Coordinated experimentation where two or more versions (websites, apps, landing pages, etc.) are shown to different customer segments to determine which is most effective.
Typically fixed-term, cohort-based programs that often include mentorship/education, and conclude in a “demo day” where the founders pitch to investors.
Acknowledging the difference in ability/knowledge between individuals, and building a product or service in such a way that removes unnecessary barriers for users. These differences in ability can be temporary or permanent.
An entity or individual that is permitted to buy or invest in securities that are not registered with financial regulatory agencies. Primary regulation includes Regulation D, Rule 501 of the 1933 Securities Act. Summary of requirements include: An individual with credentials such as Series 7, Series 65, or Series 82 licenses; Family offices with at least $5 million in assets; Business entities that own over $5 million or more in assets; An individual with a professional certification, or status as a private fund’s “Knowledgeable Employee;” Married couple in which one spouse qualifies based on their finances.
Combination of words “acquisition” and “hiring.” Acquiring a company to primarily recruit its employees or fold in the company to a larger company as a subsidiary.
An experienced professional that assists a startup in an official capacity based on their relevant experience in areas where the current team may be lacking. The level of engagement varies in these relationships, with some advisors being extremely hands-on and others taking a more high-level advisory approach. These individuals usually receive anywhere from 0.25%-1% equity based on their contribution, and are often vital to early-stage startups receiving validation for their team’s expertise.
Documentation put in place between an official advisor and a company. Focuses on what the advisor will contribute to the company, the time commitment involved in providing their assistance, how much compensation they are to receive, and in what form compensation is paid (cash,equity, hybrid models, etc.).
A methodology for expediting the creation and scaling of your product/service with quick & incremental releases. Typically thought of in the same vein as Design Thinking and Lean Startup, where the ability to quickly (and cheaply) iterate and move forward is key.
Initial testing phase which focuses on validating if a new product will perform as expected. Carried out by the development team and internal team which is then followed by beta testing with real customers.
An individual that invests into a business or startup at the earliest stages (Idea stage to Seed stage normally). They typically invest through a convertible debt agreement, a simple agreement for future equity (SAFE), or straight priced equity.
A collection of angel investors that pool resources for deal sourcing, investment diligence, or scaling their capital investments. Each angel group is able to define its own investment rules, expectations, and thesis. They also maintain the ability to invest as individuals or under one/multiple entities, subject to the specifics of each angel group.
Annual revenue that a company expects to generate from its customers for providing them with products and/or services on a recurring basis.
A type of software interface that facilitates the connection between computers or multiple computer programs.
A for-profit corporate entity that includes a focus on positive impact on society, workers, the community, and the environment. Focused on profiting in the “best interest of all stakeholders”
Refers to the server side of an application and everything that communicates between the database and the browser/application.
Following the completion of alpha testing, beta testing involves running a sampling of the intended customer audience through the product & having them provide feedback over a period of time.
An entrepreneurship industry term created in the early 2000s to describe a new (and large) open market with few competitors or barriers to entry standing in the way of innovation.
A group of individuals selected by the entrepreneurs who provide guidance and advice to help the company accomplish its goals. Typically a board of advisors is focused on near/mid term company goals and they are compensated through equity or cash.
An elected group of individuals that represent shareholders of a given company. The board of directors meets regularly to set corporate management and oversight policies. Typically compensated through equity and the status of having an official board role.
Starting and funding a company using only personal savings as well as income from initial sales/contracts.
The rate a company spends money, typically expressed on a monthly basis.
The activity of pursuing business or strategic opportunities for a given business.
Describes how a given business creates, delivers, and generates value short and long term.
A standard startup document that is used to understand all of the critical aspects of a business. These documents are helpful for early stage companies to understand/complete, as they help the Founders structure and position their company and value proposition effectively. The answers provided in this document are not static and can help new ventures understand how the different aspects of their business model change over time.
Business that is conducted between companies, rather than a company and an individual consumer.
Business that is conducted between companies and individuals, rather than between companies.
Business that is conducted between companies and governments, rather than with companies or individuals.
Legal structure for a business in which the shareholders (owners) are taxed separately from the entity. Can have an unlimited number of shareholders. C-Corps are also subject to corporate income tax. This is what is referred to as “double taxation.” The most common structure for the average startup looking to raise capital and allocate shares to many shareholders.
Executive level managers within a given company. Typically includes, the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Marketing Officer, Chief Legal Officer (aka General Counsel), and Chief Technology Officer, etc.
Language designed to prompt an immediate response/action or encourage a sale.
A chart used to show ownership stakes in a business. Typically it lists the company’s securities, how much each investor paid for them, and how much ownership their investment represents.
A theoretical index which represents the confidence level of the audience/investor listening to a pitch. People tend to be doubtful about startups given their highly volatile/unreliable nature, with their “certainty index” often starting very low when meeting a new company. When the index reaches >50% the individual is convinced of the value and typically takes a much greater interest in the startup.
A metric that calculates the rate at which customers leave/unsubscribe from a product/service over a given period of time.
The initial portion of a vesting schedule where no equity is earned until the completion of a fixed time period (typically 1 year).
Is a favorable position that a business holds due to specific, hard to copy actions/assets that make it difficult to compete with them directly. Effectively, what is the businesses “cheat code” for winning in the market? Common examples include: a highly limited number of founders exist that are capable of building the solution, the product offering is 100x the competition, ultra high growth/cost efficient customer acquisition, patents, and/or monopoly characteristics (as you scale it becomes harder to compete with you).
The growth rate over time based on annual compounding. This is useful as a comparison tool to determine the real growth rate as it compares to other companies. Using the CAGR formula makes the growth rates uniform and easy to benchmark against other companies and industries.
A financial instrument where an investor loans money to a company that later converts into equity based on a fixed price/term structure.
Refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the goods. It excludes indirect expenses, such as distribution costs and sales force costs.
CRUD is an acronym that comes from the development world that refers to the four primary functions considered necessary to implement in a given application: creation, reading, updating, and deletion.
A method of raising capital through many small investments by friends, family, customers, and individual investors. This method of raising capital is regulated by the SEC under regulation CF.
The amount of money a company spends across sales and marketing to acquire a new customer.
The “fit” between a solution and a customer with a given problem.
An organized collection of data stored and accessed electronically.
Term used to describe startups that have been valued at more than $10 billion.
A non-linear, highly iterative process that startups often use to understand users, challenge assumptions, redefine problems, and create solutions to prototype & test. Comprised of 5 stages including: Empathize, Define, Ideate, Prototype, Test.
Agile practices that combine software development and IT operations. The goal is to shorten the system development life cycle and improve quality.
The amount by which a founder’s or investor’s ownership percentage in a company decreases as a result of new investment. The amount of dilution experienced at each round of funding will vary based on the investment amount, the valuation, and what kind of instrument is used.
A business that sells their products or services directly to customers without the use of wholesalers, resellers, retailers, etc.
The first users/buyers of a given product or service. These are individuals or businesses focused on improving efficiency, reducing costs, increasing sales, etc., and are willing to pay more and work with a less complete solution.
Transactions handled electronically via a website or platform.
Grants employees company stock (or options) based on their specific compensation plan.
Represents the amount of ownership within a given business that an individual or business entity has. Typically represented as a percentage of the total equity or as a dollar value of the current ownership positions.
The price per share at which the owner of an option is entitled to buy or sell the underlying security (buy if call option – the standard, or sale if put option).
The founders’ strategic plan for selling their ownership/the broader business for the purpose of securing investor returns and/or enabling the next phase of company growth. The typical exit strategy for startups is a merger or acquisition by a strategic (someone who benefits synergically from the purchase) or financial (private equity firm, family office, etc. who is buying primarily for financial return) buyer. The other option generally referenced is to go public by executing an initial public offering (IPO) offering public trading of the stock, enabling new and old investors to buy/sell.
The advantage of being the first (or one of the first) to engage a given market with a product or service. Typically, this allows the company to establish strong brand recognition, customer loyalty, and market penetration before other companies are able to join them in the market competitively.
Software that is developed and used by developers to build and maintain applications.
A revenue model that combines the word “free” and “premium”, in which basic product/service features are offered for free with premium features being charged for.
The initial group of investors startups typically look to engage with before approaching angel investors, venture capitalists, family offices, etc. While the definition is inherently vague, the commonly accepted definition is anyone from a founder’s past that they know in advance of creating their startup. These are people that would answer the phone if a founder called.
Refers to everything that users visually see in their browser/application. Typically considered the “look and feel” of the product.
A full stack developer is an individual who can develop both client and server-side software. This typically means they are proficient across: HTML, CSS, browsers, servers, and databases.
A customer’s journey from discovering a product or service to making a purchase. Typically, the initial discovery efforts are referred to as “top of funnel”, while the actions taken to convert and maintain the client relationship are referred to as “bottom of funnel.”
The process of building an application that includes the principles of game design and rewards to make it more engaging/fun for customers to use. Often used to increase user activity and/or retention.
The plan a business creates that utilizes both internal and external resources for the purpose of launching the business, acquiring customers, and building brand awareness.
This is the percent of revenue kept by the business after subtracting the cost of goods sold (COGS). This is expressed as a percentage, and can be calculated using the formula (Total Revenue-COGS)/Total Revenue.
The total dollar value of goods sold.
Creating programs and strategies to quickly scale customer acquisition or exposure with minimal cost.
A percent value that a certain metric is increasing over a defined period of time. Commonly used on a daily, monthly, quarterly, or annual basis. This is a useful metric to understand how different aspects of the business are changing over time.
The shape of a revenue graph in an exponentially growing company. The revenue growth over time resembles a hockey stick, with a period of low growth followed by rapid expansion.
Typically open-ended and designed to nurture/mentor startups over a longer period of time. Providing ad-hoc help with a variety of services including legal, business, marketing, design, etc. subject to the specific incubator.
Any invention that is created using the mind and is owned by an individual or corporation. The four main types of IP are patents, trademarks, copyrights, and trade secrets.
An altered version of an established product or service.
A new entity that is formed by two or more parties utilizing their intellectual property, products, and/or services.
A measurable statistic that can be used to judge the success or effectiveness of different aspects of a business.
A page that customers “land” on after clicking an ad, email, or link that provides the information they need to purchase a product/service. The page also includes a call to action (CTA) that encourages them to buy or take the next step in the sales funnel.
The Lean Startup is a methodology that can be used to found a new company or introduce a product/service on behalf of an already existing company. The lean startup method advocates developing products that consumers have expressed desire for so that a market will already exist as soon as the product is launched.
A document stating a non-binding commitment of one party to do business with another. LOIs commonly outline the critical terms of a prospective deal and are used in major business transactions and during early stage startup validation.
The total revenue generated by a customer throughout their lifecycle as a customer.
A type of company in which the liabilities of the business owners are limited to the assets of the LLC.
How much of a certain market has been captured by a company in comparison to the total size of the market. Typically viewed in terms of percentage of customers, revenues, transactions, etc.
An application that connects two different sides of a transaction and monetizes that connection (e.g. buyer and seller, service provider/service seeker, etc.)
The minimum product needed in order to bring value to the target customer and begin collecting feedback. This is what most startups launch with when they go-to-market, with the goal of acquiring product/market validation and initial traction.
The number of active users an application has on a monthly basis.
Monthly recurring revenue is a measure of the total recurring revenue on a monthly basis. This is a common metric used by subscription companies to understand their revenue and how it is changing over time.
This is the percent of revenue retained by the business after subtracting all costs for the business to operate. This is different from gross margin in that it includes all other business expenses like sales, marketing, and administration. This is expressed as a percentage, and can be calculated using the formula (Total Revenue-Total Expense)/Total Revenue.
Someone who is involved in an organization, but fulfills a role outside of the product/service development. A good example would be a CFO working for an artificial intelligence company. The CFO understands and manages the finances within the company, but likely does not have the technical proficiency to understand how the product was created or functions on a technical level.
This key performance indicator is the most important within a given company. If a startup had to base its success on one KPI, what would that KPI be? (e.g. a ride sharing app would focus on rides booked rather than number of drivers or app downloads)
A collaborative goal-setting methodology used by teams and individuals to set goals with measurable results. OKRs consist of an objective (a significant, concrete, clearly defined goal) and 3-5 key results (measurable success criteria used to track the achievement of that goal).
Softwares and applications where the source code is open to the public and available for free. This allows for developers to easily take the core code and create functionality using a free and accessible foundation.
A document used by LLCs that outlines the business’ financial and functional decisions including rules, regulations, and provisions. Also, the agreement governs internal operations of the business to suit the specific needs of the owners. Once signed, it acts as an official contract binding them to its terms.
The right, but not the obligation, to purchase a certain amount of shares in a company at a set price. Options have an expiration date and can be awarded through a vesting schedule, forcing those who hold them to purchase or let them expire by a certain set time in the future.
A form of business where liability is not limited to the corporation, whereby the individual members may be liable for damages and suits brought against the business. Also, all partners in the partnership share in the revenue, profits, and losses equally.
A deck of slides used to pitch an idea or business to an audience. Pitch decks can vary greatly based on who is being presented to and the reason behind the pitch.
When a company decides to change their value proposition (product/service, target customer, etc.) based on market validation efforts and customer feedback.
The pre-money value of a company is the valuation before capital has been raised, whereas the post-money valuation is the valuation immediately after the capital has been raised. (e.g. Pre-money valuation of $5mm then raises $1mm resulting in a post-money valuation of $6mm)
The pre-seed raise is the earliest stage of funding for a new startup which is typically filled by friends & family. It provides founders with enough capital to get the business off the ground and is typically used to develop an MVP that can be used to pursue future fundraising efforts.
Any round where an established valuation is used when raising capital. These are typically rounds from Seed forward. Friends and family/pre-seed rounds often do not have established valuations (as they are executed via SAFEs, Convertibles, Loans) so they are not considered a priced round.
Pro forma is a commonly used financial term that implies calculating financial results using certain projections or presumptions. Typically used in the startup world to refer to the projected income and expenses a startup expects or to model what a new company would look like after buying a startup.
A company reaches product-market fit when demand for the product/service is increasing dramatically. An easy way to think about it is that the customer is purchasing the product/service at a rate that demands the company increase its capacity to provide the product/service.
The process of ensuring that the product/service being provided is meeting the standard of quality needed to provide value to the customer. This is vital to applications and SaaS companies, as the quality of the interaction and experience of the customer is critical to providing value and preventing churn.
A measure of how many users/customers continue to use a product/service. (e.g. if a company has 100 paying users at the start of a month and at the start of the next month, 95 of those users are still paying, the retention rate for those users would be 95%)
A measure of how much money was returned on an investment. This is calculated by subtracting the initial investment from the returned amount, and dividing that value by the initial investment. You would then multiply this value by 100 to get the ROI in percentage form.
A type of loan that is issued to a company based on the amount of revenue that company generates over a certain period of time. The amount of the loan is normally directly linked to the amount of revenue being generated, as the less revenue there is, the more risk exists of a default by the borrower. This is not a normal method of financing for early stage ventures, as they often do not have enough revenue to qualify for the loan.
Describes how a given business charges for the value they provide to a customer. There are a wide variety of revenue models across businesses including, but not limited to: flat fees, transaction fees, recurring subscription fees, affiliate fees, ad revenue, etc.
The period of time a company can stay solvent (before it runs out of money) at its current rate of spending, or Burn Rate. This is important for startups to understand so they know when they will need to raise capital, and how much they will need to raise to maintain or increase their current level of spending.
The ability for a company or product to scale based on the business model they are utilizing. Startups are known for being highly scalable by being able to provide value to a large number of customers in a short period of time with limited capital investment.
Search Engine Optimization is the process of defining keywords and phrases that optimize how Google finds and presents company links.
The seed round is typically the first round of equity after the pre-seed round. This is normally the first capital raise in which a valuation is set for the company, and when angel/institutional investors begin investing in the company.
Series A, and beyond rounds are typically executed after a startup has established a product/service and proven initial product-market fit. Future fundraising rounds such as Series B, C, etc. are often focused on company scaling and growth (both products/services and geographically). Series rounds are executed at specific valuations.
A Simple Agreement for Future Equity is an early stage investment instrument that allows companies to easily raise money without needing to establish a valuation for the company. These documents can come with a pre/post-money valuation cap, discount rate, and/or a most favored nation clause. The investor gives capital to the company today and receives equity at a discounted valuation at the following priced capital raise.
Software as a service is a software product a company provides to an individual or business, typically charged for as an annual or monthly subscription.
An S-Corp is similar to a C-Corp in that there is limited liability and shareholders; however, there are two big differentiators. The first is that S-Corps can only have a maximum number of 100 shareholders who must be US Citizens, whereas C-Corps can have an unlimited number of shareholders. The second is that S-Corps do not suffer from double taxation, meaning the distributions of dividends from S-Corps are not taxed as income when distributed unlike C-Corps.
The equity earned by early founders and team members that is acquired according to a vesting schedule and is transferred without any investment of capital in the company (outside of the par value required to be paid for the transfer).
A group of investors who pool their capital/network to make investments.
The three layers of market sizing used by startups to show the size of the target market they are looking to address. These acronyms stand for Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market respectively, and move from the most broad market a product could bring value to, down to the narrow target market that is being pursued in the near-term.
The market that a company is looking to acquire their customers from. This varies greatly for each business, with B2C companies focusing on individual or group characteristics, and B2B companies focusing on industries, business sizes, and even specific divisions within organizations.
The frameworks, coding languages, and databases that are used within a given application. These can vary greatly between pieces of technology based on the value proposition, end user, device used, etc.
This document defines the terms of an investment made in a company. This legal contract will define various aspects of the purchase including board seats, voting rights, liquidation preferences, pro-rata rights, etc.
Anything that shows a company is proving demand for their solution. This can range from revenue to LOIs to form completions, etc.
A startup with a valuation of at least $1 billion dollars. The term was popularized by a famous VC named Aileen Lee, who used the term to describe how often these kinds of valuations occur in the startup ecosystem.
The ease with which the end user can interact with and gain value from a product/service. This is often used as a metric for apps, websites, and products, as ease of use is critical to customer success. This can take into account both ease of use and efficiency, and is meant to be an overall measure of the solution’s quality.
UX is about the experience a user has with a product or service, primarily focusing on the user and their journey throughout the solution.
UI refers to the aesthetic elements by which people interact with a product, primarily focusing on visual interface elements such as typography, colors, menu bars, etc.
Evidence that a solution is in demand and provides value to the target customer. This can come through gaining traction, customer interviews, LOIs, downloads, sales, etc.
A short summary designed to speak to the core value of a company. A commonly accepted structure for the value proposition is “We do [x] for [y] that leads to [z].” This format clearly shows how the company adds value, who it is adding value to, and the overall outcome of the value provided.
Capital that is invested by a fund or portfolio and generates returns by investing in startups.
A parent company that creates startups and spins them out into separate entities to raise capital and scale. This is a popular model for development shops and technical founders, as they have the resources required to build MVPs which can be taken to market for capital raising and scaling efforts.
The process by which an asset is transferred to another person based on deliverables or time. This is often used in the startup world with co-founders and advisors to ensure that those with equity in the company are involved and contributing over time. Typical cofounder vesting schedules including a 4 year vesting period inclusive of a 1 year cliff, which vests quarterly or monthly following the cliff.
Gives the holder the right to acquire a specific number of shares at a pre-decided date and price.
The process of creating an “outline” for an application or software. This involves defining what processes and flows exist within the product, and how a user would move through the application. This is normally where UI/UX design takes place before the actual functionality of the program is built.
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