With this in mind, we’ve compiled a glossary of the most common words you’re likely to come across. Use this ‘VC Bible’ to navigate everything from networking to fundraising.

Accelerators - Accelerators are mentor-based programmes that provide guidance, support and, often, funding in exchange for equity. Popular accelerators include Y Combinator (YC) in the US, which is an American technology-based startup accelerator, or Liverpool’s Baltic Ventures.

ACV - Average Contract Value (or ACV) is a measure of the average revenue a business earns from each customer contract over a specific time frame – usually 12 months.

Angel Investor - Often the first point of call for fundraising, an angel investor is normally a high-net-worth individual who provides funding in exchange for equity. They usually invest on their own or in small groups with cheque sizes that are typically under £250k. Some popular angel groups in the North West include GC Angels and Manchester Angels.

ARPU - Average revenue per user (or ARPU) is a financial metric that measures the average amount of revenue a business makes from each user over a specific period of time. This is very common among business-to-consumer (B2C) businesses.

ARR -Annual recurring revenue (or ARR) is commonly associated with software as a service (SaaS). ARR describes a company’s annual revenue generated from subscriptions, contracts and any other recurring billing cycles. To calculate ARR, multiply your monthly recurring revenue (MRR) by 12.

B2B & B2C - Business-to-business (or B2B) describes the nature of your business and its customers. A B2B business sells to businesses, whereas business-to-consumer (or B2C) businesses sell to consumers.

Bootstrapped - When an investor asks if you are bootstrapped, they are asking if you have self-funded your business – i.e. have you taken any funding from an external party.

Bridge Funding - Bridge funding is normally used by businesses when cash is short and a small amount of funding is needed to reach a specific milestone. This is often a temporary measure – the ‘bridge’ will support a specific activity, such as reaching the cash flow breakeven point in a few months.

Burn-Rate - In raw terms, the burn rate is the amount your bank balance goes down every month, adjusted for any on-off exceptional items. Exceptional items includeanything that is not expected to occur regularly. Your burn rate is effectively the difference between your income and expenditure.

CAC - Customer acquisition cost (or CAC) is a common abbreviation that is calculated by adding the total sales and marketing cost for a period of time and dividing that by the number of new users/customers over the same period of time. When used alongside other metrics, CAC indicates how efficient the business is at acquiring customers.

Cap Table - This is a document outlining the ownership of a company. A cap table document is a good way for investors to learn the history of the business and understand if the founders are still incentivised by their ownership level. A ‘messy’ cap table would commonly have lots of parties owning small quantities of shares that add up to a material amount.

Cash Runway - When an investor asks you about your cash runway, they are asking how far your current cash reserves – without any funding – will take your business before it runs out of cash.

Churn - Churn is the number (or value) of customers lost over a specific period of time. High churn is a strong indicator the product market fit is not viable. Often B2B and B2C companies have different churn rates – <2% per month is considered strong for a B2B business, but this may be <5% for some B2C businesses. The maturity of your business is also a big factor in churn, as mature businesses tend to see a lower rate of churn due to established adoption. Early-stage businesses often see higher churn rates, as they may still be searching for their ideal customer profile (ICP).

CLN - A convertible loan note (or CLN) is a common method of financing early-stage businesses in a way that mitigates risk for investors. A CLN is a type of debt that can be converted into equity over a given time period. This is often at a 10-20% discounted rate at the point of conversion.

Cohort Analysis - Cohort analysis is a testing method used by B2C businesses, although it can occasionally be used by B2B businesses. Cohort analysis tracks the patterns of a new user base over time, including measuring their repeat purchases and average order values – often on a monthly basis.

Conversion Rate - The conversion rate refers how many potential customers in a business’s pipeline are being converted into paying customers over a set period of time.

Crowd Funding - As seen with Kickstarter, Crowdcube and others, crowd funding is another way for a business to raise small amounts of capital from a large number of individuals. Brands such as BrewDog, Peloton and Oculus have all used crowd funding in their pursuit of growth.

D2C - Businesses with direct to consumer (or D2C) business models do not use retailers or other partners to sell their products. Some popular D2C businesses from our portfolio include Seatfrog, HURR and Ruuby.

DAU - Daily active users (or DAUs) are the total number of people who open and engage with a mobile app or web product on a given day. This is another way investors can learn about a company’s health. The DAU number can also uncover potential trends in user behaviour.

DD - Due Diligence (or DD) covers the research VCs conduct into a potential investee company. This usually involves checking a company’s finances, technology, market and legal status. Various DD levels are needed in all investments, and the depth of DD typically increases with the cheque size.

Down Round - A down round is when a company is raising money at a lower valuation than it did at a previous round. There are a number of reasons for this, including growth expectations not being met, the loss of big contracts or market conditions driving down multiples for different sectors. The best defence for a down round is careful cash management to give yourself time to react and generate interest from multiple parties in the investment process.

EBIT - Earnings before interest and tax is one of the main measures of profitability. It’s a strong indicator of a company’s core operations and is often used to evaluate the performance of a company.

EBITDA - Earnings before interest, tax, depreciation and amortisation is another alternative measure of profitability, commonly referred to in management accounting.

Ecosystem - An ecosystem refers to a network of different companies that play a significant role in the growth and success of startups in a given region. An ecosystem typically includes investors, advisors, angels, accelerators etc. Over the past few years, ecosystems in the North have flourished.

EIS - The Enterprise Investment Scheme (or EIS) is a government programme that offers tax benefits to investors who buy shares in small, early-stage companies. As a small business looking for funding, being EIS qualifying can be beneficial due to the amount of capital invested in the scheme.

Equity - The value of shares in issue in a business.

Gross Margin - Gross margin is a measure of profitability written as a percentage. The percentage indicates the amount of revenue that exceeds the direct costs of goods sold. SaaS businesses typical aim for >80% gross margin.

Go to market - Go to market refers to how your business is going to reach its potential customers to achieve sales. A go to market strategy outlines the ways in which your business will launch a product or service into a market. You may need to revisit your GTM strategy if results fall short of expectations.

IC - Investment Committees (or ICs) are made up of independent individuals who vote on an investment opportunity, based on the investment team’s due diligence findings. Every venture capital firm has an IC process to maintain independence in investment decision-making.

ICP - An ideal customer profile (or ICP) provides details about the perfect customer for the product or services a business offers. Businesses that know their ICP often make more effective marketing decisions.

Lead Investor -A lead investor usually provides the majority of funds in an investment round. In most cases, they will also dictate the terms of the round, with the other participating investors following the lead investor.

LTV - Lifetime value (or LTV) refers to the amount of money a customer will provide to your business over their life as a customer. The formula for LTV is (average revenue per company or user X gross margin) / the churn rate.

MAU - Monthly active users (or MAUs) are the total number of people who open and engage with a mobile app or web product in a given month. This is another way investors can learn about a company’s health. The MAU number can also uncover potential trends in user behaviour.

MRR - Monthly recurring revenue (or MRR) is a term normally used in the world of SaaS, MRR describes a company’s monthly revenue generated from subscriptions, contracts and any other recurring billing cycles.

NRR - Net revenue retention (or NRR) is a metric used to assess the health of a SaaS business. NRR measures a company’s ability to retain customers and generate revenue from them over time. Calculated by the following formula: (starting MRR + expansion MRR – churn MRR) / starting MRR x 100. NRR of around 109% is considered strong, whereas anything below 100% is an indicator that your customer base is shrinking, and you will need to increase your sales rate to grow. This is also sometimes referred to as NDR (net dollar retention).

Ordinary Shares - Ordinary shares are a type of equity ownership that gives shareholders certain rights, including voting and the potential to receive dividends.

PE -PE stands for private equity and is a type of investment that involves purchasing the majority of a company with the goal of selling it for a profit. Private equity firms typically hold on to their investments for four to seven years. Once a PE investment has been made, it’s unlikely the original founders will still be majority owners.

Pitch Deck - Your pitch deck (sometimes called an investor memo) is the document you send to investors to provide an overview of your business and the opportunity. We have another article devoted to how to write an amazing pitch deck written by Klarissa Nura, Make sure you check this out.

PMF - Product market fit refers to how well a product or service meets the needs of the market. Many claim to possess the elusive product market fit but fail to provide undeniable evidence.

POC - A proof of concept (or POC) is typically a pilot project with a customer to test your proposition for that customer’s business. A POC can lead to a live contract if the results are positive. Some POCs are paid and some are not.

Pre & Post Money - The pre-money valuation refers to the estimated value of a company before it receives new capital or financing. The post money is how much the company is worth after the round of financing, calculated by the total number of shares post investment multiplied by the share price of that round.

Preference Shares - Preferred shares are shares in a company with dividends or a prior return that is paid out to shareholders before ordinary shares receive their allocation of the capital.

Pre-Seed - Pre-seed is the first stage of startup funding – before you even plant the seed in the ground. Funding at this stage is normally received when a business has a strong idea but no fully developed products. Pre-seed rounds are anywhere from £50-£250k and are often provided by smaller, early-stage investors.

Prior Return - Relevant to when a business is sold, a prior return is when an investor receives their investment back first and before other shareholders receive any funds. This is favourable for an investor as it gives them downside risk protection without removing any upside rewards for the founders

Run-Rate - A run rate is the current revenue level multiplied by 12.

SaaS - Software as a Service (or SaaS) typically refers to a cloud-based model where a service provider offers application software to a client on a contractual basis.

SAM - Serviceable addressable market (or SAM) is the size of the total addressable market (TAM) you can reasonably target as you build your business.

Seed - Your seed round is typically your second stage of funding with an established product and team with which you are generating some commercial traction. Typical rounds within the UK ecosystem are anywhere from £500k to £2m and funding

Series A - This is typically the third round of financing, with average round sizes in the UK ranging anywhere from £1m to £15m. In your series A investment round, you may see follow-on investment from your early investors or you new additions on to your cap table.

Series B - Series B rounds are concerned with much later-stage investments and are often raised by businesses looking to scale significantly. This includes expanding into international markets and increasing sales. You would commonly only see large VC investors and PE houses at this stage.

SOM - The serviceable obtainable market (or SOM) is the is the assumed size of your serviceable addressable market (or SAM) that you can potentially convert.

Sweat Equity - Sweat equity is normally a reward for an employee or founder who has worked in a startup for a long time and has played an impactful role within the growth story. In return for their hard work, they can receive cheap equity or share options in the business.

TAM - The total addressable market refers to the entire potential revenue opportunity available through a businesses product or service if it captured 100% market share. This is calculated by multiplying the number of potential customers by the average revenue per customer.

Term Sheet - A term sheet is a non-binding document that outlines the main terms and conditions of a proposed transaction or investment. This gives the founder a simple outline of what the legal documents will say.

Unicorn - A unicorn in VC is a privately-owned company valued at $1bn or more.

Unit Economics - Unit economics are a key term that investors will want to discuss. Effectively, this is a method of analysing a business’s revenue and costs on a per-unit basis to determine how much profit or loss each unit generates.

VC - VC stands for Venture Capital. Initially coined Adventure Capital, VC is a form of private equity and a type of financing investors provide to startup companies and small businesses believed to have long-term potential growth. VC investments tend to be early in a company’s life and, therefore, is considered higher risk than other investment forms.

Waterfall - The waterfall is the order in which the proceeds of a sale or liquidation are divided between all the holders of equity within the business. Any prior return calculations included in the deal are detailed within the waterfall. Imagine water (proceeds) flowing down the waterfall (investors).