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This text provides a concise glossary of key venture capital (VC) terms to help demystify the startup investment landscape. It begins with the Minimum Viable Product (MVP), which is the first market-ready version of a product used to test market response and refine features. Metrics are critical performance indicators for startups and vary by industry; examples include revenue, customer acquisition cost (CAC), and lifetime value (LTV). Traction reflects how well a product is accepted in the market, often measured through these metrics.
The text also explains valuation concepts: pre-money valuation is the startup’s worth before funding, while post-money valuation adds the new investment amount. Investment rounds involve raising capital either by issuing new shares or through convertible notes, with individual investors contributing amounts called tickets. Runway refers to how long the raised funds will sustain operations, typically 12-18 months. Dilution describes the reduction in founders’ ownership after investment rounds, ideally limited to 15-20% per round. Other important terms include the lead investor who spearheads funding negotiations, follow-on investments by existing investors, and exit strategies where investors sell their stake to others. This glossary aims to provide clarity to entrepreneurs and investors navigating startup funding.
We define the main concepts of the language shared by venture capital funds and startups.
The jargon of the startup world is sometimes quite confusing, so here we compile a brief dictionary of the most common venture capital concepts and some advice to better understand the world of venture capital investment.
1. MPV: Minimum Viable Product or MVP . This is a marketable first version of a product. An MPV allows the startup to quantitatively and qualitatively check the market’s response to its specific product or functionality, learn about the problem-solution it solves, and refine its features.
2. Metrics: key indicators to know the performance of a startup, a key element for Venture Capital investors. It will depend to a large extent on the sector in which the company carries out its activity. Some examples of the most common metrics are:
- Billing
- number of customers or users,
- average order cost, margin, etc.
- CAC or Customer Acquisition Cost: money spent on marketing between the number of customers acquired in a period of time.
- LTV or Life Time Value: total expected revenue per customer over a period of time.
3. Traction: acceptance of the product by the market. You can see your traction thanks to metrics.
4. Pre-money valuation: what the startup is worth at the time of raising an investment round. The assessment depends on the metrics of the company and the sector of activity. In this post we tell you how to calculate it.
5. Investment round: monetary amount required by the startup to develop its business project. Funding rounds can be made by:
- Capital increase: increase in the share capital of a company by issuing new shares.
- Convertible note: contract with the investor by which a certain investment will be converted into the startup’s share capital in the future.
6. Post-money valuation: sum of the pre-money valuation plus the round.
7. Ticket: monetary amount that each investor contributes in the financing round.
8. Runway: time granted by the money obtained in the round for the normal operation of the company and achievement of objectives. In financing rounds, it is important to raise enough money so that the company can carry out its activity for at least 12-18 months.
9. Dilution: percentage of the company that will pass from the founders to the investors through a capital increase, after each round. It is advisable not to dilute the participation of the founders of the startup by more than 15% – 20% in each round of funding.
10. Lead investor: lead investor or main investor. They are the ones who invest the most money in a round of financing. He is also responsible for leading negotiations with the startup.
11. Follow on: subsequent investment made by an investor who has made a previous investment in the company.
12. Exit: exit of an investor from the company by selling his or her stake in the company to other investors or another company.
Find out what requirements startups must meet to access the investment of our Startups program by clicking here.
