Yes. Foundations still matters. And even if you don’t want to be funded, get a look. You could learn something. Maybe.
VC Lexicon – Beautiful & Non-Exhaustive Glossary
Here’s a curated, elegant list of essential Venture Capital (VC) terms with clear definitions. Perfect for founders, investors, or creators.
Core Concepts
- Venture Capital (VC): Investment in high-growth, high-risk startups, typically in exchange for equity. VCs provide not just capital but also strategic support and networks.
- Seed Round: Early-stage funding used to validate the idea, build an MVP, and achieve initial traction.
- Series A/B/C: Progressive funding rounds as the company scales. Series A usually focuses on product-market fit; later rounds fuel growth and expansion.
- Term Sheet: Non-binding document outlining the key terms and conditions of an investment.
- Valuation: The monetary value assigned to a company. Pre-money (before investment) vs Post-money (after investment).
- Cap Table: Capitalization table showing ownership percentages, equity distribution, and dilution over time.
Investor & Deal Terms
- Angel Investor: High-net-worth individuals who invest their own money in early-stage startups, often before VCs.
- Lead Investor: The VC firm that anchors a funding round, negotiates terms, and often takes a board seat.
- Syndicate: A group of investors pooling capital to participate in a deal.
- Due Diligence: Thorough investigation of a startup’s business, team, financials, IP, and market before investing.
- MOIC (Multiple on Invested Capital): A key performance metric — how many times the initial investment has been returned.
Founder & Company Metrics
- Burn Rate: The amount of cash a company spends per month (gross or net). Critical for understanding runway.
- Runway: Number of months a company can continue operating at its current burn rate before running out of cash (Cash Balance ÷ Monthly Burn Rate).
- MRR / ARR: Monthly Recurring Revenue and Annual Recurring Revenue — the gold standard for SaaS and subscription businesses.
- Net Revenue Retention (NRR): Measures how much revenue is retained from existing customers after expansions, contractions, and churn (ideally >100%).
- Churn Rate: Percentage of customers or revenue lost over a given period (monthly or annual). A key health indicator.
- CAC (Customer Acquisition Cost): Total cost of acquiring a new customer (sales & marketing spend ÷ new customers acquired).
- LTV (Lifetime Value): Predicted net profit from a customer over the entire relationship. Often compared to CAC (ideal LTV:CAC ratio > 3:1).
- Gross Margin: Revenue minus cost of goods sold (COGS), expressed as a percentage. Shows unit economics health.
- Magic Number: Efficiency metric for SaaS sales (Net New ARR in quarter ÷ Sales & Marketing spend in previous quarter).
- Rule of 40: Combined growth rate (%) + profit margin (%) should be ≥ 40 for healthy SaaS companies.
- ARR Growth Rate: Year-over-year or quarter-over-quarter growth in Annual Recurring Revenue.
- Payback Period: Time (in months) it takes to recover the CAC through the customer’s gross profit.
Exit & Returns
- Exit: Liquidity event where investors realize returns (typically acquisition or IPO).
- Unicorn: A privately held startup valued at over $1 billion.
- Decacorn / Hectocorn: $10 billion and $100 billion valuations respectively.
- Dilution: Reduction in ownership percentage due to new shares issued in future funding rounds.
Bonus Founder-Centric Metrics
- Founder Equity / Dilution: Percentage of the company still owned by founders after multiple funding rounds.
- Employee Option Pool: Reserved equity for current and future employees (typically 10–20% pre-Series A).
- TAM / SAM / SOM: Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market — used to quantify the opportunity size.
These metrics are what VCs deeply analyze during due diligence and board meetings. Strong numbers here tell a compelling story about execution, efficiency, and scalability.
Understanding VC language and metrics gives you sharper strategic thinking, better financial intuition, and the ability to benchmark your progress against the highest standards in the industry. It helps you make smarter decisions about growth, pricing, hiring, and resource allocation, even without taking outside money.
In today’s AI-powered world, knowing these terms can also help you speak the same language as potential partners, enterprise clients, or acquirers.
So whether you’re fundraising tomorrow or never – a quick look at this vocabulary might just make you a stronger builder.
Techie yours
Angéline