The Founder's Glossary - Startup Terms in Plain English

Fundraising

SAFE (Simple Agreement for Future Equity): A pre-priced fundraising instrument popularised by Y Combinator. The investor wires money now; the SAFE converts to equity at the next priced round, usually with a discount or a valuation cap. Lighter than a convertible note — no interest, no maturity date. Covered in the fundraising guide.
Convertible note: Debt that converts into equity at a later financing. Has an interest rate, a maturity date, and usually a valuation cap. Largely replaced by SAFEs in the US; still common elsewhere.
Valuation cap: The maximum company valuation at which a SAFE or note converts into equity. A $10M cap means the investor gets at least the equity they would have if the next round priced at $10M, even if the actual price is higher.
Pre-money / post-money valuation: Pre-money is what the company is worth before the new investment lands. Post-money is pre-money plus the amount being invested. A $2M raise at $8M pre-money is the same round as $2M at $10M post-money — just two ways of saying it.
Lead investor: The investor who commits first in a round and sets the terms. Other investors usually follow on the lead’s terms. Most institutional rounds don’t close without one.
Term sheet: A non-binding summary of the proposed investment: amount, valuation, board seats, liquidation preference, vesting. Once signed, both sides move to long-form legal documentation. The details that look small often matter more than the headline valuation.
Due diligence: The investor’s review of the company before wiring funds. Covers financials, contracts, IP, cap table, customers, and team. The legal checklist covers what to have ready before this starts.
Bridge round: Additional capital raised between priced rounds, usually on a SAFE or note, to extend runway until the next milestone makes a priced round possible. Done from a position of strength; an “emergency bridge” is a different conversation.

Equity & cap table

Vesting cliff: A waiting period at the start of a vesting schedule. The standard founder vesting is four years with a one-year cliff: nothing vests until month twelve, when 25% vests all at once. A founder who leaves at month eleven walks away with zero. See the co-founder equity guide.
Liquidation preference: The order in which investors get paid out from a sale or liquidation. “1x non-participating” is the standard early-stage term — investors get their money back first, then share in remaining proceeds with the common stock. “Participating preferred” lets them double-dip; avoid it.
Anti-dilution protection: Protects investors if the next round prices lower than theirs. “Weighted average” is standard and fair; “full ratchet” is aggressive and punishes the founders. Watch this term carefully.
Pro rata rights: An investor’s contractual right to maintain their ownership percentage by participating in future rounds. The bigger your existing investors’ pro rata, the less room there is for new investors in the next round.
Option pool: Equity set aside for future employee grants, typically 10–15% of the cap table at seed. Investors often require the pool to be expanded pre-money — meaning the founders dilute, not the new investors.
Single-trigger / double-trigger acceleration: Single-trigger: unvested shares vest immediately if the company is acquired. Double-trigger: shares accelerate only if the company is acquired and the founder is terminated without cause shortly after. Double-trigger is more common and more investor-friendly.
Cap table: The spreadsheet (or Carta / Pulley page) that lists who owns how much of the company. Includes shares, options, SAFEs, and convertibles. Investors will diligence this carefully; messy cap tables slow rounds down.
83(b) election: A US tax filing that, for founders receiving restricted stock subject to vesting, locks in tax at issuance instead of as each tranche vests. Must be filed within 30 days of stock issuance; missing it is one of the most expensive paperwork errors a US founder can make.

Metrics & unit economics

ARR (Annual Recurring Revenue): The annualised value of your contracted, recurring subscription revenue. A customer on $1,000/month is $12,000 of ARR. One-off fees, set-up charges, and professional services don’t count. The standard scoreboard at Series A and beyond.
MRR (Monthly Recurring Revenue): The same idea as ARR, normalised to a month. Most early-stage SaaS startups track MRR weekly; the metrics guide walks through the variants (new, expansion, churned).
CAC (Customer Acquisition Cost): Total sales and marketing spend divided by new paying customers in the same period. The number people most often calculate dishonestly — forgetting salaries, tooling, or organic customers who would have come anyway.
LTV (Lifetime Value): The gross-margin revenue you expect from a customer across the whole relationship. Healthy SaaS LTV-to-CAC ratios sit around 3:1; below 1:1 means you’re losing money per customer.
CAC payback period: How many months of gross profit it takes to recover the CAC for a customer. Under 12 months is excellent for SMB SaaS; under 24 months is acceptable for mid-market and enterprise.
Gross churn / net churn: Gross churn is the revenue you lost from cancellations and downgrades. Net churn includes expansion from existing customers; net churn below zero (“negative churn”) means your existing book grows even if you add no new customers.
Burn rate / runway: Burn rate is how much cash you lose per month. Runway is cash on hand divided by burn rate — the months until you run out at the current pace. Both should be calculated against net burn, after revenue.
TAM / SAM / SOM: Total Addressable Market (the universe), Serviceable Addressable Market (the slice you can realistically sell to), Serviceable Obtainable Market (what you can capture in the medium term). Investors care less about the size of the TAM and more about whether your reasoning is sound.
North-star metric: The single number that best captures the value your product delivers to customers. For Airbnb it’s nights booked; for Slack, messages sent in active teams. Picking the right one is harder than it sounds.

Product & growth

MVP (Minimum Viable Product): The smallest version of a product that still teaches you whether the idea works. Not a prototype; not a stripped-down v1. The goal is learning, not shipping. See the MVP guide.
Product-market fit (PMF): When you stop chasing customers and customers start pulling demand through the company. Hard to define, easy to recognise: retention is high, word-of-mouth is real, support requests stop being existential.
PLG (Product-Led Growth): A go-to-market motion where the product does most of the acquisition, conversion, and expansion work. Free trials, freemium, self-serve onboarding. Common in modern SaaS; not a fit for every product.
Aha moment: The specific in-product action that correlates most strongly with long-term retention. Famously: Facebook’s “seven friends in ten days.” The product-led equivalent of a north-star metric.
Viral coefficient (K-factor): Average number of new users each existing user invites who convert. K > 1 means organic compounding growth; almost no real product sustains this for long. Don’t plan on it.
Cohort retention: The percentage of a group of users (a cohort) who keep using the product over time. Plotted as a curve that should flatten, not approach zero. A flat retention curve at 40% is a real business; a curve that hits zero by month six is not.
Bullseye Framework: From the book Traction: a process for picking which acquisition channel to focus on. Brainstorm widely, narrow to the most promising three, run cheap tests, double down on the one that works.

Legal & structure

Delaware C-corp: The default entity type for venture-backed US startups. Investors expect it; courts in Delaware are predictable; share class flexibility supports preferred stock. Most other structures will be re-incorporated before a real round closes.
IP assignment: A written agreement transferring intellectual property created by founders, contractors, or employees to the company. Without it, the company doesn’t cleanly own its own product — a fatal diligence finding.
Founder agreement: The written document covering equity splits, vesting, roles, decision rights, and what happens if a founder leaves. Signing this before incorporation is far less stressful than after a term sheet lands.
Data room: The folder of documents you give investors during due diligence: cap table, financials, contracts, IP assignments, key customer agreements. Building it once, calmly, is much better than scrambling under a 72-hour close window.
MOIC / IRR: Multiple on Invested Capital and Internal Rate of Return — how investors measure fund performance. Not your problem day-to-day, but understanding why a fund needs ~10x outcomes from its winners explains a lot of investor behaviour.

Last reviewed on May 16, 2026. Missing a term? Email [email protected] and we’ll add it. This is general educational content, not legal or tax advice — see the disclaimer.