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ABC For Investment Rounds / Financing Your Start-Up

Angel Investor
An angel investor is someone who invests their own capital into the growth of a small business at an early stage (an alternative to VC as a source of equity capital, often associated with earlier stager businesses).

Bootstrapping
A startup which is able to self-finance, often eliminating the need for seed or angel investment rounds. This can be achieved through early revenue generation, lean operations (typically in bootstrapped startups the founders take a low or no salary).

Burn Rate
Rate at which a company spends cash reserves to cover expenses, expressed monthly or weekly. Usually applied to a company with little or no revenues.

Cap Table
An official document that described the capital structure of a startup, generally used to view the percentage ownership that each investor or employee owns of the company.

Capital
Capital is a term for financial assets, such as funds held in deposit accounts and/or funds obtained from special financing sources such as investment or loans.

Carried Interest (‘The Carry’)
The share of generated profits that an investment manager is entitled to keep as compensation. Can also be referred to as an “Incentive Fee” or a “Performance Fee.”, ranging from 15%-30%.

Churn Rate (Retention)
Also known as retention rate, the churn rate is the annual percentage rate at which customers stop subscribing to a product or service. In this context, it reflects how many customers leave a startup annually, as a %.

Conversion Rate Optimisation (CRO)
Conversion rate optimisation (CRO) is the methodical process of making iterative changes to a website or app to increase the percentage of users who take a desired action (usually sign up, purchase, register etc).

Crowdfunding
Crowdfunding (not to be confused with crowdsourcing) refers to generating capital from brand advocates or early adopters in place of giving away equity, usually via a third party platform. In simple terms, asking a large number of people for a small amount of money each. See also equity crowdfunding.
Customer Acquisition Cost (CAC)
An important metric in unit economics, the CAC allows a company to keep track of how much it costs to acquire a new customer. Calculated as direct acquisition costs (generally marketing and sales expenses) divided by the number of new customers, the CAC allows a startup to understand which channels deliver the best ROI for marketing spend.

Debt Capital
Debt capital is the capital/finance that a business raises by taking out a loan or other financial security (in this context, debt capital can be an alternative to equity capital).

Dilution
Dilution occurs when a startup issues new shares that result in a decrease in existing shareholders’ ownership percentage of that company. When the number of shares outstanding increases, such as during a funding round, each existing shareholder owns a smaller, or diluted, percentage of the company, making each share less valuable.

Down Round
A fundraising round in which the startup is valued at a lower value per share than previous rounds (i.e. the valuation has gone down)
Due Dilligence
The process performed by investors to assess the viability of an investment target, and to ensure that the information provided by the startup is accurate.

Elevator pitch
A brief statement providing an overview of your business. Can you convey your startup’s value proposition in the time it takes the lift/elevator to reach the next floor?

Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS) is a UK government scheme that helps younger, higher-risk businesses raise finance by offering generous tax reliefs to investors. Read more here.

Equity
The value of shares issued by a startup (or other company). e.g. she owns 63% of the startup’s equity.

Equity Capital
Equity capital is the capital/finance that a business raises from investors in exchange for equity or stock (in this context, equity capital can be an alternative to debt capital).

Equity Crowdfunding
Equity crowdfunding refers to generating capital by asking a large number of people for a small investment in exchange for a small amount of equity, usually via a third party platform.

Exit Strategy
An exit strategy is a Founder’s plan to sell their ownership in a company to investors/another company. An exit strategy gives a business owner a way to reduce or liquidate their stake in a business (generally for a profit).

Fundraising
Generally a term used to represent the process of generating capital via exchanging equity for external investment (can also include alternative means of generating capital such as crowdfunding or debt finance).

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

Lead Investor
The investor who takes a primary role in negotiating the investment terms and completing due diligence.

Lifetime Value (LTV)
The total amount a single customer is worth to a startup during the lifetime of the relationship. e.g. For a £1 per month subscription, if an average customer subscribes for 18 months, the LTV is £18. Important when calculating unit economics.

Market Penetration (Market Share)
The percentage of a total market that your startup will win as customers, within a given timefame.

Media Spend
Money which is spent directly on advertising (paid search, paid social, display advertising etc) as opposed to fees charged my marketing agencies or other associated costs.

Monthly Recurring Revenue (MRR)
Monthly recurring revenue is predictable income that a business receives each month. Often a key metric in SaaS or subscription based models.

Pay-per-click (PPC)
PPC (a facet of the wider Paid Search landscape) affords businesses the opportunity to advertise within the sponsored listings of a search engine or a partner site by paying either each time their ad is clicked.

Pitch Deck
A pitch deck is a presentation that covers all aspects of your business and it’s revenue model, targeted at generating investment from Angels, VCs etcetera.

Portfolio Company
A company that has received an investment from a VC fund or Angel becomes a portfolio company of that fund/person.

Post-money Valuation
Calculated by adding the £ amount invested in the transaction to the Pre-Money Valuation. How much the company is worth after it receives investments into it.

Pre-money Valuation
Pre-money valuation refers to the value of a startup not including external funding/investment. How much a startup is worth before it begins to receive any investments.

Pre-Seed Round
This stage typically refers to the period in which a company’s founders are first getting their operations off the ground, and is often funded by the founders themselves (or friends and family) to cover the costs of launching operations or developing an minimum viable product (MVP).

Private Equity (PE)
Private equity is composed of funds – capital that is not listed on a public exchange – that is directly invested in private companies. Investors utilise private equity (PE) funds to earn returns that are better than what can be achieved in public equity markets or standard savings mechanisms.

Run Rate
How the financial performance of a company, in terms of revenue, would look if the current results are extrapolated over a longer period of time.

Runway
Rate at which a company spends cash reserves to cover expenses, expressed monthly or weekly. (See also Burn Rate)

Stealth mode
A startup operating under the radar, keeping their value proposition / product a secret before an official launch so as not to alert competitors prematurely.

Syndicate
A syndicate is a fund combining investment from multiple VCs or Angels. They are generally led by specialist investors and are financed by institutional investors or sophisticated angels. Syndicates are generally private.

Target Company
A startup which is being considered for investment by a VC or Angel (the startup becomes a target of that particular VC or Angel).

Term Sheet
A Term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents.

Total Addressable Market (TAM)
Total addressable market, also called total available market, is a term that is typically used to reference the revenue opportunity available for a product or service.

Traction
Evidence that users are willing to pay for your product or service. Traction represents progress or initial growth.

Unicorn
A company (often in the tech or software sector) with a valuation of over US$1 billion.

Unit Economics
Important when calculating the profitability of a product or service. Loosely calculated as Lifetime Value (LTV) of a customer divided by Customer Acquisition Costs (CAC).

Valuation
The calculation of what the startup is worth.

Value Proposition
A startup’s value proposition (also expressed as Unique Selling Point/USP) is what makes the business uniquely attractive to customers and investors.

VC (Venture Capitalist)
A venture capitalist (VC) is a private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake.