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Learn How to Speak VC in 7 minutes

Pavlos PavlakisSeptember 27, 2018

Have you ever been in a discussion with someone who’s every second word was jargon (fine – maybe not every second word, but at least a couple) while you were hesitating to ask what language are they speaking?

In this article, we will provide you with the “translation” of some useful VC (Venture Capital – just to set the right tone) jargon and acronyms that might come in handy!

VC General

  • Seed = Seed Financing – the first stage of financing that helps in the early development of a new product or service
  • Series A = Series A Financing – the first significant round of venture capital financing that a company raises following seed capital

Jargon 1.png

  • Angel = Angel Investor – an individual who invests in startups
  • IPO = Initial Public Offering – when a company offers its shares to the public markets and gets listed
  • KPIs = Key Performance Indicators – a set of main metrics that indicate the performance of a company e.g. MRR (see definition below), New users, Churned customers, etc.
  • OKRs = Objectives and Key Results – a framework for defining and tracking objectives and their outcomes
  • Churn = Churn rate – the percentage of users who stopped being customers over a specific period (please note that these users may come back)
  • Retention = Retention rate – the opposite of Churn i.e. the percentage of users who continued being customers over a specific period
  • Cohort = A related group of people – for example, rather than looking at all users as one unit cohorts break them into related groups within a defined time-span for analysis purposes e.g. “the cohort of users that joined in August”

VC Legal

  • TS = Term Sheet – a short non-binding document signed by investors that summarises the main commercial terms of an investment agreement. It serves as a basis for lawyers when drafting the extended investment agreements
  • Shareholders = Share Holders – the individuals or companies that have shares in a company
  • SHA = Shareholders Agreement – the contract defining the obligations and relationship between the company and the shareholders
  • AoA = Articles of Association – a document that forms the company’s constitution, defines the purpose and specifies the regulations for its operations
  • CT = Cap Table or Capitalization Table – a table that provides the details of the shareholders, the percentage and what type of shares they hold
  • PPS = Price Per Share – the price paid in order to acquire one share in a company
  • Pre Money = Pre Money Valuation – the valuation of the company before a capital increase (i.e. financing round) that determines the PPS for the round
  • Post Money = Post Money Valuation – the Pre Money + the amount of capital injection e.g. a company with a Pre Money of €4M raising €1M would have a Post Money of €5M
  • Fully Diluted = Fully Diluted Equity – the sum of already issued shares + any other outstanding instruments that could be converted into shares, such as stock options, convertible bonds, and warrants
  • Liquidation Pref = Liquidation Preference – the right of certain shareholders (who hold a certain type of shares) to have priority and be the ones who get their capital back before any other shareholders in case of a liquidity event (such as a sale of the company)
  • Pro-rata = A Latin term meaning in proportion – for example in case of a capital increase the pro-rata would refer to the right of a shareholder to purchase shares equal to the percentage the shareholder holds at the time of such financing
  • Participating = Participating Liquidation Preference (also known as “Double Dipping”, for food lovers) – the right of certain shareholders to have priority in getting their pro-rata payoff on top of the Liquidation Preference
  • Pre-emption = Pre-emption rights – when new shares of a company are issued shareholders with such rights have the option to buy those shares before they are offered to new investors. In this way, they can retain their percentage in a company and not be diluted
  • ROFR = Right of First Refusal – when a shareholder wishes to sell existing shares, then shareholders who have a ROFR have the right but not the obligation (i.e. the option) to buy those shares, at the same PPS, before they are offered to new investors
  • ESOP = Employee Stock Ownership Plan – a plan designated to allocate stock options to employees, contractors, and consultants. ESOP is used by companies in order to attract talent, incentivize employees and align their interest with shareholders
  • LPs = Limited Partners – the investors of the VC funds
  • GPs = General Partners or Partners – the managers of the VC funds who are responsible for the allocation of the investments

General Financial

  • MRR = Monthly Recurring Revenues – the monthly predictable revenue that SaaS (Software as a Service) and subscription-based companies generate
  • ARR = Annual Recurring Revenues – the annualized revenue derived by multiplying the MRR x 12
  • GMV = Gross Merchandise Value – the total sales monetary value for merchandise sold through a particular marketplace
  • CoGS = Cost of Goods Sold – the direct costs linked to the production of the goods (or services) sold by a company
  • GP = Gross Profit – derived by subtracting Cost of Goods Sold from revenue
  • GM = Gross Profit Margin – the Gross Profit as a percentage of revenue
  • EBITDA = Earnings Before Interests Taxes Depreciation Amortization – used as a proxy for the earning potential of a company
  • CapEx = Capital Expenditure – expenditure by a company to acquire or maintain physical assets such as property, buildings or equipment
  • R&D = Research and Development – the work and resources a company puts towards developing new services or products or improving existing ones
  • OpEx = Operating Expense – a day-to-day expense that a company incurs through its normal business operations (such as rent, inventory costs, marketing, payroll)
  • G&A = General and Administrative Expense – expenses that fall under OpEx
  • P&L = Profit and Loss Statement (also known as Income Statement) – a financial statement that summarizes the revenues, costs, and expenses attributed to a specific period
  • BS = Balance Sheet – a financial sheet that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time. It provides a snapshot of what a company owns, owes as well as the amount invested by shareholders
  • CS = Cashflow Statement – a financial statement that provides information regarding the flow of cash in and out of the company during a given period
  • MoM = Month over Month – compares one month with the previous one
  • YoY = Year over Year – compares one period with the same period one year ago
  • Q1 - Q4 = 1st Quarter of the year, 2nd Quarter of the year etc.
  • H1 - H2 = 1st Half of the year, 2nd Half of the year
  • FY = Fiscal Year – a period that a company uses for preparing its financial statements. This does not necessarily coincide with the calendar year
  • YTD = Year To Date
  • LTM = Last Twelve Months
  • CAGR = Compound Annual Growth Rate – the average annual growth rate over a specified period of time longer than one year (in other words if a number has grown from X to Y over Z number of years what would have been the average growth rate per year in order to reach Y starting from X)

VC Financial

  • ROI = Return On Investment – measures the amount of return on an investment relative to the investment’s costs. The return on investment formula is Gain from Investment – Cost of Investment / Cost of Investment
  • Valuation Multiple = Company Valuation now / Company Valuation at the time of initial investment. However, Valuation Multiple can also refer to the "multiple approach" i.e. a multiplier applied on ARR for example in order to derive a company’s Pre Money Valuation
  • Go to Market = Go to market strategy – the plan of a company on how to deliver their product or service and penetrate a (new) market
  • IRR = Internal Rate of Return – estimates the implied percentage return of an investment
  • EV = Enterprise Value – the sum of the equity value + debt value (net of cash). It can be thought of as the theoretical takeover price of a company
  • AUM = Assets Under Management – the sum of committed LP capital across all funds of a VC (in other words the total amount the VC is managing)
  • MF = Management Fees – fixed % of the AUM through which VCs cover their fixed running costs
  • Carry = Performance Fees – performance compensation % that the GPs of a VC fund receive. This tightly aligns the fund managers with their LPs as the majority of the compensation typically comes from the Carry.

Jargon 2.png

  • UNICORN = A legendary creature with a single large horn OR a startup company with a valuation over $1 billion – companies that do reach the $1 billion mark are so rare that finding one is as difficult as finding a mythical unicorn

If you made it to the last definition then either you found the article useful, or you actually managed to make it, BIG TIME! ;)

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