A list of VC specific accounting terms that investors expect tech founders to know/measure in their businesses
- 10:45 pm
- October 3, 2023
1. Burn Rate: The rate at which a startup is spending its capital, typically on operating expenses, before it becomes profitable.
2. Runway: The estimated amount of time a startup can operate before running out of funds based on its current burn rate and available capital.
3. CAC (Customer Acquisition Cost): The cost a startup incurs to acquire a new customer, including marketing and sales expenses.
4. CLTV (Customer Lifetime Value): The estimated total revenue a startup expects to generate from a customer throughout their relationship with the company.
5. Churn Rate: The percentage of customers who stop using a product or service within a specified period, often measured monthly or annually.
6. LTV/CAC Ratio: The ratio of Customer Lifetime Value to Customer Acquisition Cost, used to assess the efficiency and sustainability of customer acquisition efforts.
7. MRR (Monthly Recurring Revenue): The total revenue generated from subscription-based products or services on a monthly basis.
8. ARR (Annual Recurring Revenue): The total revenue generated from subscription-based products or services on an annual basis.
9. CAC Payback Period: The time it takes for a startup to recoup the cost of acquiring a customer through the customer’s subscription or purchases.
10. Gross Margin: The percentage of revenue remaining after subtracting the cost of goods sold (COGS), indicating a startup’s profitability.
11. Run Rate: An extrapolation of a startup’s current financial performance to estimate its annual performance.
12. GMV (Gross Merchandise Value): The total value of goods or services sold on a platform or marketplace, excluding fees and discounts.
13. Liquidity Event: An event, such as an acquisition or IPO, that provides investors with the opportunity to realize a return on their investment.
14. Dilution: The reduction in ownership percentage of existing investors or founders when new equity is issued, such as in subsequent funding rounds.
15. Liquidation Preference: A clause in a VC investment agreement that specifies the order in which investors receive proceeds in the event of a liquidation or exit.
