02/19/2025
TOP 10 KEY STARTUP INVESTMENT TERMS THAT INVESTORS OFTEN ASK FOUNDERS:
1. Valuation
Definition: The estimated worth of a startup, based on factors like revenue, growth, and market potential.
Example: "Our startup’s valuation is $5 million based on our revenue and investor interest."
2. Equity
Definition: Ownership in a company, usually represented as shares. Investors receive equity in exchange for funding.
Example: "We’re offering 15% equity to investors in our seed round."
3. Burn Rate
Definition: The rate at which a startup spends its cash before becoming profitable.
Example: "Our burn rate is $50,000 per month, giving us 10 months of runway."
4. Runway
Definition: The amount of time a startup can operate before running out of cash, based on its burn rate.
Example: "With $300,000 in the bank and a $50,000 burn rate, we have six months of runway."
5. MVP (Minimum Viable Product)
Definition: A basic version of a product with essential features, used to test market demand.
Example: "We launched an MVP to gather user feedback before building the full product."
6. CAC (Customer Acquisition Cost)
Definition: The total cost of acquiring a new customer, including marketing and sales expenses.
Example: "Our CAC is $20 per customer, but we earn $100 per customer over time."
7. LTV (Lifetime Value)
Definition: The total revenue a business expects from a single customer over their relationship.
Example: "Our LTV is $500, meaning each customer brings in $500 in revenue on average."
8. MRR/ARR (Monthly/Annual Recurring Revenue)
Definition: MRR and ARR are metrics that measure the predictable revenue a company expects to receive every month or year, respectively, from its subscriptions or recurring contracts.
Example: "If a SaaS company has 100 customers each paying $50 per month, its MRR is $5,000. If the same customers commit to a yearly plan, the ARR would be $60,000."
9. Exit Strategy
Definition: A plan for investors to cash out their investment, usually through an acquisition or IPO.
Example: "Our exit strategy is to sell the company to a major tech firm in five years."
10. Pitch Deck
Definition: A brief presentation used to provide potential investors with an overview of the business plan.
Example: "A pitch deck might include slides on the problem being solved, the solution, market opportunity, business model, and team."
