Glossary

Angels are individuals who provide funding and mentorship to startups in exchange for equity. They often bring industry expertise, networks, and guidance to early-stage companies, supporting their growth and development.

A bad leaver is an employee or founder who leaves a company under unfavourable circumstances, such as termination or breaching employment agreements. This designation typically results in the forfeiture or diminished value of their equity or ownership rights.

Bootstrapping is the process of building and funding a business from personal finances or from the operating revenues of the new company. It allows entrepreneurs to maintain more control but can slow down growth due to limited funds.

Breakeven refers to the point at which a company’s revenue equals its total costs, resulting in neither profit nor loss. It represents the minimum level of sales or operations required for a business to cover all its expenses.

A cap table is a spreadsheet or table that shows the equity capitalisation for a company, including the percentage of ownership, equity value, and dilution over time. It provides a clear picture of ownership stakes and equity dilution.

Cash burn, or burn rate, refers to the rate at which a company spends (or burns) its available cash over a specific period. It indicates the net amount of cash being utilised by the business to cover operating expenses, investments, and other cash outflows. It’s crucial for start-ups to manage their burn rate to make sure they don’t run out of cash before more funding or becoming profitable.

A chart of accounts (CoA) is a structured list of all the individual financial accounts used by a business to record its financial transactions. It serves as a comprehensive framework that categorises and organises various types of financial activities, such as assets, liabilities, revenue, expenses, and equity. The chart of accounts provides a standardised system for classifying financial information, facilitating accurate bookkeeping, financial reporting, and analysis. Each account is assigned a unique code or number to ensure consistency and ease…

Churn rate is a business metric that measures the rate at which customers stop subscribing to or using a product or service over a given period. It is typically expressed as a percentage and is used to assess customer retention and loyalty. In the SaaS and e-commerce sectors, churn rate helps businesses understand the effectiveness of their offerings, customer satisfaction levels, and the need for customer retention strategies.

Comparable company analysis, commonly referred to as ‘comps’, is a valuation method that compares a company’s financial metrics, such as revenue, profit, and multiples, to those of similar companies in the market. It helps determine a company’s relative value and assess its competitiveness within the industry.

Compound annual growth rate (CAGR), is a measure of the average annual growth rate of an investment or business over a specific period, assuming steady growth. It provides a smoothed annual growth rate by accounting for compounding effects. CAGR is often used to assess investment performance, evaluate business growth, or project future growth potential. It helps to provide a clear picture of the overall growth rate, taking into account the compounding effect over multiple periods, rather than considering simple arithmetic…

A confidential information memorandum (CIM) is a document that provides detailed information about a business to potential buyers or investors. It includes financial data, operational insights, market analysis, and other confidential information to facilitate due diligence and decision-making.

The conversion rate is the percentage of visitors to a website or users of a service who take a desired action. It’s a crucial metric in digital marketing used to measure success.

Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. It’s often conducted online using crowdfunding platforms, such as Crowdcube and Seedrs.

Customer acquisition cost (CAC) is the average cost a company incurs to acquire a new customer. It includes various expenses associated with marketing, sales, advertising, and other activities aimed at acquiring and converting prospects into paying customers.

CRM is a technology for managing all of a company’s relationships and interactions with customers and potential customers. It helps improve profitability, primarily by improving customer retention and driving sales growth.

Customer retention refers to strategies and tactics businesses use to encourage customers to continue using or buying their products or services. High retention rates contribute to business growth and profitability.

A data room is a secure virtual space used to store and share confidential documents during due diligence processes, such as mergers and acquisitions or fundraising. It allows authorised parties to access and review sensitive information in a controlled and protected environment.

Deferred revenue, also known as unearned revenue, refers to the situation where a company receives payment from a customer for goods or services that have not yet been delivered or earned. Instead of recognising the revenue immediately, it’s recorded as a liability on the balance sheet until the company fulfils its obligations. Once fulfilled, the deferred revenue is recognised as revenue.

Due diligence is a comprehensive investigation and analysis conducted by a potential investor or buyer to assess the financial, legal, and operational aspects of a business. It involves reviewing financial statements, contracts, intellectual property, customer data, and other relevant information to evaluate the risks and potential value of an investment or acquisition.

Earn-out is a financial arrangement in which the seller of a business may receive additional payments based on the future performance of the sold entity. It bridges valuation gaps between a buyer and seller, aligning both parties’ interests post-acquisition.

EBITDA is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances. It can be helpful in comparing profitability between companies and industries. EBITDA is typically used in M&A or investment transactions.

An EMI is an approved employee share scheme that is available to most trading companies, allowing employers to grant share options to key employees as a reward for their efforts within the business.

Equity refers to the ownership interest or stake that individuals or entities hold in a company. It represents the residual value of assets after deducting liabilities and is typically represented by shares or stock. Equity provides ownership rights and the potential to share in the company’s profits and value appreciation. It can be obtained through various means, such as investments, stock options, or contributions made by founders or shareholders.

An exit strategy is a planned approach to selling a company or an owner’s stake in a business. It’s typically used by start-ups and investors to realise their investment’s capital gains.

In the context of growth, the flywheel represents how customer-centric actions and positive customer experiences can create a self-sustaining cycle of business growth. It emphasises that customer satisfaction, referrals, and repeat purchases can act as driving forces for accelerating business growth and momentum. By focusing on customer delight and creating positive feedback loops, companies can build a flywheel effect that drives sustainable growth.

GDPR is a regulation enacted by the EU to enhance privacy protections and provide a framework for the handling of personal data. It applies to all businesses operating within the EU and those processing the data of EU citizens.

A good leaver is an employee or founder who leaves a company under favourable circumstances, such as retirement, completion of a contract, or in accordance with predefined terms. Good leavers typically retain their equity or ownership rights and may be entitled to certain benefits or privileges.

Growth hacking is a marketing strategy focused on rapid growth. It involves experiment-driven techniques to identify the most effective ways of growing a business.

Growth rate refers to the amount a specific variable or measure has grown over a specific time, expressed as a percentage. In businesses, it can refer to measures such as revenue, earnings, customers, or even an entire economy.

A hold-harmless agreement is a legal contract between two parties that releases one party from liability for any claims, damages, or losses arising from a specific activity, transaction, or relationship. It provides protection to one party (the indemnitee) by transferring the responsibility for potential risks or legal consequences to the other party (the indemnitor). Hold-harmless agreements are commonly used during transactions when advisors share information between each others.

The Information Commissioner’s Office (ICO) is an independent authority in the UK responsible for upholding information rights and promoting data privacy. The ICO oversees and enforces compliance with data protection laws, such as the General Data Protection Regulation (GDPR) and the Data Protection Act 2018, to enforce the fair and lawful processing of personal data, protect individuals’ privacy rights, and regulate the handling of sensitive information by organisations operating in the UK. All companies in the UK need to register…

An IPO is when a private company offers its shares to the public for the first time. It’s a way to raise capital and often serves as a stepping stone for a company to expand.

An Investment Committee (IC) is a group of individuals within an organisation responsible for making investment decisions. The committee reviews and evaluates potential investment opportunities, conducts due diligence, and provides recommendations based on financial, strategic, and risk assessment considerations.

An investor model, also known as a cashflow forecast, is a financial projection that outlines the expected cash inflows and outflows for potential investors. It demonstrates the anticipated returns and cash flow generation of a business, helping investors evaluate the financial viability and potential risks of an investment opportunity.

A Key Performance Indicator (KPI) is a measurable value that helps assess the performance and progress of a specific aspect of a SaaS or e-commerce business in achieving its strategic objectives. KPIs provide insights into critical areas of performance and help monitor the success of business strategies. Examples of KPIs in the SaaS and e-commerce sectors include monthly recurring revenue (MRR) growth rate, customer churn rate, conversion rate, customer lifetime value (CLTV) to customer acquisition cost (CAC) ratio, and net…

Customer lifetime value is a metric that represents the total estimated value a customer will generate for a business over the duration of their relationship. It takes into account factors such as the customer’s average purchase value, purchase frequency, and customer retention rate. In both the SaaS and e-commerce sectors, CLTV is a critical metric for understanding the long-term value of customers, informing customer acquisition strategies, and identifying opportunities for increasing customer loyalty and profitability.

Liquidation preference determines the payout order in case of a corporate liquidation. It’s often used in VC deals to favour investors, allowing them to recoup their investment before other shareholders.

A metric is a quantifiable measurement or data point used to assess specific aspects of performance or operations. Metrics provide detailed insights into various operational areas and help monitor progress and trends. Unlike KPIs, which are strategic indicators, metrics are more focused on specific processes or activities. Examples of metrics in the SaaS and e-commerce sectors include monthly recurring revenue (MRR), customer acquisition cost (CAC), customer churn rate, conversion rate, average order value (AOV), and website traffic. Metrics are crucial…

NPS is a customer loyalty metric that measures how likely customers are to recommend a company, product, or service to others. It’s determined by asking customers a single question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” Customers respond on a scale from 0 to 10, and based on their responses, they are classified into three categories: Promoters (9-10), Passives (7-8), and Detractors (0-6).

An NDA is a legal contract creating a confidential relationship between parties to protect any type of confidential and proprietary information. It enforces that the information shared for specific purposes won’t be disclosed to others.

Organic growth refers to the growth of a business achieved through its own resources and efforts, without any acquisitions or mergers. It includes growth from existing and new businesses.

Post-money valuation is a company’s estimated worth after outside financing and capital injections are added to its balance sheet. It includes the pre-money valuation plus the amount of new equity received from outside financing.

Pre-money valuation is the value of a company before it goes public or receives external funding or financing. It’s important for determining the equity that investors receive as a result of their investment.

Preference shares, also known as preferred shares, are a type of equity security that gives holders priority over common shareholders in terms of dividends and asset distribution.

A private equity (PE) firm is a company or fund that invests in and acquires private companies in order to generate returns. PE firms typically provide capital, strategic guidance, and operational expertise to portfolio companies, aiming to enhance their value and profitability before exiting the investment.

R&D tax credits are a government incentive in the UK that encourages and rewards companies for investing in research and development activities. They provide financial benefits to businesses engaged in eligible R&D projects by reducing their tax liability or providing cash refunds. R&D tax credits are applicable to various industries, including the SaaS and e-commerce sectors, and can help businesses offset costs associated with innovation, technological advancements, and product development.

Revenue based finance is a financing model where a company receives capital in exchange for a percentage of its future revenue. Rather than traditional debt or equity financing, repayment is based on a predetermined percentage of the company’s revenue, providing flexibility and aligning the investor’s returns with the business’s performance. It is often used by startups or small businesses looking for alternative funding options.

Reverse vesting is a mechanism that gradually transfers ownership of equity from a founder or employee back to the company over a specific period. It’s often used to protect the company’s interests in case of early departure or underperformance, ensuring that unvested equity is returned to the company.

The run rate is a forecasted annual earnings projection, based on financial results of shorter periods. It’s often used to estimate future performance based on current data.

A sales funnel represents the customer’s journey from the initial awareness stage to the final purchasing stage. It’s a visual metaphor for the path taken by potential customers as they move towards becoming customers.

Seed funding is an initial investment in a start-up or small business, which supports early development. It’s typically used for market research, product development, or preparing a business for operations.

These are successive rounds of funding after a start-up’s Series B round. Each round serves a specific purpose, typically to achieve milestones, grow the company, or prepare it for an IPO or acquisition.

The subscription model is a business model where customers pay a recurring price at regular intervals to access a product or service. It’s common in many digital industries and increasingly popular in e-commerce.

A term sheet is a non-binding document outlining the proposed terms and conditions of a potential investment or business transaction, such as a funding round or acquisition. It serves as a preliminary agreement between parties involved, providing an overview of key terms, including the valuation, investment amount, ownership percentages, rights and obligations, and any special conditions. While the term sheet is not legally binding, it serves as a basis for negotiation and due diligence before finalising a legally binding agreement.

Total Addressable Market (TAM) refers to the total market demand or revenue potential for a product or service within a specific market segment. It represents the maximum achievable market size and serves as a key metric for assessing the growth opportunities and market penetration potential for a business.

A Trademark is a legally registered symbol, name, or logo that represents and protects a company’s brand identity. It provides exclusive rights to use and protect the registered mark, preventing others from using a similar mark in connection with similar goods or services, thereby safeguarding the brand’s reputation and market presence.

Unit economics refers to the financial analysis of the revenue and costs associated with a single unit of a product or service. It involves understanding the profitability and viability of each unit sold, taking into account factors such as production costs, pricing, customer acquisition costs, and customer lifetime value. Analysing unit economics helps businesses evaluate the financial sustainability and scalability of their operations at a granular level.

Upselling involves selling a more expensive version of a product a customer is considering, while cross-selling involves selling related or complementary products. Both strategies aim to increase the value of a sale and enhance the customer experience.

User interface (UI) refers to the visual design, layout, and interactive elements that users interact with when using a software application or website. In both SaaS and e-commerce sectors, a well-designed UI plays a crucial role in providing a positive user experience, enhancing usability, and facilitating customer engagement. A user-friendly and intuitive UI can lead to increased customer satisfaction, improved conversion rates, and higher user retention.

User sessions represent the interactions or activities of individual users on a software application or website during a specific period. It refers to the duration of time a user spends engaging with the platform or website before ending their session. Tracking user sessions helps businesses understand user behaviour, identify patterns, and gain insights into user engagement, session duration, and overall platform or website performance.

Venture capital (VC) is a form of private equity investment provided to early-stage, high-growth companies with significant potential for long-term growth and substantial returns. VCs provide funding in exchange for an equity stake in the company. Besides financial investment, venture capitalists often bring strategic guidance, industry expertise, and valuable networks to support the growth and success of the invested companies. Venture capital plays a crucial role in financing innovative startups and fuelling entrepreneurship, providing capital for research and development, market…

The vesting period is the time frame over which an employee or founder earns the right to certain benefits, often shares options. Until fully vested, the individual may not have full ownership or access to these benefits.

Warranties are contractual assurances provided by the seller or business to the buyer or investor regarding the quality, performance, or condition of the products, services, or assets being sold. These warranties outline specific guarantees, such as the functionality of software, absence of defects, compliance with specifications, or protection against intellectual property infringement. Warranties aim to instil confidence in the buyer or investor by mitigating risks and providing recourse in case of non-compliance or issues with the purchased products or services.

Working capital represents a company’s short-term financial health and efficiency, calculated as the difference between current assets and current liabilities. It indicates a company’s ability to cover its short-term obligations with its short-term assets.