Master the Metrics That Matter

196 financial, SaaS, fundraising, and ecommerce terms defined in plain english with formulas and real examples.

409A Valuation

An independent appraisal of a private company's common stock fair market value, required for issuing stock options. Cap Table & Equity

A

Accounts Payable (AP)

Money a company owes to vendors and suppliers for goods or services received but not yet paid for. Accounting

Accounts Payable Turnover

How quickly a company pays its suppliers, indicating cash management practices and supplier relationships. Accounting

Accounts Receivable (AR)

Money owed to a company by customers who have received goods or services but haven't yet paid. Accounting

Accounts Receivable Turnover

How efficiently a company collects payments from customers, measured by how many times receivables are collected annually. Accounting

Accrual Accounting

An accounting method that records revenue when earned and expenses when incurred, regardless of when cash changes hands. Accounting

Accrued Expenses

Expenses that have been incurred but not yet paid or recorded in the accounts. Accounting

Accrued Interest

Interest that accumulates on convertible notes over time, typically converting to additional equity. Fundraising

Activation Rate

The percentage of new users who complete a key action indicating they've experienced the product's core value. SaaS Metrics

ACV (Annual Contract Value)

The average annualized revenue per customer contract, normalizing multi-year deals to show yearly value. Revenue Metrics

Amortization

The systematic allocation of an intangible asset's cost over its useful life or legal life. Accounting

Anti-Dilution

Protection that adjusts an investor's share price if the company later raises money at a lower valuation. Fundraising

AOV (Average Order Value)

The average dollar amount spent per order, calculated by dividing total revenue by total number of orders. Ecommerce Metrics

ARPU (Average Revenue Per User)

The average monthly or annual revenue generated per active user or account, calculated by dividing total revenue by total users. Revenue Metrics

ARR (Annual Recurring Revenue)

The total value of recurring revenue normalized to a one-year period, calculated by multiplying MRR by 12. Revenue Metrics

Asset Turnover Ratio

A measure of how efficiently a company uses its assets to generate revenue. Financial Metrics

B

Balance Sheet

A financial snapshot showing what a company owns (assets), owes (liabilities), and the residual value to shareholders (equity). Accounting

Billings

The amount invoiced to customers in a period, representing cash that will be collected regardless of revenue recognition timing. Revenue Metrics

Board of Directors

The governing body responsible for major company decisions, composed of founders, investors, and independent members. Fundraising

Bookings

The total value of new contracts signed in a period, representing committed future revenue regardless of when it will be recognized. Revenue Metrics

Break-Even Point

The point where total revenue equals total costs, meaning the business is neither profitable nor losing money. Unit Economics

Bridge Financing

Short-term funding to extend runway until the next equity round or specific milestone. Fundraising

Bridge Round

Short-term financing to extend runway until a larger funding round closes, typically from existing investors. Fundraising

Budget Model

A structured financial plan that forecasts revenue and expenses over a defined period, used to guide spending decisions and track performance. Forecasting

Burn Multiple

A capital efficiency metric showing how much cash is burned to generate each dollar of new annual recurring revenue. Unit Economics

Burn Rate

The rate at which a company spends its cash reserves, typically measured as net cash spent per month. Financial Metrics

C

CAC (Customer Acquisition Cost)

The total cost of acquiring a new customer, including all marketing and sales expenses divided by the number of new customers acquired. Unit Economics

CAC Payback Period

The number of months required to recover the cost of acquiring a customer through their subscription payments. SaaS Metrics

Cap Table

A spreadsheet showing who owns what percentage of a company, including all shares, options, and convertible instruments. Fundraising

Capital Call (Drawdown)

A GP's formal request for LPs to transfer a portion of their committed capital to fund investments or cover expenses. Fundraising

Capitalization Table

A document showing company ownership, including all shareholders, share counts, ownership percentages, and security terms. Cap Table & Equity

Carried Interest (Carry)

The share of investment profits that fund managers receive as compensation, typically 20% of gains. Fundraising

Cart Abandonment Rate

The percentage of online shoppers who add items to their cart but leave without completing the purchase. Ecommerce Metrics

Cash Basis Accounting

An accounting method that records transactions only when cash is received or paid out. Accounting

Cash Conversion Cycle (CCC)

The number of days between paying for inventory and collecting cash from customers. Financial Metrics

Cash Flow

The movement of money into and out of a business, showing actual liquidity rather than accounting profit. Financial Metrics

Cash Ratio

The most conservative liquidity measure, comparing only cash and equivalents to current liabilities. Financial Metrics

Cash Runway

The number of months a startup can operate before running out of cash, calculated by dividing current cash by monthly net burn rate. Financial Metrics

Cash-on-Cash Return

The ratio of annual cash income to total cash invested, measuring yield on actual dollars deployed. Fundraising

Chart of Accounts

A categorized list of all accounts used to record financial transactions in the general ledger. Accounting

Churn Rate

The percentage of customers or revenue lost over a specific period, measuring how quickly you're losing business. SaaS Metrics

Clawback Provision

A clause requiring GPs to return excess carried interest if later fund performance doesn't justify early distributions. Fundraising

Cliff (Vesting)

A waiting period before any equity vests, typically one year, protecting companies from early departures. Cap Table & Equity

COGS (Cost of Goods Sold)

The direct costs of producing and delivering your product or service, subtracted from revenue to calculate gross profit. Unit Economics

Cohort Analysis

Grouping users by signup date and tracking their behavior over time to reveal trends and product improvements. Forecasting

Common Stock

Basic ownership shares with voting rights but no special preferences, typically held by founders and employees. Cap Table & Equity

Comparable Company Analysis

A valuation method that determines company value by comparing financial multiples to similar public or private companies. Fundraising

Contraction Revenue

Revenue lost when existing customers downgrade their plans or reduce usage, distinct from churn where customers leave entirely. Revenue Metrics

Contribution Margin

The amount each sale contributes toward fixed costs and profit after subtracting variable costs directly tied to that sale. Unit Economics

Conversion Discount

A percentage reduction in share price that convertible investors receive when converting to equity. Fundraising

Conversion Rate

The percentage of visitors who complete a desired action, such as making a purchase or signing up for a service. Ecommerce Metrics

Convertible Note

A debt instrument that converts to equity in a future funding round, featuring interest accrual and a maturity date. Fundraising

Cost Per Acquisition (CPA)

The marketing cost to acquire one new customer, measuring acquisition efficiency by channel or campaign. Ecommerce Metrics

Current Ratio

A liquidity ratio measuring ability to pay short-term obligations with current assets. Financial Metrics

Customer Concentration

The degree to which revenue depends on a small number of large customers. Financial Metrics

Customer Health Score

A composite metric combining usage, engagement, and sentiment signals to predict customer renewal likelihood. SaaS Metrics

Customer Retention Rate

The percentage of customers who continue doing business with you over a specific period, measuring loyalty and satisfaction. Ecommerce Metrics

D

DAU/MAU Ratio

The ratio of daily active users to monthly active users, measuring how frequently users engage with a product. Growth Metrics

Days Inventory Outstanding (DIO)

The average number of days a company holds inventory before selling it. Ecommerce Metrics

Days Payable Outstanding (DPO)

The average number of days a company takes to pay its suppliers and vendors. Financial Metrics

Days Sales Outstanding (DSO)

The average number of days it takes to collect payment after a sale is made. Financial Metrics

Debt Service Coverage Ratio (DSCR)

A measure of available cash flow to pay current debt obligations, including both principal and interest. Financial Metrics

Debt-to-Equity Ratio

A measure of financial leverage comparing total debt to shareholders' equity. Financial Metrics

Deferred Revenue

Money received from customers for services not yet delivered, recorded as a liability until the service is provided and revenue can be recognized. Revenue Metrics

Depreciation

The systematic allocation of a tangible asset's cost over its useful life. Accounting

Dilution

The reduction in ownership percentage when new shares are issued, occurring during funding rounds and equity grants. Fundraising

Discount Rate (SAFE/Note)

A percentage reduction on the next round's share price for SAFE or convertible note holders, rewarding early risk. Fundraising

Discounted Cash Flow (DCF)

A valuation method that estimates business value by projecting future cash flows and discounting them to present value. Fundraising

Distribution Waterfall

The structured sequence determining how fund profits are split between LPs and GPs, including return of capital, preferred return, catch-up, and carried interest. Fundraising

Double Trigger Acceleration

Vesting acceleration that requires both a company acquisition AND termination of employment to trigger. Cap Table & Equity

Down Round

A funding round where the company raises money at a lower valuation than its previous round. Fundraising

DPI (Distributions to Paid-In)

A fund performance metric showing actual cash returned to investors relative to invested capital. Fundraising

Drag-Along Rights

A provision allowing majority shareholders to force minority shareholders to join in the sale of a company. Cap Table & Equity

Dry Powder

Committed but uncalled capital that a venture fund has available to deploy into new or existing investments. Fundraising

Due Diligence

The comprehensive investigation of a company by potential investors or acquirers before completing a transaction. Fundraising

E

EBIT (Earnings Before Interest & Taxes)

Operating profit before financing costs and taxes are deducted, showing how much money the core business generates. Financial Metrics

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of operational profitability excluding financing and accounting effects. Accounting

Efficiency Score

The ratio of net new ARR to sales and marketing spend, measuring how efficiently growth investment converts to revenue. Unit Economics

Equity Dilution

The reduction in existing shareholders' ownership percentage when new shares are issued. Cap Table & Equity

Exercise Price (Strike Price)

The price an option holder pays to convert options into shares, set at fair market value when granted. Cap Table & Equity

Exit Multiple

The ratio of exit proceeds to original investment, showing how many times the invested capital was returned. Fundraising

Expansion Revenue

Additional revenue generated from existing customers through upsells, cross-sells, and increased usage beyond their original purchase. Revenue Metrics

F

FCF Margin

Free cash flow as a percentage of revenue, measuring how efficiently a company converts revenue into actual cash. Financial Metrics

FCF Yield

Free cash flow divided by market capitalization or enterprise value, measuring how much cash a company generates relative to its valuation. Financial Metrics

Feature Adoption Rate

The percentage of users actively using a specific feature, measuring whether features deliver value. SaaS Metrics

Fixed Asset Turnover

How efficiently a company uses its fixed assets (property, equipment) to generate revenue. Accounting

Free Cash Flow (FCF)

The cash remaining after operating expenses and capital expenditures, available for dividends, debt repayment, or reinvestment. Financial Metrics

Freemium Conversion Rate

The percentage of free users who upgrade to paid plans, measuring the effectiveness of a freemium model. SaaS Metrics

Fully Diluted Shares

The total number of shares that would exist if every option, warrant, and convertible instrument were exercised. Cap Table & Equity

Fund of Funds

An investment fund that invests in other venture capital or private equity funds rather than directly in companies. Fundraising

Fund Vintage

The year a venture fund began investing, used to compare performance across different market cycles. Fundraising

G

GAAP (Generally Accepted Accounting Principles)

The standardized set of accounting rules and conventions used to prepare financial statements in the United States. Accounting

General Ledger

The master record containing all financial transactions organized by account. Accounting

General Partner (GP)

The fund managers who make investment decisions, manage portfolio companies, and have unlimited liability. Fundraising

Goodwill

An intangible asset representing the excess paid to acquire a business over the fair value of its identifiable assets. Accounting

Gross Burn vs Net Burn

Gross burn is total monthly spending; net burn is spending minus revenue, showing actual monthly cash consumption. Financial Metrics

Gross Margin

The percentage of revenue remaining after subtracting direct costs of delivering the product, before operating expenses. Unit Economics

Gross Merchandise Value (GMV)

The total value of goods sold through a platform before fees, returns, or cancellations are deducted. Ecommerce Metrics

Gross Profit Margin

The percentage of revenue remaining after subtracting the direct costs of producing goods or services sold. Accounting

GRR (Gross Revenue Retention)

The percentage of recurring revenue retained from existing customers, excluding expansion revenue and only accounting for churn and contraction. Revenue Metrics

H

Hurdle Rate (Preferred Return)

The minimum return a fund must deliver to LPs before GPs can take their share of carried interest. Fundraising

Hype Ratio

The ratio of company valuation to annual revenue, showing how much valuation is based on future expectations versus current performance. Unit Economics

I

Income Statement (P&L)

A financial statement showing revenue, expenses, and profit over a period, revealing whether the business made or lost money. Accounting

Information Rights

Investor rights to receive regular financial and operational updates from the company. Fundraising

Interest Coverage Ratio

A measure of how easily a company can pay interest expenses on outstanding debt. Financial Metrics

Inventory Turnover

How many times a company sells and replaces its inventory over a period, measuring inventory efficiency. Ecommerce Metrics

Inventory Turnover Ratio

How many times a company sells and replaces its inventory during a period, measuring inventory management efficiency. Accounting

IRR (Internal Rate of Return)

The annualized return rate that makes the net present value of all cash flows equal zero. Fundraising

J

J-Curve

The pattern where fund returns dip negative early due to fees and slow deployment, then turn positive as portfolio companies mature and exit. Fundraising

Journal Entry

A record of a single financial transaction with corresponding debit and credit entries. Accounting

L

Lead Velocity Rate (LVR)

The month-over-month percentage growth in qualified leads, serving as a leading indicator of future revenue. Growth Metrics

Limited Partner (LP)

Investors who provide capital to venture funds but don't participate in investment decisions. Fundraising

Liquidation Preference

The right of preferred shareholders to receive their investment back before common shareholders in a sale or liquidation. Fundraising

Logo Churn vs Revenue Churn

Logo churn counts customers lost; revenue churn counts dollars lost. They reveal different aspects of retention health. SaaS Metrics

LTV (Lifetime Value)

The total revenue a business expects to earn from a customer over the entire duration of their relationship. Unit Economics

LTV:CAC Ratio

The ratio comparing customer lifetime value to acquisition cost, indicating whether your unit economics support sustainable growth. SaaS Metrics

M

Magic Number

A sales efficiency metric measuring how much new ARR is generated for each dollar spent on sales and marketing. SaaS Metrics

Management Fee

The annual fee VC funds charge to cover operating expenses, typically 2% of committed capital. Fundraising

Mark to Market

Revaluing an asset to reflect its current market price rather than its original purchase price or book value. Fundraising

Maturity Date

The deadline by which a convertible note must be repaid or converted to equity. Fundraising

MOIC (Multiple on Invested Capital)

Total value returned divided by total capital invested, expressing returns as a simple multiple. Fundraising

Monthly Active Users (MAU)

The count of unique users who engaged with a product at least once in the past 30 days. Growth Metrics

Monthly Burn Rate

The amount of cash a company spends each month net of revenue, determining how long capital will last. Financial Metrics

Most Favored Nation (MFN)

A provision guaranteeing an investor will receive terms at least as favorable as any subsequent investor receives. Fundraising

MRR (Monthly Recurring Revenue)

The predictable revenue a subscription business expects to earn each month from active subscriptions. Revenue Metrics

N

Net Dollar Retention (NDR)

The percentage of recurring revenue retained from existing customers over a year, including expansion and accounting for churn. SaaS Metrics

Net New ARR

The change in Annual Recurring Revenue over a period, accounting for new customers, expansion, contraction, and churn. Revenue Metrics

Net Profit Margin

The percentage of revenue remaining as profit after all expenses, taxes, and interest are paid. Financial Metrics

Net Working Capital

The difference between current assets and current liabilities, measuring operational liquidity. Financial Metrics

North Star Metric

The single metric that best captures the core value a product delivers to customers, aligning company focus. Growth Metrics

NPS (Net Promoter Score)

A customer loyalty metric measuring willingness to recommend, calculated as the percentage of promoters minus detractors. SaaS Metrics

NRR (Net Revenue Retention)

The percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn. Revenue Metrics

O

Operating Cycle

The total time from purchasing inventory to collecting cash from customers. Financial Metrics

Operating Margin

The percentage of revenue remaining after all operating costs, showing how efficiently a business converts revenue to operating profit. Accounting

Operating Profit Margin

The percentage of revenue remaining after deducting operating expenses, showing profitability from core business operations. Accounting

Option Pool

A percentage of company equity reserved for future employee stock option grants, typically 10-20% of fully diluted shares. Cap Table & Equity

P

Participating Preferred

Preferred stock that receives its liquidation preference plus participates pro-rata in remaining proceeds with common shareholders. Cap Table & Equity

Pay-to-Play Provision

A requirement that investors participate in future funding rounds or face conversion of preferred stock to common stock. Fundraising

Payback Period

The time required to recover customer acquisition cost from the gross margin a customer generates. Unit Economics

Pipeline Coverage

The ratio of total sales pipeline value to revenue target, indicating whether there are enough opportunities to hit quota. Growth Metrics

Post-Money Valuation

A company's valuation immediately after receiving new investment, equal to pre-money valuation plus new capital raised. Fundraising

Pre-Money Valuation

A company's valuation before new investment is added, serving as the negotiation anchor in any fundraise. Fundraising

Preferred Stock

A class of stock with special rights including liquidation preference and anti-dilution protection, typically held by investors. Cap Table & Equity

Prepaid Expenses

Payments made in advance for goods or services to be received in future periods. Accounting

Pro Rata Rights

The right for existing investors to participate in future funding rounds to maintain their ownership percentage. Cap Table & Equity

Product Qualified Lead (PQL)

A user who demonstrates buying intent through product usage, predicting higher conversion likelihood than marketing leads. SaaS Metrics

Profit Per Employee

Net income divided by total employees, measuring how efficiently your team generates profit. Financial Metrics

Protective Provisions

Veto rights given to preferred shareholders over specific major company decisions. Fundraising

Q

Qualified Financing

The minimum raise amount that triggers automatic conversion of convertible notes or SAFEs. Fundraising

Quick Ratio (Acid Test)

A stringent liquidity measure excluding inventory, showing ability to meet obligations with most liquid assets. Financial Metrics

Quick Ratio (SaaS)

A growth efficiency metric comparing revenue added (new + expansion) to revenue lost (churn + contraction), showing net growth quality. SaaS Metrics

R

Receivables Turnover

How many times per year a company collects its average accounts receivable balance. Financial Metrics

Repeat Purchase Rate

The percentage of customers who make more than one purchase, indicating customer satisfaction and loyalty. Ecommerce Metrics

Return on Assets (ROA)

A measure of how efficiently a company uses its assets to generate profit. Financial Metrics

Return on Equity (ROE)

A measure of how efficiently a company generates profit from shareholders' equity investment. Financial Metrics

Return on Invested Capital (ROIC)

A measure of how efficiently a company uses all invested capital (debt and equity) to generate profits. Financial Metrics

Return on Investment (ROI)

The percentage gain or loss on an investment relative to its cost, measuring the efficiency of capital deployment. Financial Metrics

Return Rate

The percentage of orders returned by customers, measuring product satisfaction and description accuracy. Ecommerce Metrics

Revenue Concentration Risk

The vulnerability created when a large percentage of revenue comes from a small number of customers or products. Financial Metrics

Revenue Forecast

Projecting future revenue based on current trends, pipeline, churn, and expansion assumptions. Forecasting

Revenue Per Employee

Total revenue divided by headcount, measuring how efficiently your team generates top-line growth. Financial Metrics

Revenue Recognition

The accounting principle determining when revenue is recorded, based on when it's earned rather than when cash is received. Accounting

Revenue Run Rate

An annualized projection of current revenue, calculated by multiplying recent monthly or quarterly revenue by 12 or 4 respectively. Forecasting

Revenue-Based Financing

Non-dilutive capital where repayment is a percentage of monthly revenue until a predetermined cap is reached. Fundraising

Right of First Refusal (ROFR)

The right to match any offer a shareholder receives before they can sell to a third party. Cap Table & Equity

ROAS (Return on Ad Spend)

The revenue generated for every dollar spent on advertising, measuring the efficiency of paid marketing campaigns. Ecommerce Metrics

Rule of 40

A benchmark stating that a SaaS company's growth rate plus profit margin should equal or exceed 40% to be considered healthy. SaaS Metrics

Runway

The amount of time a company can continue operating at its current burn rate before running out of cash. Financial Metrics

RVPI (Residual Value to Paid-In)

The unrealized, paper value of a fund's remaining portfolio relative to invested capital. Fundraising

S

SAFE (Simple Agreement for Future Equity)

An investment agreement that converts to equity in a future funding round, featuring a valuation cap and/or discount without debt terms. Fundraising

Sales Cycle Length

The average time from first prospect contact to deal close, measuring how long the sales process takes. Growth Metrics

Scenario Planning

Creating multiple financial models with different assumptions to prepare for a range of possible futures. Forecasting

Seat Expansion

Growth in the number of paid users within existing customer accounts, a key driver of expansion revenue. Revenue Metrics

Secondary Market (Private Equity)

A marketplace where existing investors sell their fund stakes or company shares to new buyers before an IPO or fund liquidation. Fundraising

Secondary Sale

A transaction where existing shareholders sell their shares to another buyer rather than the company issuing new shares. Cap Table & Equity

Sell-Through Rate

The percentage of inventory sold compared to what was received, measuring how quickly products move. Ecommerce Metrics

Seller's Discretionary Earnings (SDE)

The total financial benefit a single owner-operator extracts from a business, used to value small businesses and startups. Financial Metrics

Session Duration

The average time users spend in your product per visit, measuring engagement depth. Growth Metrics

Solvency Ratio

A measure of a company's ability to meet long-term obligations and continue operating indefinitely. Financial Metrics

SPV (Special Purpose Vehicle)

A legal entity created for a single investment, allowing multiple investors to pool capital into one deal. Fundraising

Stickiness (DAU/MAU)

The ratio of daily to monthly active users, measuring how often users return and engage with your product. Growth Metrics

T

Tag-Along Rights

A provision allowing minority shareholders to join a sale if majority shareholders sell their stake. Cap Table & Equity

TCV (Total Contract Value)

The total revenue value of a customer contract over its full term, including all recurring and one-time fees. Revenue Metrics

Term Sheet

A non-binding document outlining the key terms of a proposed investment before final legal documents are drafted. Fundraising

Time to Value (TTV)

The duration between a user signing up and experiencing meaningful value from the product for the first time. SaaS Metrics

Trial Balance

A report listing all account balances to verify that total debits equal total credits. Accounting

TVPI (Total Value to Paid-In)

A fund performance metric showing total value (realized + unrealized) relative to invested capital. Fundraising

U

Unearned Revenue

Payments received from customers for goods or services not yet delivered. Accounting

Unit Economics

The analysis of revenue and costs at the individual customer or transaction level, determining whether each customer is profitable. Unit Economics

V

Valuation Cap

The maximum valuation at which a SAFE or convertible note converts to equity, protecting early investors from excessive dilution. Fundraising

Variance Analysis

Comparing actual results to budget and investigating the reasons for differences to improve future forecasting. Forecasting

Venture Debt

Debt financing for venture-backed startups, typically used to extend runway between equity rounds without additional dilution. Fundraising

Vesting Schedule

The timeline over which equity ownership is earned, typically 4 years with a 1-year cliff before any shares vest. Cap Table & Equity

W

Win Rate

The percentage of sales opportunities that convert to closed won deals, measuring sales effectiveness. Growth Metrics

Working Capital

The difference between current assets and current liabilities, measuring ability to fund daily operations and meet short-term obligations. Financial Metrics

Z

Zero-Based Budgeting (ZBB)

Building budgets from scratch each period, requiring justification for every expense rather than adjusting historical spending. Forecasting

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