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GLOSSARY

Fundraising terms, demystified

Plain language definitions for the terms you'll encounter in term sheets, investor meetings, and cap tables. No jargon, just clarity.

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R
S
T
V

A

ARR (Annual Recurring Revenue)

Annualized recurring revenue from subscriptions.

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ARPU (Average Revenue Per User)

Average revenue per customer per month (usually).

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ACV (Average Contract Value)

Average annual contract value per customer.

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Activation rate

Share of new users who reach a defined value moment.

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AOV (Average Order Value)

Average transaction size on the platform.

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Anti-dilution

Protection for investors if future rounds are at a lower valuation.

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B

Burn rate

Cash outflow rate. Net burn = cash out - cash in (operational).

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Burn multiple

Net burn divided by net new ARR; efficiency of spend to growth.

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Bridge round

Short-term funding to reach the next major milestone or round.

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C

CAC (Customer Acquisition Cost)

Cost to acquire one new paying customer.

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Churn

Share of customers or revenue lost in a period.

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Convertible note

Debt that converts to equity under agreed conditions.

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Contribution margin

Revenue minus variable costs, before fixed costs.

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D

Dilution

Reduction in ownership % when new shares are issued.

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Due diligence

Investor investigation before finalizing investment.

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DAU / MAU

Daily and monthly active users; ratio shows engagement stickiness.

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Down round

Funding round at a lower valuation than the previous round.

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G

GDR (Gross Dollar Retention)

Percent of revenue retained excluding any expansion.

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Gross margin

Revenue minus direct costs to deliver the product, as a share of revenue.

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GMV (Gross Merchandise Value)

Total transaction value processed on the platform.

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I

ICP (Ideal Customer Profile)

Clear definition of accounts/users who get the most value.

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K

K-factor (Viral coefficient)

Number of new users each existing user brings in.

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L

LTV (Customer Lifetime Value)

Expected gross profit from a customer over their lifetime.

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LTV:CAC ratio

Value per $1 spent to acquire customers.

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Liquidity (marketplace)

How efficiently supply meets demand on the platform.

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Lead investor

Primary investor who sets terms and often takes a board seat.

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M

MRR (Monthly Recurring Revenue)

Normalized monthly subscription revenue.

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Match rate

Share of demand requests that find supply (or vice versa).

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Magic number

Sales efficiency: new ARR growth per $1 of prior S&M spend.

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MFN (Most Favored Nation)

Clause ensuring investor gets best terms offered to others.

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N

NDR (Net Dollar Retention)

Revenue expansion minus revenue lost from churn/downgrades over a period.

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North Star metric

Primary outcome that best reflects delivered customer value.

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Network effects

Value increases as more users join or content/data accumulates.

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NPS (Net Promoter Score)

Customer satisfaction metric based on likelihood to recommend.

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O

Option pool

Shares reserved for employee equity grants.

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P

Payback period

Months to recover CAC from gross profit.

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Pre-money valuation

Company valuation immediately before new investment.

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Post-money valuation

Company valuation immediately after new investment.

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Pro rata rights

Right of existing investors to maintain ownership % in future rounds.

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Q

Quick ratio (SaaS)

Growth efficiency: new + expansion MRR divided by lost MRR.

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R

Runway

Months until cash is projected to run out.

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Rule of 40

Growth rate + profit margin; healthy if ≥ 40.

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Revenue per employee

Annualized revenue divided by headcount; efficiency metric.

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Repeat rate

Percentage of customers who make more than one purchase.

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S

SAFE (Simple Agreement for Future Equity)

Agreement to invest now for equity later at conversion.

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Sales cycle

Average time from qualified opportunity to closed-won.

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Switching costs

Friction (time, money, risk) to change from one solution to another.

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T

TAM / SAM / SOM

Market sizing: total, served, and obtainable market.

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Take rate

Platform revenue as a share of GMV.

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Time to first transaction

Median time for a new user to complete their first transaction.

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Term sheet

Non-binding outline of proposed investment terms.

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V

Valuation cap

Maximum valuation at which a SAFE or note converts to equity.

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Vesting

Gradual earning of equity over time or milestones.

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Cohort retention

Percent of a cohort retained at time checkpoints (D30, M3, etc.).

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Cap table (Capitalization table)

Record of all equity ownership in a company.

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Liquidation preference

Order and amount investors get paid before common shareholders in an exit.

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Pipeline coverage

Pipeline value relative to quota/target bookings.

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Product-led growth (PLG)

Growth motion where product drives acquisition, activation, and expansion.

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