Glossary

Dilution occurs when a company issues new shares, reducing existing ownership percentages. This article explains the mechanics, the trade-offs with valuation, and the impact on founder control.

An Invention Disclosure Document is the internal first step toward patenting technology. This article explains its components, the legal importance of establishing inventorship, and why timing matters.

An angel investor is a high-net-worth individual investing personal funds into early-stage startups. This guide defines their role, motivation, and how they differ from venture capitalists.

Capital Expenditure covers funds used for long-term physical assets. This article defines CapEx, compares it to operating expenses, and explains the critical impact on startup cash flow.

Annual Recurring Revenue (ARR) is the annualized value of subscription contracts. This guide explains how to calculate it, why it matters, and how it differs from recognized revenue.

CAC measures the cost to acquire a single customer. This article breaks down the formula, the critical LTV ratio, and why understanding this metric prevents startup failure.

Liquidation preference determines who gets paid first when a company is sold. This article explains the hierarchy of payout, the risks of the ‘double dip,’ and how it protects investors.

Debt financing involves borrowing capital rather than selling ownership. This article explores the mechanics of debt, the trade-offs with equity, and the risks of leverage.

COGS measures the direct cost of producing what you sell. This article breaks down the calculation, compares it to operating expenses, and explains its impact on unit economics.

An acqui-hire happens when a company is bought for its talent rather than its product. Learn the mechanics and implications of this specific startup exit strategy.

Cash flow tracks the actual movement of money in and out of a business. This article distinguishes it from profit and explains why it determines whether a startup survives.

This article defines business assets for founders, distinguishes between tangible and intangible resources, and explains why understanding your assets is crucial for valuation and long term growth.

A convertible note is a loan that transforms into equity. This article explains the mechanics of the conversion, the importance of valuation caps, and how it differs from a SAFE.

A down round occurs when a company raises capital at a lower valuation than before. This article explains the mechanics, the dilution risks, and the impact on morale.

Burn rate is the speed at which a startup spends its cash reserves. This article defines the metric, differentiates gross and net burn, and explains its critical relationship to company survival.

A loan covenant is a rule attached to debt financing. This article explains the types of covenants, financial ratios, and the consequences of tripping a technical default.

Bootstrapping is building a business using personal resources and revenue. This article defines the term, explores the mechanics, and compares it to raising venture capital.

Cash runway is the measure of time a startup has left before it runs out of money. This article explains how to calculate it and why it dictates every strategic decision.

An IPO is the debut of private stock on public markets. This article outlines the mechanical process, the strategic reasons for going public, and the intense scrutiny that follows.

Equity represents ownership in a company. This article defines the term, explores its role as a currency for hiring and fundraising, and explains the risks of dilution.

A liquidity event is the moment paper wealth becomes real cash. This article defines the term, outlines the common types of exits, and explains why investors push for them.

Financial modeling is the process of simulating your business in a spreadsheet. This article explains why it is essential for decision making, fundraising, and survival.

A cliff is a probationary period for equity. This article defines the standard one-year cliff, how it impacts vesting schedules, and why it is essential for protecting startup ownership.

A bridge loan fills the gap between financing rounds. This article defines the term, outlines when to use it, and explains the risks of bridging to nowhere.

Growth Equity is capital for mature companies ready to scale. This article distinguishes it from early-stage venture capital and outlines how it funds expansion and acquisitions.

This article explains the balance sheet, distinguishes it from a profit and loss statement, and details why understanding this financial snapshot is vital for startup solvency and growth.

Gross margin measures the percentage of revenue retained after direct costs. This article breaks down the calculation, industry benchmarks, and why it dictates your startup’s ability to grow.

Fiduciary duty is the legal obligation to act in the best interest of the company. This article defines the duties of care and loyalty and explains how they bind founders and board members.

An exit strategy is the plan for converting equity into cash. This article outlines the common paths, investor expectations, and the strategic trade-offs of planning the end.

EBITDA measures operational profitability by stripping away financial and accounting costs. This article explains the metric, its components, and why it is not the same as cash flow.

Due diligence is the audit phase of a deal. This article explains what investors verify, how to prepare your data room, and why you must investigate your investors in return.

A Cap Table tracks who owns your company. This article defines the term, breaks down its components, and explains the critical role it plays during fundraising and exits.