Learn How to Speak VC in 7 minutes

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

European Benchmarks in Seed and Series A rounds

• 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 receives. This tightly aligns the fund managers with their LPs as the majority of the compensation typically comes from the Carry

• 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! ;)