Jargons that VCs use, translated

If you are a founder pitching to VCs for the first time, here is a 101 guide to the jargons that VCs often use. Don’t worry. We live in the same world.

Let’s get started.

* LP means limited partner, who provides funding to VC firms without making investment decisions. VC firms usually have to raise as well, pitch to their investors as you do.

* GP means general partner. It’s the group of investors that will decide whether they will write you a cheque.

Product-market fit
* You will hear about it over and over again. When you find the product-market fit, it means that your customers really want your product — they are willing to pay for it because it makes their life better.

Pre-seed/ Seed/ series A/ series B
* Sequential fundraising rounds. You get into later rounds when business is more mature and the round size is bigger. Companies usually start out with a pre-seed/seed round when they are still building the product and finding the magical product-market fit. These round names now start to have very different meanings for different investors, especially in the earlier rounds. There might be some bridging rounds in between. The general rule of thumb is that every round should ideally last you 18–24 months.

* You work hard to get to where you are without getting money from any investors. VCs love founders who reach a milestone without too much extra help. Well, until they want to invest in your company.

* Software as service. You are a Saas business if you make money through selling your software or app. The opposite could be hiring a group of consultants doing projects (usually not scalable in venture views), or selling physical products.

* Monthly recurring revenue and annual recurring revenue. It is the predictable revenue that you are likely to earn per month/ year. The recurring revenue is sticky and indicates a promising revenue stream in the future. It is usually used in the SaaS subscription context, but has now been increasingly used in other business models as well.

* Average transaction value. Think about it similar to the average cost per head when you go to a restaurant. Some customers can have a higher value than the others.

Triple triple double double double/ T2D3
* Again, usually applies to SaaS model. It’s a path for companies to grow from 1–2M to 100M in ARR. 1–2M -> 6M -> 18M -> 36M -> 72M -> 144M

* Due diligence process. Congratulations, you are lucky if you get to this stage. It means that VCs are going to take a serious look at your idea. They might make customer calls, try out the product, research the market and talk to experts to make sure that they have convictions before committing.

Term sheet
* If a VC brings up a term sheet, you are nearly there. You will negotiate the ‘terms’ — the details of a potential contract with VC.

Investment committee
* A group of people who will vote and decide whether you will make it.

* It is a pool of money that VCs will keep in hand to invest in the future rounds of their portfolio companies.



Useful thoughts from the front line of big science and venture.

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