed as an annual run rate for all contracts with Revenue Recognition Dates before the period close date. ARR differs from CARR mainly due to its time onboard a customer. Additionally, the customer may want the contract to start on some specific future date. Finally, contracts with start dates after the first of the month are prorated for the number of days active in that month. Adjustment for seasonality may be required to provide a fair ARR.

Anti-dilution Clause

A contractual clause protects an investor from having their investment as a percentage of ownership significantly reduced in subsequent fundraising rounds. Technically the provision increases the number of shares of Common Stock issuable upon conversion of convertible security or upon exercise of a warrant or option upon the occurrence of specified events, usually the issuance of more shares for a low price.

Assets Under Management

When a VC is a management, and they’re sitting on top of a whole pile of money, this is the money that they have available for venture investments.

Average Days to Close

The average number of days for Marketing Qualified Leads to convert to Bookings.

Average Order Value (AOV)

The value of orders over a specific time period.

Average Recurring Revenue (ARR) / Growth Rate Ratio (ARRG)

An important metric to understand the absolute ARR and the all-important growth rate will indicate the business’s level of sales traction.

Average Revenue Per User or Unit (ARPU)

Usually used over a specific period to indicate how much revenue is earned per User of a service.



The dollar value of the New or Renewal Subscription Bookings amount invoiced on the date defined by the contract terms, i.e., the Billings Date. The Billing Date usually starts on the first of the month following the month of the Bookings Date.

Blended Preferences

When all classes of preferred stock have equal payment rights in the event of a liquidation event (e.g., Exits such as trade sale, IPO, or SPAC)

Board of Directors:

A board of directors (B of D) is an elected group of individuals representing sharehTag-Alonghe board is a governing body that typically meets regular intervals to set policies for corporate management and oversight. Every public company must have a board of directors. Some private and nonprofit organizations also have a board of directors. An organization’s bylaws determine the structure and powers of a Board. Bylaws can set the number of board members, how the board is elected (e.g., by a shareholder vote at an annual meeting), and how often the board meets. While there is no set number of members for a board, most range from 3 to 12 members. Startups typically have 5-7. The board of directors should represent both management and shareholder interests and include both internal and external members.


Business strategy by which a startup self-finances, eliminating the need for seed or angel investment. It is typically achieved by the founders putting their capital to work and having a lean operation and a product that generates revenue early in its life cycle.

Bridge Loan Financing

A short-term loan given to a startup by investors serves to fund the company until the next round of financing. The bridge loan is usually converted into equity at the company’s next equity financing with some discount (and sometimes interest) to reflect the risk taken by the investor or the company not closing the next round.

Burn Multiple

Burn Multiple measures how much a startup is burning in order to generate each incremental dollar of ARR. It is a capital efficiency metric that reveals a lot about the overall health of the startup, providing insight into how much revenue you're generating per dollar burned. It goes beyond the net burn rate to show how efficiently your company can generate revenue by deploying capital raised from funding rounds. The higher the Burn Multiple, the more the startup is burning to achieve each unit of growth. The lower the Burn Multiple, the less a startup has to spend to grow, meaning the growth is more efficient.

Burn Rate

The rate at which a company consumes cash to cover expenses. (Typically expressed monthly or weekly). It is usually applied to a company with zero or low revenues or a high level of expenses designed to grow fast to grab market share. Burn rate gives a metric of financial health and status of aggressive growth. Most importantly, the burn rate will provide you with a feel for the run-way before you need new cash by simply dividing the available cash by the monthly or weekly burn rate. A company with a low burn rate can theoretically operate longer without capital injection.

Business Development Representative (BDR)

In larger organizations, the SDR job transitions into separate roles that manage inbound and outbound activities. The SDR will focus exclusively on qualifying inbound leads supporting the AEs. The BDR assumes the role of outbound activities, leverage emails, phone calls, and social selling tools to add Sales Opportunities in the pipeline. The BDR compensation is similar to that of an SDR.

Business Development VP (often also called Corporate Development)

An executive position responsible for exploring strategic partnerships outside the normal sales function. It can involve identifying and setting up regional distributors or negotiating technology partnerships. The Business or Corporate Development individual often reports to the CEO and requires strategic and analytical skills that many former CEOs possess. These activities can often also lead to strategic relationships with other corporations that may lead to M&A (Merger & acquisitions) and/or corporate venture capital investments (CVC). Sometimes the Corporate Development role also assists the CEO and CEO with funding activities outside corporate relationships.

Buyer Type

Buyer Type refers to the specific role and level of the decision-maker(s) working for the ICP company. When Investors ask, “who do you sell to?” they are typically referring to the Buyer Type. The specific decision-maker will depend upon the product. For products that offer functionality for a particular process, such as sales commissions, tax compliance, or contract management, the decision marker will be the head of the department charged with managing that process. In these cases, the CFO is the Buyer Type. Overall functionality, enterprise products with technical integrations will require the CTO’s review.


Cap Table

An official document that shows the capital structure of a company, including the specific ownership level by investors and founders. Generally used to view the percentage ownership that each investor or employee owns of a particular company today and historically over previous investment rounds. To reflect a fully diluted Cap Table, you need to include any Employee Stock Option Pool (ESOP) or other warrants/stock options. For great tools, check out

Capital Call

When a fund makes an investment and messages the LPs to put capital into the fund account to invest in the portfolio companies.

Carried Interest

The share of generated profits that an investment manager is entitled to keep as compensation. Typical venture capital fund incentive fees range from 20% to 30%, depending on the fund. This can also be referred to as an “Incentive Fee” or a “Performance Fee.”

Cash Position

An official document that shows the capital structure of a company, including the specific ownership level by investors and founders. Generally used to view the percentage ownership that each investor or employee owns of a particular company today and historically over previous investment rounds. To reflect a fully diluted Cap Table, you need to include any Employee Stock Option Pool (ESOP) or other warrants/stock options.

Channel Partnerships (Distribution, Reselling, Co-Marketing, Affiliate, Co-Selling)

As a Go-To-Market strategy, developing Strategic Partnerships with other companies can significantly lower Customer Acquisition Costs and achieve scale earlier in the company’s lifecycle. This strategy, also called a Channel or Business Development strategy, takes various complexity depending upon the company’s competitive environment, maturity, and specific goals and objectives. At the highest level, a Strategic Partnership is an agreement between two companies to generate incremental sales for each party. Four categories to define partnership opportunities are Co-Marketing, Affiliate, Co-Selling, and Reselling


The churn rate, also known as the rate of attrition or customer churn, is the rate at which customers stop doing business with an entity. For a company to expand its clientele, its growth rate (measured by the number of new customers) must exceed its churn rate. Churn can also be calculated on net revenue, meaning that you can lose customers, sell more to retained customers, and achieve a positive net revenue churn.


A clawback or clawback provision is a particular contractual clause typically included in employment contracts by financial firms, by which money already paid must be paid back under certain conditions.


Employee stock vesting agreements generally have a cliff; usually, one year, before which no employee stock options vest. This is designed to avoid issuing stock options to employees that have been terminated early.


The final step in signing an agreement and consummating an agreed transaction, including the legal commitment of transfer of funds, be it investment funding, a trade sale, an asset sale, or other divestiture of holdings.

Co-Working Space

A co-working space is a company that provides a shared working environment for teams working typically for different employees, typically in an office. No equity is usually taken from companies that work in a co-working space unless attached to an Incubator or Accelerator.

Come Along Rights

Sometimes also called Tag-Along Rights. This entitles certain shareholders, usually majority shareholders, the right to force other shareholders to sell their shares when certain shareholders decide to sell theirs.

Committed Monthly Recurring Revenue (CMRR)

CARR and CMRR seem to be related, but they are distinctly different concepts. CMRR, pronounced “see-mer,” is the MRR that is under a contract term greater than one month. Put another way, all MRR under quarterly or annual contracts is referred to as CMMR. Contracts under longer-term contracts have longer customer lifetimes, making such customers more valuable. CMMR is a standard metric for SMM and B2C companies because they typically offer a mix of monthly, quarterly, and annual contracts, unlike Enterprise SaaS companies for which annual contracts are standard. CMMR and MRR are reported together, sometimes just with CMMR as a percentage of total MRR. The difference between the two provides insight into the stability of the consumer base. For example, a company with 80% CMRR to total MRR has a more stable consumer base than one with 20% because fewer customers can churn in any given month.

Common Stock (also referred to as Ordinary Stock)

A type of equity security, contrasted with preferred shares. Common stock is most frequently-issued to founders, management, and employees. In a liquidation event (e.g., exit, trade sale, IPO, SPAC), preferred shares generally prioritize common shares.

Contracted Annual Recurring Revenue (CARR)

The subscription revenue of a given period is calculated as an annual run rate for all contracts, including those signed in the same period. CARR differs from ARR because it includes the ARR of new customers that are not yet live. After all, the customer onboarding process is not yet complete. Enterprise SaaS companies use the metric because customer onboarding usually takes longer than one month, and this delay understates the actual Annual Recurring Revenue if only ARR is used.

Control Rights

Rights of an investor or shareholder relating to control over the company’s affairs. Control rights typically relate to voting or designation of board seats, voting (e.g., does a class of securities give the holder ten votes per share?), and specific actions (e.g., incurring indebtedness) which require the consent of a majority of a particular class or series of security.

Conversion Rate or Ratio

This means the number of shares of Common Stock into which each share of Preferred Stock is convertible.


The right of the investor to convert shares of Preferred Stock into shares of Common Stock at the Conversion Rate stated in the corporate charter. Conversion is usually automatic upon the occurrence of a Qualified IPO. Mandatory conversion is necessary because companies sell Common Stock in their IPOs. New investors are not likely to purchase Common Stock if earlier investors retain Preferred Stock with special rights.

Convertible Debt

A loan allows the lender to exchange the debt for common or preferred stock at a predetermined valuation discount, or capped share price, instead of recollecting the principle as cash with interest.

Convertible Note (also “Convertible Loan Note - CLN”)

A Convertible Note is an ‘in-between’ round of funding to help companies hold over until they want to raise their next round of funding. This note will then ‘convert’ with a discount at the new round price. And sometimes a valuation cap. You will typically see convertible notes after a company raises, for example, a Series A round but does not yet want to raise a Series B round.

Corporate Round or Corporate Venture Capital (CVC)

A corporate round occurs when a company, rather than a venture capital firm, invests in another company either from their balance sheet or through a separate Corporate VC fund (CVC) where the single LP is the corporate entity. These are often, though not necessarily, done for the prime purpose of forming a strategic partnership and secondary for pure financial returns.

Cost of Revenue or Cost of Goods Sold (COGS) or Cost of Sales

Cost of Revenue (referred to as Cost of Goods Sold or Cost of Sales, which are used for retail and manufacturing industries) is the category used to aggregate all direct costs associated with the service delivery of the SaaS product.

Cost per MQL

Companies use this metric as an early indication of changes in customer acquisition cost.


The obligation in a contract to do something. A commitment to refrain from doing something is called a Negative Covenant. For example, the obligation to obtain life insurance on key employees is a covenant, and the responsibility to not deviate from the budget approved by investors is a negative covenant.

Cumulative Dividend

If the dividend is not declared during the period stated in the corporate charter, the dividend accrues and is payable later. If a dividend right isn’t cumulative, the dividend would be lost forever if it’s not declared during the period stated in the corporate charter. Accrued but unpaid dividends are sometimes convertible into shares of Common Stock.

Customer Acquisition Cost (CAC)

The Customer Acquisition Cost is the average cost to acquire a new customer and is calculated as the Sales & Marketing expense in a given period divided by New Customers acquired in the same period.

Customer Acquisition Cost (CAC) Payback Period

The CAC Payback Period is the number of months required to pay back the associated customer acquisition costs and is calculated as the CAC divided by the Average Monthly Gross Profit.The best practice for SaaS companies is to segment the CAC Ratio into two different ratios according to the type of sales activity defined as New Customer and Expansion. In my experience, the CAC for Expansion Bookings is approximately one-third the cost of acquiring New Customers. Therefore, distinguishing the CAC for each type of sale aids Go-To-Marketing strategy and management. When you use these specific measures, also provide a Blended CAC Ratio, the aggregate calculation for the business.

Customer Acquisition Cost (CAC) Ratios

The most common CAC Ratio is the Sales and Marketing Expense divided by the New Subscription Bookings. The Booking number should be matched with the associated Sales and Marketing expense to the extent it is a practical exercise. Typically, Enterprise SaaS companies use figures from the same year since variations in the Sales Cycles make attribution difficult and, usually, not very valuable. Small and Mid-Market SaaS Companies typically use the prior quarter or month since the sales cycle is shorter for these businesses. Business-to-Consumer (B2C) SaaS companies usually use the preceding month’s Sales and Marketing expense because the Go-To-Market strategy focuses on Call-to-Action marketing, which leads to quick customer response. The CAC Ratio can be interpreted as the Sales and Marketing investment needed to acquire $1.00 of new Subscription Bookings.

Customer Lifetime Value (CLTV or LTV)

The average Net Present Value of the Company’s customers is defined by the Average Monthly Gross Profit multiplied by Customer Lifetime.

CLTV = ARPA * GM * Customer Lifetime 

ARPA is the Average Revenue per Account as defined by the Average ARR of the customer base.  GM is the Subscription Revenue Gross Margin.  Customer Lifetime is the average tenure of a customer and is calculated as the inverse churn rate for mature SaaS companies. It is often set at between 3 and 5 years for early-stage companies.

Customer Lifetime Value to Customer Acquisition Cost (CLTV to CAC; LTV/CAC)

The Customer Lifetime Value to Customer Acquisition (CLTV/CAC) ratio is a SaaS metric used to measure a company’s sales efficiency utilizing the relationship between the lifetime value of an average customer and the average cost of acquiring that customer. The metric, computed by dividing LTV by CAC, is a signal of customer profitability and sales and marketing efficiency. A ratio greater than 1.0 implies that the company is generating value. Inversely, a ratio below 1.0 means that the company is destroying value. Investors expect that the CLTV/CAC ratio should fall within the 0.8 to 1.3 range, with a clear path to achieving a ratio above 3.0x. However, the top-performing companies achieve 3.0x to 5.0x.

Customer Retention Cost (CRC)

The CRC is the CAC equivalent for managing customer retention and engagement. Customer Success organizations and strategies vary widely from one company to another, making precise measurements difficult. Plus, there are not commonly available benchmarks for CRC. Still, you should attempt to incorporate CRC into your financial reporting if the precision validates the cost of measuring it. Costs should include salaries and related expenses of customer success and support teams (which might consist of engineers if needed to review customer change requests). Sometimes CRC is added to the CAC to create the Customer Acquisition & Retention Cost (CACR).

Customer Satisfaction Score (CSAT)

The Customer Satisfaction Score differs from NPS in that CSAT measures customer satisfaction with the company’s service, whereas NPS measures customer loyalty. Additionally, CSAT questionnaires use service-specific questions that focus on aspects of the customer’s experience, e.g., “How would you rate the user interface?” and typically include multiple questions.

Customer Success Attach Rate (CSAR)

The CSAR measures the Post Contract Support, or PCS, Bookings associated with a specific contract.

Customer Success Metrics

The ultimate objective of using Customer Success metrics is to determine the value add that your company provides to the customer. The accurate measure of value add is the customer’s return on investment in your product. If not impractical or even impossible, this analysis is difficult to estimate. So, we utilize a broad array of metrics that indicate the value we are adding.

Cutback Rights

Where shareholders exercise piggyback registration rights, but there are too many shares for the underwriters to sell in the public offering without adversely affecting the price, cutback rights determine whose shares are left out of the offering and whose shares are included in the offering.


Daily Active Users to Monthly Active Users (DAU/MAU)

The DAU/MAU ratio is a measure of customer engagement. A high DAU/MAU ratio among end-users implies that customers use your app frequently. The inverse is valid for a low ratio. Enterprise and Small/Mid-Market companies use DAU/MAU in a different context for Business-to-Consumer companies. Enterprise and SMM customers track the end-users, i.e., the customers’ employees. B2C companies track the activities of their direct customers. It is essential to understand the context when employing DAU/MAU.

Debt Financing

In a Debt Financing round, an investor lends money to a company, and the company promises to repay the debt with added interest.

Deferred Revenue

Deferred Revenue, also called Unearned Revenue, is a balance sheet account representing the liability associated with delivering a SaaS product as required by contract. For an individual contract, Deferred Revenue is equal to all of the revenue expected to be recognized over the period defined by the invoice. Enterprise SaaS companies typically require upfront annual payment for new or renewal contracts. On the date an invoice is issued, the SaaS company records the value of the invoice as Deferred Revenue and books the same amount to Accounts Receivable: debit Accounts Receivable and credit Deferred Revenue. When the customer pays the invoice amount, the company credits Accounts Receivable and debits Cash. Receipt of payment does not affect Deferred Revenue. Assuming that the invoice is for an annual term, the company records revenue each month the revenue is earned. Therefore, the company will debit Deferred Revenue by 1/12th of the invoice amount and credit Subscription Revenue by the same amount.

Demand Registration Rights.

The right of investors to require the company to register investors’ shares for sale to the public even if the company was not planning to conduct a public offering. Usually, investors or groups of investors receive one or two Demand Registration Rights. Typically, the right isn’t exercisable until after the company’s initial public offering or after a stated period.


Generally speaking, as subsequent financing rounds occur, existing investors will own proportionally less of the company than they did previously since additional equity is usually issued as part of a new financing round. Dilution is not necessarily a bad thing _ since new stock can be issued at a higher price, you may own a smaller piece of a larger company, which means the value of your investment is higher than it was previously.

Down Round

A fundraising round in which the company is valued at a lower value per share than previous rounds.

Drag-Along Rights

The right of the owners of a specified percentage of the shares (usually 60-70%) of the company to require other shareholders to sell their shares or to vote their shares to approve the sale of the company. This prevents one group of shareholders from blocking the sale of the company to someone only interested in purchasing 100% ownership of the company.

Dry Powder

Dry powder is a common term in the venture capital and startup world. It refers to cash reserves corporations and private equity funds have available to deploy when an attractive investment opportunity arises or to meet its obligations during economic stress.


Due diligence

The process performed by prospective investors to assess the viability of an investment and confirm that the information provided by the company is accurate. They are usually performed after signing a Term Sheet / Letter of Intent (LoI). A list of questions will need to be answered by the company and its founders covering everything from legal to financial and commercial aspects of the business. The due diligence is often supported by a Virtual Data Room set up for the investors to review all relevant information.

Earnings before interest and taxes (EBITDA)

A measurement of the company’s operating profit before financial, tax, and amortization expenses. A possible valuation methodology is based on comparing private and public companies’ value as a multiple of EBITDA.

Elevator pitch

A concise presentation from an entrepreneur to a potential investor about an investment opportunity lasting no longer than a minute or less. The presentation should be brief enough to be shared during an elevator ride.

Employee Stock Ownership Program (ESOP)

A pool of options is reserved for future employee compensation packages.

Entrepreneurship Program

An entrepreneurship program is a more broadly structured initiative that works with founders to advise, provide either monetary or non-monetary resources, and grow new startups. It does not necessarily take equity or place specific requirements on its companies. Additionally, the emphasis weighs more heavily on mentorship and learning and does not have a unified cohort structure across most programs that accelerators or incubators do.

Equity Crowdfunding

Equity crowdfunding platforms allow individual users to invest in companies in exchange for equity. Typically on these platforms, the investors invest small amounts of money. However, syndicates are formed to allow an individual to evaluate an investment and pool funding from a group of individual investors.

Escalation Rate

The Escalation Rate is the percentage of customer inquiries requiring follow-up support, such as researching a customer-reported product issue. Although the Escalation Rate is just the opposite of the FCR, it’s essential to track because the specific drivers can provide insight into the customer use cases and identify product functionality that needs to be incorporated into the product road map.

Exercise Price (also known as Strike Price)

The amount that must be paid to execute your options. Generally, the exercise price is pegged to the “Fair Market Value” on the date of issuance rather than the vesting date.

Exit Event or Liquidity Event

When an issuer engages in a transaction that allows investors to sell their shares, which generally happens through a tender offer (sale) or an IPO or SPAC.

Exit Velocity

A term from baseball, initially referring to the baseball’s speed, comes off the bat immediately after a batter makes contact. In venture, it refers to the rate between investment and exit, immediately when the investment is made to the liquidity event that allows the investor to cash out. For example — capital invested for growth funds has a higher exit velocity than the capital invested by accelerators in startups. The ventures are less mature and have a longer time to exit.

Expansion Rate

The additional recurring revenue generated from existing customers through either Upsells or Cross-sells expressed as a percentage of existing ARR. Enterprise SaaS companies use this metric because the ACV of new customers can be expanded by capturing a larger share of their technology budgets by selling to more users or selling more products to the customer. Net Churn Rate / Net Expansion Rate – The net result of Gross Churn Rate and the Expansion Rate. Note that Net Churn Rate is shown as a negative number and Net Expansion Rate positively.

Exposed ACV / Exposed ARR

The Annual Recurring Revenue of all contracts up for renewal in a given period. This ARR is at risk of renewal and therefore is exposed to churning.


Fair Market Value

The value of a company is based on what investors are willing to pay for it. For private companies or illiquid assets, “fair market value” is generally derived from comparable companies or assets that have recently had a transaction associated with them.

Family Investment Office or Family Office (FO)

A family investment office is a fund of an ultra-high-net-worth investor family. They typically make investments from Seed onwards to Series A and above as co-investors. It happens that FOs also lead Seed rounds.


Someone who owes special duties to another person and has liability for not performing that duty

First Contact Resolution Rate (FCR)

The FCR represents the percentage of customer support calls resolved in the initial call. You can use this metric to get insight into customer engagement and satisfaction, product functionality, and the skill level of the customer support team because the FCR is a function of all of these factors. The challenge is to identify the specific drivers of the FCR.

First Refusal Rights

The company’s right to purchase stock in future offerings on the same terms as other investors. Usually, the right is designed to enable investors to maintain their percentage ownership of the company by purchasing a pro-rata share of all new stock sold by the company. Investors also often require company founders to grant first refusal rights on shares the founders own. Also sometimes called Preemptive Rights or Pro-Rata Rights.

First Response Time

Customer support response time is a leading indicator of customer satisfaction. It is a function of customer support staffing and training.

Free Cash Flow

The sum of cash flow from operations and cash for investing activities. This is the most appropriate measure of a company’s burn rate because it includes all expenses related to operating the business irrespective of the financing model. Cash flow from financing activities is not relevant because companies make different choices on funding strategy, specifically relating to the mix of equity and debt, based upon market conditions that are unrelated to business operations. It is the best way in which to ensure benchmarks apply.

Free-to-Paid Conversion Rate

Used in companies with a Freemium or Free Trial Go-to-Market (GTM) strategy, the Free-to-Paid Conversion Rate is measured over time as freemium users convert to paid subscriptions and at a point in time as the percentage of converted users divided by the total user population.

Friends and Family Round

Capital provided by friends and family of founders of an early-stage startup. This is typically its first outside capital. The startup is generally too early (often still at ideation) to raise capital from a professional angel or seed investor but needs capital to get started.

Full Ratchet

The method of total protection from dilution is called a ratchet. It ensures that a fundraising round causes a previous investor’s ownership percentage to decrease due to newly issued shares. They will be given the opportunity to maintain their ownership level. In more technical terms, Anti-dilution Protection adjusts the Conversion Ratio so that each share of Preferred Stock will be convertible into several shares of Common Stock equal to the number of shares the investor would have received if the investor had purchased the shares at the lowest subsequent price at which the company later sells its stock. The number of shares sold at the lower price doesn’t matter. Only the lower price matters. For example, if the company sells Preferred Stock with a one-for-one Conversion Ratio for $10 per share and later sells Common Stock for $1 per share, each share of Preferred Stock would become convertible into ten shares of Common Stock, even if only one share is sold at the lower price.

Fully Diluted

Fully diluted means the total number of shares of Common Stock the company has issued, plus all shares of Common Stock issuable if all outstanding options, warrants, convertible preferred stock, and convertible debt were to be exercised or converted. Fully diluted calculations are used to compare the percentage ownership of a company of different classes of securities by reducing each class to its Common Stock equivalent.

Fund of funds

A fund created to invest in private equity or venture capital funds. This entity is often referred to as a Limited Partner to the venture capital funds.

Funding Round

“Funding round” is the general term used for a round when information regarding a more specific designation of the funding type is unavailable.



General Partner of a fund.

General Solicitation

The act of publicly soliciting investors, usually through advertising or any other non-controlled method of a public offering. If a company or issuer engages in public solicitation, it may eliminate certain safe harbors previously afforded to them under current securities regulation.

Government Office

A government office may invest in startups in their municipality, district, state, or country. They may or may not take equity in companies in exchange for capital and/or mentorship.

Grandfather Rights

A grandfather clause (or grandfather policy) is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases. Those exempt from the new rule are said to have grandfather rights or acquired rights.


A grant is when a company, investor, or government agency provides capital to a company without taking an equity stake.

Gross Churn Rate

The percentage of ARR that does not renew at the contract’s renewal date. For an enterprise SaaS company, we express this metric in dollars and not customer count because the revenue impact is more closely related to a change in absolute dollar churn. Hence, we refer to this as Gross Dollar Churn Rate. Small/Mid-Market and B2C SaaS companies use customer count, and we call this simply Gross Churn Rate.

Gross Margin

The difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is an important metric as it explains the actual net revenue that you generate from every dollar in sales to cover your expenses and make a profit.

Growth Equity

Growth Equity refers to private investments in late-stage companies which aim to finance revenue growth through market expansion. Such investments typically target minority positions in proven market segment leaders.


Hedge Fund

A hedge fund is a private investment partnership that invests for wealthy individuals or institutions. They will typically invest in private equity rounds or late-stage venture rounds (Series D or beyond).

Human Capital Efficiency (HCE)

The single most significant resource cost in a SaaS business model is people, i.e., payroll and related items. A proxy for operating efficiency is the ratio of top-line metrics, such as ARR, CARR, or Revenue, to Employees. You can use any number of benchmark services such as the Key Banc SaaS Survey or the OPEXEngine SaaS benchmarking service for comparison. Keep in mind that the HCE varies proportionally to size – the larger the company, the greater the scale – and does so more than other unit economic metrics.


Ideal Customer Profile (ICP)

An ideal customer profile, referred to as the buyer persona, is a hypothetical description of the type of company that would most value your software. They have the most efficient sales cycle, the higher customer retention and expansion rates, and the highest number of evangelists for your brand. You define the ideal customer profile using firmographics, some of which include: (1) product fit, i.e., they have a problem that your software solves; (2) size, either in revenue, budget; # of employees, # of locations (4) sector, i.e., industry vertical; and (4) location.


A program that provides the mentorship and capital necessary to accelerate the growth and success of young startups. Typically, the program will provide some capital and take an equity stake in the startup exchange.

Information Rights

The right of investors to have the company provide financial information annually, quarterly, or monthly. Under Delaware (and most state) law, a stockholder has the right to inspect and make copies of the corporation’s information, including their stock ledger, a list of stockholders, and its books and records. However, such a demand must be for a “proper purpose,” which means a purpose reasonably related to the person’s interest as a stockholder.

Initial Public Offering (IPO)

The process by which a formerly private company first issues stock to the public. New disclosures must be made, as the company must adhere to SEC reporting requirements.

Initial coin offering (ICO)

An initial coin offering (ICO) is a means of raising money via crowdfunding using cryptocurrency as capital. A company raising money through an ICO holds a fundraising campaign. During this campaign, backers will purchase a percentage of a new cryptocurrency (called a “token” or “coin”), often using another cryptocurrency like bitcoin to make the purchase, in the hopes that the new cryptocurrency grows in value.

Inside Round

A round of financing entirely composed of existing investors.

Inside Sales Representative (ISR)

The term, Inside Sales, refers to the process of closing deals remotely without the live, face-to-face engagement of the direct sales approach. The onset of the pandemic made all selling remote, so this is no longer an accurate distinction. Today, the better definition is to describe “Inside Sales” as the use of a lower-cost sales strategy leveraging people who do not need the selling skills of Account Executives combined with a robust digital marketing lead generation program.

Investment Bank and Boutique Investment Banks

A bank that purchases newly issued shares and resells them to investors. When they invest directly in companies, it will typically be in Post-IPO Equity or Private Equity rounds. Investment banks also offer services for Private Placements (fundraising towards larger institutions ) and Mergers & Acquisitions (M&A). Boutique Investment Banks offer Private Placements and Mergers & Acquisitions (M&A) services at the lower end of the market (from Series A funds of $5M-100M upwards to M&A transactions from usually $10M and upwards towards $250M)

Investment Syndicate

A group of investors that agree to participate in an investment round of funding for a company.

Investor’s Rights Agreement

An agreement that is frequently required by early, or large, investors in a company. This agreement may include many provisions, such as “First Offer” (the right, but not the obligation, to participate in future fundraising rounds) and “Observer Rights” (the right to observe board meetings). This provision is relevant to shareholders because it may include a separate right of first refusal for investors.


The entity/company that shares represents ownership in.


JOBS Act (US only)

Jumpstart Our Business Startups Act, passed in April 2012. Includes several provisions related to early-stage companies, including new regulations regarding the maximum number of private companies allowed and how companies can solicit private investors.

K1 (US only)

The Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in partnership interests. The purpose of Schedule K-1 is to report each partner’s share of the partnership’s earnings, losses, deductions, and credits. It serves a similar purpose for tax reporting as one of the various Forms 1099, which report dividend or interest from securities or income from the sale of securities. A document sent to LP investors by the fund tells investors the percentage of the fund’s profits and losses.

Keyman clause

A clause in the LPA enables the LP to break the agreement if one of the significant General Partners leaves.

Keyman insurance

Insurance on the life of key employees, which investors may require the company to obtain.

Keyman risk

Referred to as the risk associated with depending on a single charismatic individual in a startup. The key tactic is to build a strong and capable team around the individual, usually the founder, to mitigate this risk.



Limited Partnership Agreement. Usually, a 70-page document and agreement between the LP and the General Partnership.

Lead investor

The investor takes on most of the work to negotiate the investment terms, do due diligence, and monitor the company after the closing. The lead investor usually invests more than other investors who participate in the round. The lead investor is often located near the company or specializes in the company’s industry.

Letter of Intent (LOI)

A letter of intent (LOI) is similar to a memorandum of understanding (MOU) in that it is a standard agreement between businesses (including startups) and potential customers to define commitment, interest, terms, and pricing in writing before delivering the goods or services. This document is used to clarify the understanding of both the customer and founder and is often used to show investors. LOI and MOU agreements are used interchangeably and usually non-binding. At times, in working with customers on large projects with multiple phases where the customer and business work together before payment and services are exchanged, an MOU may be used before a LOI is used to define pricing and terms. Also, see Memorandum of Understanding (MOU)

Limited Partner (LP)

Limited Partner, typically funds 99–100% of a fund, major investors


An event that could result in either investors or debt holders receiving cash from the company, either through acquisition or a sale of assets resulting from bankruptcy. In either case, preference clauses determine the order of payout to claimants, typically valuing debt holders and preferred shareholders over common stockholders. A liquidation event can also include an IPO or a SPAC whereby the shareholders will be able to sell their shares on the open market (with some limitation to insiders and employees who may be locked in for usually six months).

Liquidation Preference

The order in which investors, or debt holders, get paid in the event of company liquidation or bankruptcy. Venture capitalists commonly use it to ensure they see a return on their investment in different liquidation scenarios, often stipulating a guaranteed minimum share price.


The ability of an asset to be freely transferred with minimal interference from the issuer. Public equity is highly liquid since there are many buyers and sellers, while stock in private companies is generally much less liquid since the buyers and sellers are more limited.

Lock-up Period

A period of time that must elapse before the holder of a specific security can transfer or sell the security.



Most Favored Nation — the anchor investor that the largest investor can get all the benefits of all the side letters with the individual LP investors

MQL to SAL to SQL conversion rates

Your ability to track these metrics will define the accuracy of your pipeline forecasting

Management Fee

The fees that a fund will charge its limited partners each year. Venture capital fund management fees typically range from 1–3% annually (usually 2%). They are generally charged based on committed capital during the investment period and then invested capital after the investment period.

Marketing Qualified Lead (MQLs)

A lead that has been deemed more likely to become a customer than other leads. This qualification is based on the lead’s engagement with your brand. It is often measured in response to inbound and outbound efforts, webinar attendance, web pages visited, marketing material downloaded, and similar engagement with the business’s content.

Memorandum of Understanding (MOU)

The memorandum of understanding (MOU) is a standard agreement between startups who are pre-product and potential customers to define commitment, interest, terms, and pricing in writing before delivering the goods or service. LOI and MOU agreements are used interchangeably and usually non-binding. At times the MOU is used in partnerships to define working relationships where no financial exchange is yet made. At times, in working with customers on large projects with multiple phases where the customer and business work together before payment and services are exchanged, an MOU may be used before an LOI is used to define pricing and terms. This document is usually also used to clarify the understanding of both the customer and founder and is often used to show investors. Also, see Letter of Intent (LOI).


A micro-VC invests in startups and typically has a fund size of less than $100M. Micro-VCs are a type of Venture firm that focuses on early-stage seed and Series A investments only.


An event that triggers another investment by the venture investors.

Monthly Recurring Revenue (MRR)

Monthly recurring revenue (MRR) is a financial metric that shows the revenue that a company expects to receive monthly from customers for providing them with products or services. Essentially, MRR measures the company’s normalized monthly revenue. Revenue normalization is critical for companies that offer various pricing plans for their products or services.MRR can also be broken down into several components that reveal how revenue is earned. The types of monthly recurring revenue include the following:

  • New MRR: Additional MRR earned from new customers
  • Expansion MRR: Additional MRR earned from current customers
  • Churned MRR: MRR vanished due to the customers’ cancellations of subscriptions

The three MRR components above allow us to calculate the Net New MRR. The net new MRR indicates the sources of MRR that cause an increase or decrease relative to the previous period.


Net Promoter Score (NPS)

The Net Promoter Score is a measure of customer satisfaction metric that measures a customer’s likelihood of recommending a company. Customers are prompted to quantify this by ranking their probability on a scale from 0 to 10, with ten as the highest probability to make a recommendation and 0 as the lowest. Individuals who answer with a score of 0 to 6 are called Detractors. Those who respond with a score of 9 or 10 are called Promoters. Customers who select 7 or 8 are called Passives. The NPS is calculated by subtracting the percentage of detractors from the percentage of customers who are Promoters. Passive responses are included in the denominator when calculating percentages. The result of the calculation is expressed as a simple number. Soliciting Net Promoter Scores from customers is considered best practice for Customer Success management.

Net Revenue

Net revenue is not the same as gross revenue. It accounts for specific price reductions, price adjustments, and refunds.

Net Revenue Retention (NRR)

Net Revenue Retention (NRR) Rate is the percentage of recurring revenue retained from existing customers in a defined time period, including expansion revenue, downgrades, and cancels. This churn metric gives a comprehensive view of positive and negative changes concerning customer retention. A healthy NRR for a growth company would be at least >110%+

Network Effect

Network effects bring a powerful form of defensibility and exponential value creation. Network effects come in many forms and shapes but often as a "platform." The typical example is a marketplace that becomes more valuable for every buyer and seller that signs up. But it can also be other platforms (such as an operating system, data source, search, development language, or communications protocol). Work out your network effect and ask yourself how your product or service will become more valuable for every new user. Identify your nodes (e.g., users) and which links exist between these nodes (e.g., connections). The more valuable the links are, the better! Your users will be more motivated to use your product/service and less interested in shifting to a competing service. The best examples are social networks like Facebook and LinkedIn, which have become extremely valuable and almost impossible to compete against.

New Customers

The number of new customers in each period is simple for Small and Mid-Market customers because the Bookings, Billings and Revenue Recognition date is the same. Enterprise SaaS companies use CARR, defined by the customer’s Booking Date, and ARR, defined as the Go Live date.

New Feature Adoption

This metric straddles Professional Services and Customer Success because one of the other (or both) of these departments can affect this metric. The New Feature Adoption can be measured as the median time it takes for all, or some target level, of the products’ users to adopt the feature and the percentage of users who utilize the new feature. As the feature matures, you should use traditional Customer Success metrics to measure engagement.

New Subscription Bookings

The ACV of both New Customer Subscription Bookings and Expansion Subscription Bookings as measured on the contract signature date, i.e., the Bookings Date.

  • New Customer Subscription Bookings – The ACV of new logos acquired by the business measured on the contract signature date and “Fast Follow” Bookings, which are Bookings that close in the same month as that of the contract signature date.
  • Expansion Subscription Bookings – The ACV of Upsell and Cross-Sell Bookings that close in the month following the month of the original contract signature.
  • Upsell Subscription Bookings – The ACV of contracts increases the customer’s utilization of the original product. Adding more seat licenses or moving a customer to a higher usage tier are examples of upsell bookings.
  • Cross-Sell Subscription Bookings – The ACV of contracts that result in the sale of additional products to an existing customer.

Non-Equity Assistance

A non-equity assistance round occurs when a company or investor provides office space or mentorship and does not get equity in return.

Non-Recurring Bookings

This is the dollar value of all contracts for non-recurring revenue such as professional services or hardware sales.


Refers to the depth of the legal commitment of the document. Term sheets, Memorandums of Understanding (MOUs), Letters of Intent (LOIs) are non-binding documents of which the investor or startup can back out of the intended agreement. The etiquette is to provide a term sheet, and once the founder agrees to the term sheet, move to execute the investment. It is not common for investors to back out of agreements once a term sheet is issued.

Non-disclosure agreement (NDA)

An agreement issued by entrepreneurs to protect their ideas upon disclosing information to third parties such as investors.

‘No shop’ clause

The clause in a term sheet that states to the founder that they are not to share the term sheet with other investors to receive a competing offer. This is a standard clause. The etiquette gives founders about a week or less to decide on a term sheet to limit the time founders have to unofficially ‘shop around’ the deal.



GP Operation Agreement — governance document for the GP based on the term sheet and includes specifics related to the deal’s economics among the fund managers, management and operations, transfers and substitutions, termination and dissolution, and vesting.

Option Pool

The number of shares of Common Stock specified in the corporate charter that can be sold to employees, officers, and directors at low prices without triggering the Price Anti-dilution Protection of the Preferred Stock. 10-20% of the fully diluted shares are reasonably typical. However, the Option Pool size usually depends on the number of shares estimated to be necessary to grant to employees to attract a team capable of achieving the goals of the company’s business plan. This varies from one company to another. Option Pool shares are usually considered to be outstanding shares when calculating the company’s valuation.

Over-allotment Option

The right of investors to exercise the First Refusal Rights and Come Along Rights of other investors who don’t exercise their rights.


PEG ratio

The ratio of (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company’s expected growth.

Pari passu

The legal term that refers to equal treatment for two or more parties in an agreement meaning “on the same terms as.”

Participating Preferred Stock

For the term, the Participating preferred stockholders are entitled to receive a share of any remaining liquidation proceeds on an as-converted to common stock basis after they have already gotten back their liquidation preference. In contrast, non-participating preferred stockholders either get (i) their liquidation preference back or (ii) the amount they would have gotten had they converted to common stock. In other words, participating preferred gets the original capital back and the share of ownership. This term is sometimes referred to as investors double dipping as investors are getting the capital and the ownership versus just the percentage of the capital.

Pay to Play

In venture capital, investors can raise the ante with co-investors employing a “pay-to-play” provision, requiring all investors in a portfolio company to continue their pro-rata financial commitment to the company or else lose certain rights concerning their original investment. The rights can often be anti-dilution rights. In some cases, there is a provision of a portion of pro-rata (e.g., 50%), or investors convert to common equity.

Pension Fund

A pension fund is an employer-sponsored plan or fund that provides retirement income for employees. Typically, employers contribute to a pension fund account, tax-deferred, over time. Employees are then able to receive pensions through withdrawals at retirement.

Piggyback Registration Rights

Rights of an investor to have their shares included when registering a company’s shares in preparation for an IPO.


A contract that requires one party to transfer the cash proceeds from the liquidation of equity to another party in exchange for cash received before the liquidation event.

Portfolio Company

A company that has received an investment from a venture capital fund becomes a portfolio company of that fund.

Post-IPO Debt

A post-IPO debt round occurs when firms loan a company money after the company has already gone public. Like debt financing, a company will promise to repay the principal and add interest to the debt.

Post-IPO Equity

A post-IPO equity round occurs when firms invest in a company after the company has already gone public.

Post-IPO Secondary

A post-IPO secondary round occurs when an investor purchases shares of stock in a company from other existing shareholders rather than from the company directly, and it happens after the company has already gone public.

Post-money Valuation

The valuation of a company that includes the capital provided by the current financing round. For example, if an individual invests $3 million in a company with a $10 million pre-money valuation, the post-money valuation is $13 million.

Pre-Money Valuation

The theoretical value of the company before the investment is agreed upon by the company and the investors. Pre- Money Valuation is calculated by multiplying the number of Fully Diluted shares of the company before the investment transaction by the purchase price per share in the investment transaction.

Pre-Seed Round

A Pre-Seed round is a pre-institutional seed round with no institutional investors or is a meager amount. The size is often between $50K-$1M and can be a series of rounds depending on the startup’s traction.

Preemptive Rights

Similar to rights of first refusal. Preemptive rights refer to the right to purchase a company’s new shares before being offered to anyone else. In term sheets, the provision of the preemptive rights may be titled “Right to Participate Pro Rata in Future Rounds.” This is standard in term sheets.

Preferred Stock

A type of equity security that has certain rights over common stockholders. These rights may include but are not limited to liquidation preferences, dividends, anti-dilution clauses, and executive voting power.

Price Anti-dilution Protection

Protects investors from overpaying for stock by adjusting the Conversion Ratio if the company later issues shares for a price less than the price the investors paid. Adjustment of the Conversion Ratio results in more shares of Common Stock becoming issuable upon converting each share of Preferred Stock than was agreed at the time of the investment. There are two basic types of Price Anti-dilution Protection; Full Ratchet and Weighted Average. Weighted Average can be either Broad-Based or Narrow Based.

Private Equity

A private equity round is led by a private equity firm or a hedge fund and is a late-stage round (usually beyond Series C or Series D). It is a less risky investment because the company is more firmly established, and the rounds are typically upwards from $50M to several hundreds of million dollars.

Private Equity Firm

A private equity firm is an investment management company. When they invest in startups, it is typically in the private equity or later-stage venture rounds (Series C and beyond) from $50m and upwards.

Private Placement

The direct sale of a security to a limited number of qualified buyers may include accredited investors or institutional investors. Proper controls and structuring may exempt the placement from standard disclosure and registration policies mandated by the SEC (Us only).

Private Placement Memo (PPM)

Usually 50–100 pages long, that is the ‘business plan’ for starting a fund or investing.

Pro-rata rights

Pro-rata investment rights give an investor in a company the right to participate in a subsequent round of funding to maintain their level of percentage ownership in the company. This becomes a way for investors to continue to invest in companies.

Product Crowdfunding

A company will provide its product in a product crowdfunding round, often still in development in exchange for capital. This kind of round is also typically completed on a funding platform. Sometimes the money does not offer any Equity but some other rewards (such as early access or free product usage for a period of time).

Product-Led Growth (PLG)

Product-led growth (PLG) is a business methodology in which user acquisition, expansion, conversion, and retention are driven primarily by the product itself and not by a traditional sales team. PLG requires company-wide alignment across teams, from engineering to sales and marketing, around the product as the largest source of sustainable, scalable business growth. Great examples of PLG in B2B are Zoom and Slack, and in B2C, Pinterest and PayPal have mastered this methodology.

Product-Market-Fit (PMF)

Simply put, product-market fit is that magical moment when you become a must-have in your customers’ minds. This happens when you solve a real problem for them or help them do something 10x better, or you allow them to do something they couldn’t do before. PMF is often the primary success metric required for a Series-A VC investment.

Professional Services Attach Rate (PSAR)

The Professional Services Attach Rate, PSAR, measures the Professional Services Bookings Value divided by Total Subscription Software Bookings.

Professional Services Value Equation (PSVE)

The Professional Services Value Equation” (or PSVE) score incorporates post-sale expansion and improved retention into the PSAR equation. It is defined as PSAR + Expansion Rate + Customer Success Attach Rate (CSAR). The CSAR is the most variable of the three inputs since it is an objective measure of increased retention.

Protective Provisions

The right of an investor or group of investors to veto certain transactions by the company. This is usually achieved by prohibiting certain transactions unless a class vote approves the Preferred Stock.


Qualified IPO

Means an initial public offering by the company of size and price specified in the corporate charter. An IPO with $20 million in gross proceeds to the company and a price per share three times the price the investor paid for its stock is relatively typical for a Qualified IPO, but this varies from one deal to another.


A provision that provides an investor with down-round protection (i.e., where the company raises a subsequent round of financing, including IPO, at a lower price) by providing additional shares in the following round. In the IPO context, a ratchet provision provides that if the IPO price does not meet a certain level, say at least the price paid by the investor in the private round or some baked in the rate of return above that price, the IPO conversion of those shares to common shares is adjusted such that an additional number of shares are issued to investors to avoid any down-round dilution effect.

Reactivation Subscription Bookings

The ACV of Bookings from a prior customer churned and was subsequently reacquired in a future period. This metric is commonly used in B2C companies that experience high churn due to low switching costs and serve a highly fragmented market. Such companies run marketing campaigns focused on churned users with specific reactivation incentives based upon the consumers’ behavior as an active customer. Reactivated consumers are tracked as a separate cohort within the company’s revenue stream. This metric is typically expressed as MRR when used for this purpose.


The reorganization of a company’s capital structure, usually after a substantial down-round where previous investors do not re-invest but get “washed out.”

Recurring Bookings

This is not a standard metric because it technically includes both Subscription Bookings and Non-Subscription Bookings such as maintenance and support activities.

Redemption Rights (Redeemable)

The right of the investor to require the company to repurchase the investor’s stock for a price specified in the corporate charter. Redemption rights usually are not exercisable until five years or longer after the investment. Redemption rights are rarely exercised, but they give investors leverage to ensure their investment will eventually become liquid through the sale of the company if an IPO hasn’t occurred by a specified date.

Registration Rights

The right of investors in a public offering to require the company to include shares owned by the investors in a registration statement filed with the Securities and Exchange Commission under Section 5 of the Securities Act of 1933. There are three general types of registration rights (i) Demand; (ii) Piggybacks; and (iii) S-3.

Remaining Performance Obligation (RPO)

A company’s Remaining Performance Obligation represents the total future performance obligations arising from contractual relationships. More specifically, RPO is the sum of the invoiced amount and the future amounts not yet invoiced for a contract with a customer. The former amount resides on the balance sheet as Deferred Revenue and has always been reported as required by GAAP. The latter obligation, also referred to as Backlog, makes up the non-invoiced amount of the Total Contract Value metric. Thus, RPO equals the sum of Deferred Revenue and Backlog.

Renewal Rate

The existing ARR or customers that we successfully renew on the renewal date as a percentage of the total up for renewal. This metric is more common with Enterprise SaaS and Small/Mid-Market SaaS companies because a large portion of the customer base is under contract, typically annual, and therefore not eligible to churn until the contract renewal date. B2C SaaS companies rely on month-to-month contracts, so the Renewal and Retention Rates will be the same

Renewal Subscription Bookings

The ACV of contract renewals is measured at the Renewal Date, i.e., the date of term renewal regardless of the signature date.

Repurchase Option

The right of a company to buy back vested or issued shares.

Restricted Stock (also known as RSU)

Represents a class of stock that has some restrictions on the transfer or sale of the instrument. Generally, most non-public stocks have some restrictions, though they may vary depending on the issuer and holder. See our post on RSUs for a deeper dive.

Retention Rate

Retention Rate is expressed either as a dollar-based metric or customer count-based metric. Enterprise and Small/Mid-Market SaaS companies use dollar-based retention because of the significant variance in the customer ACV. So, the loss of one customer may or may not have a material impact on ARR. Contraction in one customer contract would impact ARR, but a count-based metric would not account for this change. Finally, these customers tend to be more stable and less likely to churn. Alternatively, B2C SaaS companies use a count-based metric because the average ACV among the customer base is more similar, and the customers are more likely to churn.

Return on Investment (ROI)

The proceeds from an investment during a specific time period are calculated as a percentage of the original investment.


Revenue is the amount of money a company receives during a specific period from its sale and services, including discounts and deductions for returned merchandise.

Revenue Multiple or Price/Sale (P/S) or Price per Revenue (P/R)

TEV/TTM Revenue, usually used for valuing a company when it’s not profitable yet.

Revenue Recognition Date

The date on which the company has met all revenue recognition requirements per GAAP as determined by the CFO.

Revenue Run Rate

The Revenue Run Rate (also run rate — one word) would be the company’s annualized revenue if you were to extrapolate the current income over a year. It refers to a company’s financial performance based on current financial information to predict future performance. The run rate functions as an extrapolation of recent financial performance and are based on the assumption that current conditions will continue. Run rates are helpful for new business or business units within a company that has only had a short period of revenue generation opportunity. This figure allows managers, venture capitalists, and investors to measure annual revenue.

Reverse dilution

When stock is returned to a company by departed employees whose stock has not yet been vested.

Right of First Refusal (ROFR)

A common transfer restriction that gives companies/issuers the right to purchase the stock at the same price before allowing a shareholder to transfer it to a third party. Prominent investors in companies are also often granted a ROFR before transfers or sales.

Road Show

Presentations are usually made in several cities to potential investors and other potentially interested parties. A company will often use a roadshow to create interest from investors before its IPO.

Roll up

A Rollup (also “Roll-up” or “Roll up”) is a process used by investors (commonly private equity firms) where multiple small companies in the same market are acquired and merged. A rollup’s principal aim is to create synergies by combining complementary solutions and reducing costs through economies of scale.

Rule 506(b) (US only)

A legal “safe harbor” allows issuers of non-public stock to sell interests to accredited investors without registering with the SEC. Under this provision, issuers cannot engage in “general solicitation,” such as advertising.

Rule of 40 (RO40)

The rule of 40 is a benchmark that states the sum of a company’s annual growth rate and EBITDA margins should exceed 40%. For example, if your company grew 50% in the last twelve months and had a 20% EBITDA loss during that same period, your RO40 sum would be 50%-20%= 30%. To reach the 40%, you would either need to increase growth by 10%, cut your EBITA loss by 10%, or any other combination of your growth rate/EBITDA to achieve 40% or above. Investors use the RO40 to assess the health of your business. It measures the tradeoffs between balancing growth and profitability. Since it is a high-level performance metric, companies start to use the rule of 40 once they reach $1M ARR.

Run Rate

The run rate is how the company’s financial performance (usually revenue) would look if the current results are extrapolated out over a specific time.


S-3 Registration Rights (US only)

The right of investors to require the company to file a short-form registration statement on Form S-3. S-3 Registration Rights are similar to Demand Registration Rights, but two registrations each year are permitted because the short Form S-3 is less burdensome to the company


A SAFE or safe stands for a “simple agreement for future equity.” This document was authored by Y Combinator lawyer Carolynn Levy and open-sourced. It was created and published as a simple replacement for convertible notes. In practice, a SAFE enables a startup company and an investor to accomplish the same general goal as a convertible note, though a SAFE is not a debt instrument.

A SAFE is an agreement that can be used between a company and an investor. The investors invest money in the company using a SAFE. In exchange for the money, with a SAFE, the investor receives the right to purchase stock in a future equity round (when one occurs) subject to specific parameters set in advance in the SAFE (e.g., valuation cap).

SaaS Magic Number

A SaaS metric is used to measure a company’s sales efficiency using a ratio of New Subscription Revenue to Sales & Marketing (S&M) expense. Put another way; the Magic Number shows how much it costs to acquire $1.00 of subscription revenue. Any ratio above 1.0x means that your company generates more New Subscription Bookings than it spends to acquire the customer.

The most accepted formula is to use a ratio of the increase in ARR in the current period to the S&M expense in the prior period. The difference between the two periods should correspond to the length of the sale cycle. This is especially true for high growth, i.e., 3x annual ARR growth, companies. Investors expect that the Magic-Number should fall within a narrow range of around 1.0x, with any ratio above 3.0x indicating phenomenal operational leverage.

SaaS Quick Ratio

Quick Ratio is a finance concept that provides a simplistic metric for a company’s liquidity and is defined as Liquid Assets divided by Current Liabilities. Any number greater than 1.0 is good. In SaaS parlance, the Quick Ratio is a metric in that it’s simple and uses 1.0 as a benchmark. It differs in that the QR is a growth metric calculated as the dollar growth in recurring revenue divided by the loss of recurring revenue.

Sales Accepted Leads (SALs)

Marketing qualified leads (MQLs) that have met specific agreed-upon criteria usually based on propensity to purchase and are passed along to the sales team where they will be acted upon within a predetermined time frame.

Sales Capacity Plan

For Direct Sales, the expected annual production is forecast using a Sales Capacity Plan. The output is a function of (1) the number of quota-carrying sales representatives, i.e., Account Executives (AE); (2) their Quota expressed in Annual Contract Value (ACV) for both subscription and non-recurring revenue such as professional services; and (3) their Productivity, expressed as a percentage of total expected annual production.

Sales Commission Rate

The percentage of the Bookings value earned by an individual Sales Representative for closing an opportunity. The rate will vary between software subscription, subscription services, and non-recurring services. Sales Commission Plans or Sales Incentive Plans (SIPs) offer various incentives that increase the sales commission rate if specific criteria are met and often have accelerated commissions for over achieving targets.

Sales Development Representative (SDR)

SDRs support Account Executives by prospecting for Sales Opportunities and nurturing these leads to the point where AE’s can work with them on closing the deal. This activity can be outbound in that the SDR directly contacts decision-makers at potential customers by phone or email. Or it can be an inbound activity in that the SDR responds to emails or phone calls from prospective customers. At the point of contact, the SDR seeks to determine if the potential customers’ software needs fit the company’s software product. If there is a match, then the SDR will pass the lead to the AE. The Sales Development Representative earns a base salary of $50,000 in high-cost metropolitan areas and a $20,000 variable based on sales activity (instead of sales commission).

Sales Efficiency

An adaptation of the Magic Number for Enterprise SaaS companies. Long sales cycles and the variance in time of the sales cycles make defining the “prior period” S&M expense difficult. Therefore, in such cases, we use the Sales & Marketing expense in the same period as the New Subscription Bookings, whether actual or forecasted. For example, if you project $20M in New Subscription Bookings for a given fiscal year, then your Sales & Marketing expense should, in theory, be ~$20M to achieve a 1.0x ratio. Remember that ratios calculated in this manner will be lower than a Magic Number calculation precisely because you are using the current S&M expense. It would be sporadic to see an Enterprise SaaS company achieve a 3.0x multiple

Sales Opportunity

An opportunity is a prospective customer at an advanced stage in the sales process with probability of closing that can be reasonably estimated. A typical set of opportunity stages looks like this: Prospecting (5% – 10%); Investigation / In Discussion (15% 30%); Proposal Price Quote (40% – 60%); Negotiation / Review (80%); Closed Won (100%); Closed Lost (0%)

Sales Pipeline (or Sales Funnel)

The sales pipeline is the value of all current opportunities. This metric is often shown as unweighted, meaning the dollar value of the deal, and as weighted, meaning the probability-weighted value of your opportunities. Typical maturity stages of Sales Opportunities in a Sales Pipeline looks like this: Prospecting (5% – 10%); Investigation / In Discussion (15% 30%); Proposal Price Quote (40% – 60%); Negotiation / Review (80%); Closed Won (100%); Closed Lost (0%).

Sales Pipeline Coverage

This is the ratio of Required Bookings over the Target Bookings, with the latter defined by the Operating Plan (or Budget).

Sales Pipeline Coverage

This is the ratio of Required Bookings over the Target Bookings, with the latter defined by the Operating Plan (or Budget)

Sales Qualified Lead (SQL)

A prospective customer has been researched and vetted by your sales team and is deemed ready for the next stage in the sales process.

Sales Representative Productivity

We use a variety of metrics to measure productivity, but the most common are the following:

  • Quota Achievement: % of quota attained for a given time period in aggregate and by rep
  • Participation Rate: % of reps that achieved quota
  • Win Rate by rep: Closed/Won Opportunities divided by All Opportunities as defined above
  • Sales Ramp: Time to reach high quota attainment, typically defined as consistent Quota Achievement > estimated team productivity as defined in the sales capacity planning model
  • Sales Rep recruiting / attrition (regrettable and non-regrettable)

Sales Velocity

The Sales Velocity metric shows how much revenue you are adding per day over the length of the sales cycle. It is calculated as the number of closed opportunities, the average subscription ACV of these opportunities, and the Win Rate with the result divided by the Sales Cycle.

Secondary Market

A secondary market transaction is a fundraising event in which one investor purchases shares of stock in a company from other existing shareholders rather than from the company directly. These transactions often occur when a private company becomes highly valuable, and early-stage investors or employees want to earn a profit on their investment. These transactions are rarely announced or publicized.

Secondary Purchaser

A secondary purchase is a purchase of stock in a company from a shareholder rather than a stock purchase directly from the company. This can happen before a company goes public and is typically not publicized.

Seed Round including Pre-Seed or Post-Seed

The earliest round of outside fundraising is typically backed by Angel investors or Seed-focused institutions (some VCs play in this space). The company is generally not generating much revenue. It is in the process of developing their product or just having released an MVP (Minimal Viable Product), Beta version, or a first version. Round sizes range between $1M–$4M, though larger seed rounds have become more common in recent years. A seed round typically comes after an angel round (if applicable) and before a company’s Series A round. A Pre-Seed round is a pre-institutional seed round with no institutional investors or is a very low amount. The size is often between $50K-$1M and can be a series of rounds depending on the startup’s traction. A Post-Seed is a round that extends the Seed round, usually, because the company has not yet reached a Series-A maturity, often referred to as a Product-Market-Fit (PMF)

Senior Liquidation Preference

An entitlement given to a specific class of shareholders that gives them a higher liquidation preference over other shareholders. Also known as Stacked Preference.

Separation Agreement

Not always one document, the “Separation Agreement” refers to the entire package of rights and considerations when an employee amicably leaves a company. In addition to severance pay, separation agreements often include provisions about non-disparagement, non-disclosure, and vesting of equity.

Series A and Series B rounds

Funding rounds for early stage companies and range on average between $5M–$40M.

Series C rounds and onwards

These are funding rounds for later stages and more established companies. These rounds are usually $20M+ and are often much more significant.

Serviceable Available Market (SAM)

SAM is the segment of the TAM targeted by your service, which is within your geographical reach. The served available market gives you a much better sense of how much revenue you can realistically bring in with your product, but the TAM helps indicate how much room there is for potential growth.

Serviceable Obtainable Market (SOM)

SOM is the portion of SAM that you can realistically capture. The market share typically defines the SOM for your specific service versus all other competitors with a comparable offering.

Shareholder Agreement

A contract that sets out how the company will be operated and the shareholders’ obligations and rights

Shareholder Limit (the US only)

Established by Section 12(g) of the Exchange Act, it requires that private companies register with the SEC, depending on specific criteria, including the type of shareholders and the total number of shareholders.

Shareholder of Record

The name of a shareholder as it appears on the issuer’s registrar.

Shares Outstanding

Refers to a company’s stock currently held by all of its shareholders, including shares held by institutional investors and restricted shares owned by a company’s executives. This number is used to calculate key metrics such as a company’s market capitalization, earnings per share, and cash flow per share.

Side Letter

Agreement between the fund and the individual investor.

Software-as-a-Service (SaaS)

Software as a service (SaaS) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as "on-demand software" and was formerly referred to as "software plus services" by Microsoft. SaaS applications are also known as on-demand software and Web-based/Web-hosted software.

Special Purpose Acquisition Company (SPAC)

A special purpose acquisition company (SPAC) is a company with no commercial operations that are formed strictly to raise capital through an initial public offering (IPO) to acquire an existing company. Also known as "blank check companies," SPACs have been around for decades. They’ve become more prevalent in recent years, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019.

Stacked Preference

When different classes of preferred stock have senior rights to payment over other types of preferred stock. Also known as Senior Liquidation Preference.

Startup Competition

Startup competitions are held by various companies, government offices, and firms. The prize for many startup competitions will be capital with no equity component.

Startup Studio

A startup studio, also known as a startup factory, or a startup foundry, or a venture studio, is a studio-like company that aims at building several companies in succession. This style of business building is referred to as "parallel entrepreneurship.” A startup studio is an organization that comes up with disruptive ideas and products and builds businesses alongside industry-relevant executives. The startup studio will oversee the startups from the onset of investment and help guide the company well beyond product launch. A startup studio hires founders (either external or internal entrepreneurs who will direct the startup through “exit”). These founders come in and run each market-tested company, providing the startup with top-level mentorship, all underpinned by an enormous amount of support provided by the studio.

Startup or Tech-Startup

A Startup is a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market, typically based on new technology in some form. By its nature, the typical startup tends to be a shoestring operation, with initial funding from the founders or their friends and families.

Stock Option

A right to purchase or sell a share of stock at a specific price within a specified period. Stock options are often used as long-term incentive compensation for management and employees at high-growth companies.

Stock Plan

The Stock Plan is an assimilation of all the rights and economic interests attached to company stock, including the company’s bylaws, grant documents, shareholder agreements, etc.

Subscription Bookings

The Subscription Bookings metric is defined as the ACV of a contract’s Subscription Revenue at the highest level. We use annual values because all Go-To-Market benchmarks are expressed in yearly values. Plus, industry professionals, whether they are investors or operators, view the company’s metrics annually. Another reason is that operators manage the business on an annual period. Budgets are created for a given fiscal year. Sales Incentive Plans (SIP) are based on yearly quotas and annual attainment milestones for payments. We report on Subscription Bookings separate from all other revenue streams because this revenue is the most critical to the business’s success

Subscription Revenue Gross Margin

The gross profit margin of the subscription software revenue only. Gross Margin is the percentage of revenue remaining after subtracting the direct costs associated with delivering the hosted SaaS product in the period the revenues are generated. These direct costs fall into five categories:

  • Hosting and Infrastructure
  • Customer Support and Customer Success
  • Cloud Operations and Platform Support
  • Third-party Fees
  • Overhead Allocation

Super Pro Rata

Super pro-rata right, the investor (let’s say in your A round) will ask for more than their pro-rata right.

Syndicate Investors

The group of venture investors who participate in the investment round sometimes has a syndicate lead who will also receive a Carry.

Syndicate Loan

A syndicate group of lenders who form to provide what’s usually referred to as a “syndicated loan” to a borrower. Forming a syndicate is advantageous because it spreads the risk among multiple lenders and the borrower (most likely a company, government, or particular project) can carry out a transaction it wouldn’t be able to on its own.



T2D3 is a rule of thumb that defines best-in-class revenue growth. It postulates that revenue growth should triple for the first two years, then double for the subsequent three years from revenue in single-digit millions. For example, a company that reaches $2M in revenue in year 0 should grow to $6m in year 1, $18m in year 2, $36m in year 3, $72m in year four, and $144m in year 5. This thumb rule is based upon growth trajectories achieved by 50 hyper-growth technology companies.

TEV or sometimes just EV (Enterprise Value)

Total Enterprise Value is calculated by concluding a funding round, trade sale, or a publicly-traded company. TEV is calculated by the share price paid (by the investors or acquirer) multiplied by the number of Shares Outstanding.

TEV or sometimes just EV (Enterprise Value)

Total Enterprise Value is calculated by concluding a funding round, trade sale, or a publicly-traded company. TEV is calculated by the share price paid (by the investors or acquirer) multiplied by the number of Shares Outstanding.


Trailing 12-month revenue; the sum of revenues during the last 12 months.

Tag-Along Right

The right of a minority investor to receive the same benefits as a majority investor. This often applies to a sale of securities by investors and is also known as co-sale right.

Term Sheet

A document that includes the basic terms of a company’s fundraising round (or any investment). Once signed, it indicates that the investor and the company intend to move forward to complete the transaction and stipulates the significant economic or corporate governance terms related to the investment. A Term Sheet typically comes with a Non-Shopping clause that allows the investors to conclude Definitive Agreements, such as SPA (Stock Purchase Agreements), for the investment to close within a period of 4-8 weeks.

Time to Go Live (TGL)

It takes to complete implementation and get customers live on the product. The TGL date is often used as the revenue recognition date for enterprise SaaS companies because the company fulfills the delivery requirement in addition to other revenue recognition elements – evidence of a contract, fixed or determinable price, and reasonable assurance of payment.

Time to Grow (TTG)

The time it takes to expand the ACV of the customer via upselling and/or cross-selling.

Time to Value (TTV)

The time it takes to get customers to realize the full extent of value from the product. The TTV definition depends upon the specific service you sell. Here’s one example: Consider an enterprise SaaS business that sells a subscription license based upon seats and that the average customer buys 50 seats. Only a fraction of the seat licenses may be in use upon implementation, say 10. We refer to these seats as active and the remainder inactive. The customer success team will attempt to grow the active seat count to the full subscription license of 50 seats. In this case, TTV could be the date at which all 50 seats are used.

Total Addressable Market (TAM)

TAM is the total market demand for your service. For your company, it will refer to the total amount of money you can make in selling your product as it exists today. For fundraising, you will need to conduct a TAM analysis, which should provide a detailed estimate of the market you intend to serve. Remember that the TAM will grow over time. You should incorporate these growth expectations into your strategic thinking.

Total Contract Value (TCV)

The total value of the contract’s Subscription Revenue measured over the contract’s life regardless of the Billings amount. A simplistic example is a 2-year contract with a TCV twice the amount of its ACV. The calculation may change slightly in future years including price adjustments. A helpful reporting metric is the ratio of TCV to ACV. The higher the percentage, the stickier the contracts, leading to retention improvements and a more efficient sales cycle.

Total Subscription Bookings

The ACV of both New Subscription Bookings and Renewal Subscription Bookings. We report these two Bookings types separately because Renewal Bookings are generally much less expensive to achieve than are New Subscription Bookings. The CAC of Renewal Bookings can be as low as one-fifth of New Bookings.

Transfer Restrictions

Contractually defined limitations on an individual’s ability to sell or transfer their shares in the company.



A term referring to a startup valued at $1B or more. Usually while still private or pre-IPO.

Unit Economics

Unit Economics refers to measuring the revenues and costs associated with an individual customer. It’s the atomic-level view of the business. Viewing the company’s performance in this way will allow you to understand profitability on a per-customer basis and measure your performance with established benchmarks. Typical examples are Customer Acquisition Costs (CAC) and Customer Lifetime Value (LTV).

University Program

Many universities have programs dedicated to entrepreneurship. Their services range from supporting entrepreneurs with capital or mentorship.

User Retention by Time Period

B2C SaaS companies that operate in spaces with low barriers to entry, low switching costs, and a high number of substitutes closely track the performance of monthly cohorts with a cohort as defined by the number of customers acquired in a given month. Such consumers can be fickle and may churn out quickly. Therefore, you must monitor the slope of the retention curve over the subsequent month. One way to report on this curve is to use metrics defined by the percentage of users active as time progresses. For example, the metric, D30, refers to the percentage of active users acquired in the prior month, i.e., Month 0, on the 30th day of the following month, i.e., Month 1. You will see every variety of this metric: D7, D15, D30, D60 in days; W1, 2, 3 in weeks, and M1, 2, 3 in months.


Venture - Series Unknown

Venture funding refers to an investment that comes from a venture capital firm and describes Series A, Series B, and later rounds. This funding type is used for any funding round that is a venture round but where the series has not been specified.

Venture Debt

Venture Debt firms provide capital in exchange for a loan (plus interest) to be paid back later.

Venture capital (VC)

Venture Capital firms invest in startups at various stages, ranging from seed to Series A and beyond. Venture Capital firms take equity in exchange for capital, seeking to invest in firms. from the earliest stage Series A to later stages as the company grows. Venture firms typically lead only a single round and cede to other investors for the next round to avoid conflicts of interest in pricing the next round. Venture capital generally comes from a group of partners who set up a VCs firm and raise several capital funds from Limited Partners (LP), such as sovereign wealth funds or mutual pension funds. Venture capital is typically allocated to startups with exceptional growth potential or to or scale-up companies that have grown quickly and appear poised to continue to expand. Though it can be risky for investors who put up funds, the potential for above-average returns is an attractive payoff. For new companies or ventures with a limited operating history (under two years), venture capital funding is an essential source for raising capital, especially if they lack access to capital markets, bank loans, or other debt instruments. The main downside for the entrepreneurs is that the VC investors usually get 25-50%+ equity in the company, and, thus, a say in company decisions.


Generally, when something that is promised is delivered, and ownership is officially granted to the recipient. For employees, shares generally vest according to a predetermined schedule. Vesting means that employees only receive their equity compensation after a period of employment to ensure alignment of interest between the company and the employee. The current market standard for vesting schedules is four years with a one-year “cliff.” Typically, this means that 25% of the grant will vest after one year, and the balance will vest in equal monthly installments over the following 36 months.

Visitation Rights

Also called Observer Rights. The right of investors to have a non-voting representative attend meetings of the Board of Directors of the company and committees of the Board.


The right to purchase stock at a later date at a fixed price. Similar to stock options, but usually given to investors, not employees.

Warrant Coverage

Warrants issued to reward bridge loan lenders, guarantors, or other lenders for incurring the risk of lending. The number of shares issuable upon exercise of the warrants is based on a percentage of the debt.

Washout Round

A round of financing where previous investors, the founders, and management suffer significant dilution. The new investor in a washout round will typically gain majority ownership and control of the company.

Weighted Average

A form of Anti-dilution Protection that adjusts the Conversion Ratio according to a formula that considers both the lower price and the number of shares issued at the lower price. This is more favorable to the company than a Full Ratchet. Narrow Based Weighted Average uses only the number of outstanding shares of Preferred Stock in the formula used to adjust the conversion price. This is more favorable to the investor than Broad-BasedWeighted Average, including all fully diluted shares in its formula.

Win Rate

The ratio of Opportunities Won over the total opportunities in the sales pipeline.


A decrease in the reported value of an asset or company