Founder Glossary
Definitions that compound.
53 startup and founder terms — defined, explained in plain English, with formulas and examples.
Finance
Runway
How long you have before you go broke at today's spending. The single most important number for any business burning cash.
Burn rate
How fast you're losing money. There's gross burn (everything you spend) and net burn (gross minus revenue).
Gross burn
Everything you spend in a month. Salaries, software, hosting, ads, rent, contractors.
Net burn
The real damage to your bank account each month after the customers pay you. This is what determines runway.
Gross margin
What percent of every dollar of revenue actually stays in your business after the cost of delivering it.
MRR (Monthly Recurring Revenue)
What you'd bill this month if every paying customer stayed exactly the same. The North Star of any subscription business.
ARR (Annual Recurring Revenue)
What you would make over a year if nothing changed. The number you put on the cover of an investor update.
Payback period (CAC payback)
You spent $1,000 to acquire a customer who pays you $100/month at 80% gross margin. Each month you recover $80. Payback is $1,000 / $80 = 12.5 months.
NRR (Net Revenue Retention)
If your $1M ARR cohort from last year is now $1.1M ARR (some upgraded, some churned), your NRR is 110%. Over 100% means existing customers, in aggregate, pay you more this year than last.
GRR (Gross Revenue Retention)
GRR tells you how much you'd retain if no customer ever upgraded. NRR mixes the leakage with the expansion; GRR shows just the leakage.
Magic number (Sales efficiency)
Spent $500k on sales and marketing last quarter; this quarter added $400k in net new ARR. Magic Number = 400/500 = 0.8. Investors generally consider >1.0 healthy.
Rule of 40
Grow 30% with 10% profit margin = 40, you're on the rule. Grow 60% with -20% margin = 40, also on the rule. Mature SaaS businesses ride the trade-off; healthy ones stay above the line.
ACV (Annual Contract Value)
A 2-year deal for $20,000 has an ACV of $10,000. A 1-year deal for $8,000 has an ACV of $8,000. ACV normalises deals of different lengths so you can compare and forecast.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation)
How much money the business makes from running its operations, before financial-engineering and accounting choices distort the picture.
Contribution margin
Price minus the costs that scale directly with each sale. What's left over each time you sell a unit, before paying for rent, salaries, and other fixed costs.
Working capital
How much cash you have available to run the business after netting out what customers owe you and what you owe suppliers. The shorter your working capital cycle, the less external capital you need.
Capital efficiency
Are you turning the money you raise into revenue, or just spending it? Higher is better — it's the single best signal that growth is being earned, not bought.
Take rate
For every $100 transacted on your platform, how much do you keep? The single most important number for marketplace founders, and the one investors stress-test most aggressively.
Expansion ARR
When your existing customers pay you more this quarter than last quarter (new seats, upgrades, more usage), that increase is expansion ARR. It's distinct from new-customer ARR (sales) and from churn (contraction). Investors increasingly want this broken out because expansion is the cheapest, most-defensible growth there is.
Fundraising
Pre-seed
The first 'real' fundraising round. Usually angels and small funds. You have a working v0 and maybe 5-15 paying customers.
Seed round
The round where you're proving the business model, not just the idea. Usually $5-50k MRR and a clear acquisition channel.
SAFE note
A way to take investor money now without setting a valuation. The investor's money converts to shares the next time you raise a priced round, usually with a cap and/or discount.
Term sheet
The investor's offer letter. Mostly non-binding, but a signed term sheet sets the price and structure for everything that follows; you rarely walk back from it.
Cap table (Capitalization table)
The truth about who really owns the company. Keep it clean from day one; cleaning it up later costs lawyers and trust.
Option pool (ESOP)
Equity you're giving to people you haven't hired yet. Almost always created or topped-up out of pre-money before an investment closes (the 'option pool shuffle').
Vesting
You're granted equity on day one, but you only OWN it as you stay. Leave early and you walk away with only the portion that's vested.
Liquidation preference
Investor put in $10M at a 1× non-participating liquidation preference. Company sells for $30M. The investor gets the first $10M back (or 33% of $30M, whichever is greater); founders and employees share the rest. With a 2× preference, the investor takes the first $20M.
409A valuation (US)
The number that says 'a share of common stock is worth $X today.' Required for granting options at a defensible strike price; without it, employees who get options can face tax consequences at grant rather than at exercise.
Anti-dilution
If you raise the next round at a price below this round's price, the existing investors get extra shares to compensate them — diluting founders and common shareholders. Mechanic ranges from mild (weighted-average) to brutal (full-ratchet).
Drag-along right
If 70% of shareholders vote to sell, the other 30% are 'dragged along' — they must sell too, on the same terms. Prevents a small holder from blocking an acquisition.
ROFR (Right of First Refusal)
A shareholder gets an offer from outside to buy their shares. Existing shareholders (often the company or other investors) get to match the offer first. If they don't match, the sale to the outsider proceeds.
Bridge round
A 'bridge' is the round you raise when you're running low on cash but not yet ready for the priced round you want. Usually convertible into the next round at a discount.
M&A (Mergers and Acquisitions)
Someone bigger buys your company. Could be a strategic (a competitor or adjacent player who wants your team, product, or customers) or financial (PE buying for cash flow).
Growth
CAC (Customer Acquisition Cost)
How much it costs to land one customer. Most founders under-count this by leaving out their own time and tooling.
LTV (Lifetime Value)
How much money a customer is worth to you across their whole lifetime — not just the first month.
Churn
How fast you're losing customers. Quietly the single most important metric for any subscription business.
Retention curve
Of 100 people who signed up on the same day, how many are still using the product a week later? A month? Six months? The shape of that curve tells you everything about product-market fit.
North Star Metric
If you could only watch one number to know whether the business is healthy, which one? That's the North Star. Airbnb: nights booked. Spotify: time spent listening. Stripe: payment volume processed.
PLG (Product-Led Growth)
Instead of sales reps qualifying leads and demoing to executives, the user finds the product, signs up, uses it for free, and converts to paid when the value is obvious. Slack, Notion, Figma, Linear all run PLG motions.
DAU/MAU (Daily / Monthly Active Users)
How many people use your product every day vs how many use it at least once a month. If a lot of monthly users also show up daily, the product is sticky.
AARRR (Pirate Metrics)
Five questions every product team should answer with data: How do users find us? Do they get value early? Do they come back? Do they invite others? Do they pay?
Logo retention
How many of last year's customers still exist as customers today, treating each customer equally whether they pay you $100/month or $100k/month.
Sales velocity
How much revenue your sales team produces per day, on average. Lifting any of the four inputs (more deals, higher win rate, bigger deals, shorter cycle) lifts velocity proportionally.
Demand gen vs lead gen
Demand gen makes people want what you sell. Lead gen makes already-warm people fill out a form. Founders constantly mix the two up — and end up measuring lead gen output against demand gen activities, which always looks like failure.
Net Promoter Score (NPS)
Subtract your detractors (0-6) from your promoters (9-10). Ignore the 7-8 passives. The number is less useful as an absolute benchmark and more useful as a delta — did NPS go up or down after the last release / pricing change / support overhaul?
Viral coefficient (k-factor)
Per 100 users you have, how many new users do they bring in through their use of the product (invites, shared links, viral mechanics)? Multiply how many people each user invites by how many of those invites convert. A k of 0.5 means every 100 users produces 50 new users via the loop; a k of 1.2 means 100 users produces 120 — and the next 120 produce 144, and so on. True virality is rare.
Product
Product-market fit (PMF)
When customers pull the product from you faster than you can push it to them. You'll know.
Jobs-to-be-Done (JTBD)
Customers don't buy a quarter-inch drill; they 'hire' it to make a quarter-inch hole. To build the right product, understand the job customers are trying to do — not just what they say they want.
RICE (Reach × Impact × Confidence ÷ Effort)
A number you assign to every potential product change so you can rank them objectively. Higher RICE score = ship it sooner.
Operations
OKR (Objectives + Key Results)
Pick a thing you want to be true in 3 months. Write 3-5 numbers that, if you hit them, prove you achieved it. Review weekly.
KPI (Key Performance Indicator)
The 5-10 numbers that, when they change, change how the business is doing. Not every metric is a KPI — only the ones that change behaviour.
SLA (Service Level Agreement)
A promise you make in writing: 'we'll be up 99.9% of the time and respond to support tickets in under 4 hours.' If you break the promise, the customer gets a refund or other compensation.
Incident postmortem
After something breaks, the team writes up what happened, why, what they did, and what they'll change. The goal is system improvement, not finding someone to blame.