Financial Glossary for Startups
Building a startup means learning a whole new financial vocabulary — from SAFEs to burn rate to 409A valuations. Here's every term explained like a founder, not a finance textbook.
38 terms organized by category
Fundraising & Cap Table
Pre-seed / Seed / Series A / B / C
The named stages of venture capital fundraising, each representing a larger round of investment as a startup matures.
Pre-money vs Post-money Valuation
Pre-money valuation is what your company is worth before new investment; post-money valuation is the pre-money plus the investment amount.
Dilution
The reduction in existing shareholders' ownership percentage when a company issues new shares to investors or employees.
Cap Table
A spreadsheet or document that shows who owns what percentage of your company, including founders, investors, and employees with equity.
Convertible Note
A short-term loan to a startup that converts into equity during a future funding round instead of being repaid in cash.
SAFE (Simple Agreement for Future Equity)
A simple investment document where an investor gives you money now in exchange for equity later, when you raise a priced round.
Valuation Cap
The maximum company valuation at which a SAFE or convertible note will convert into equity, protecting early investors from overpaying if the company's valuation skyrockets.
Discount Rate (SAFEs and Notes)
A percentage discount on the Series A share price that rewards early SAFE or convertible note investors for taking risk before a priced round.
Pro Rata Rights
The right for an existing investor to participate in future funding rounds to maintain their ownership percentage.
Liquidation Preference
A term that guarantees investors get their money back (often with a multiple) before common shareholders receive anything in a sale or liquidation.
Equity & Compensation
409A Valuation
An independent appraisal of your startup's common stock fair market value, required by the IRS to set stock option exercise prices.
Stock Options (ISO vs NSO)
The right to buy company shares at a fixed price — ISOs get favorable tax treatment for employees, while NSOs are more flexible but taxed as ordinary income.
Vesting Schedule
A timeline over which an employee earns full ownership of their stock options or restricted shares, typically four years with a one-year cliff.
Exercise Price / Strike Price
The fixed price per share that an option holder pays to convert their stock options into actual shares of company stock.
Cliff (Vesting)
The initial period (usually one year) during which no equity vests — after the cliff, a large chunk of equity vests at once.
83(b) Election
An IRS tax filing that lets you pay taxes on restricted stock at the grant date (when it's cheap) instead of when it vests (when it might be worth much more).
Common Stock vs Preferred Stock
Common stock is held by founders and employees with basic ownership rights; preferred stock is held by investors and comes with special protections like liquidation preference.
Legal & Structure
Anti-dilution Provisions
Clauses that protect preferred investors from losing value if the company raises a future round at a lower valuation (a down round).
Drag-along / Tag-along Rights
Drag-along lets majority shareholders force minority shareholders to join a sale; tag-along lets minority shareholders join a sale on the same terms as the majority.
Right of First Refusal (ROFR)
A right that lets the company or existing investors buy shares before a shareholder can sell them to an outside third party.
Term Sheet
A non-binding document outlining the key financial and governance terms of a proposed investment — the starting point for fundraising negotiations.
Bridge Round
A smaller fundraise between major rounds, typically using convertible notes or SAFEs, designed to extend runway until the next priced round.
Down Round
A funding round where the company raises money at a lower valuation than its previous round, signaling a decline in perceived company value.
SaaS & Subscription Metrics
MRR (Monthly Recurring Revenue)
The predictable revenue your startup earns every month from active subscriptions, excluding one-time fees.
ARR (Annual Recurring Revenue)
Your monthly recurring revenue multiplied by 12, representing the annualized value of your subscription business.
Churn Rate
The percentage of customers or revenue you lose in a given period — the silent killer of subscription businesses.
Net Revenue Retention (NRR)
The percentage of recurring revenue retained from existing customers over a period, including expansion revenue from upgrades and upsells.
LTV (Lifetime Value)
The total revenue you expect to earn from a single customer over the entire duration of their relationship with your business.
CAC (Customer Acquisition Cost)
The total cost of acquiring a new customer, including all sales and marketing expenses divided by the number of new customers gained.
LTV:CAC Ratio
The ratio of customer lifetime value to acquisition cost — the essential metric that tells you whether your growth is economically sustainable.
Payback Period
The number of months it takes to recoup the cost of acquiring a customer from their subscription revenue.
Financial Planning
Burn Rate
The rate at which your startup spends cash each month, calculated as total monthly expenses minus revenue.
Runway
The number of months your startup can continue operating before it runs out of cash, based on your current burn rate.
Gross Margin (SaaS)
The percentage of revenue remaining after subtracting the direct costs of delivering your service — hosting, support, and infrastructure.
Rule of 40
A benchmark stating that a healthy SaaS company's revenue growth rate plus profit margin should equal or exceed 40%.
Unit Economics
The revenue and cost analysis of a single customer or unit sold — the building block that tells you whether your business model is fundamentally profitable.
TAM / SAM / SOM
Three concentric measures of market size: Total Addressable Market (everyone), Serviceable Addressable Market (your segment), and Serviceable Obtainable Market (what you can realistically capture).
Bootstrapped vs Venture-backed
The choice between growing your startup with your own revenue (bootstrapped) or with investor capital (venture-backed) — each comes with different trade-offs in speed, control, and risk.
Other Business Type Glossaries
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