Acronyms & Definition

Question 1

TS

Answer 1

Term Sheet, a sheet summarizing the commercials of an investment agreement contract

Question 2

SHA

Answer 2

= Shareholders Agreement, the contract defining the relationship amongst the company and the shareholders and amongst the shareholders

Question 3

CT

Answer 3

= Cap Table or Capitalization Table, a document (usually a spreadsheet) that states who owns what % of shares in the company

Question 4

ROFR

Answer 4

= Right of First Refusal, in case existing shares of the company are sold, shareholders with a ROFR will have the option to buy those shares, ratably, before they are offered to new investors

Question 5

Liq Pref

Answer 5

= Liquidation Preference, a right attached to a specific class of shares that regulates the order of priority in case of a liquiditiy event (simply put: who gets the $ first in case there is not enough to make everybody happy)

Question 6

Pre

Answer 6

= Pre Money or Pre Money Valuation, one key term of the term sheet, it is the valuation of the company that determines the price per share for a capital increase

Question 7

Post

Answer 7

Post =Post Money or Post Money Valuation, Post = Pre + capital injection

Question 8

LPs

Answer 8

LPs = Limited Partners, these are the investors of the VC funds

Question 9

GPs

Answer 9

GPs = General Partners, there are commonly known as Partners and are the manager of the VC fund, deciding the allocation of the investments

Question 10

GMV

Answer 10

GMV = Gross Merchandise Value, total monetary value of transactions taking place on a marketplace

It’s the real top line, what the consumer side of the marketplace is spending. It is a useful measure of the size of the marketplace and can be useful as a “current run rate” measure based on annualizing the most recent month or quarter.

Question 11

Money Multiple

Answer 11

Money Multiple = Shares Value now/ Total Investment

Question 12

NAV

Answer 12

NAV = Net Asset Value, the total valuation of the assets in a fund

Question 13

MF

Answer 13

MF = Management Fees, a fixed % of the AUM through which VCs finance the fixed costs of running a VC fund

Question 14

pay-to-play

Answer 14

pay-to-play: common on term sheets; explicitly states investors have to keep investing if they want special privileges (voting/board seats) afforded to investor

Question 15

pre-emption rights

Answer 15

pre-emption rights : common on term sheets; means early investors can reinvest at later rounds at the same percentage ownership(sometimes at a discount). this can get expensive for angels/smaller funds which is why they get diluted later on when big money comes in.

Question 16

TVPI

Answer 16

TVPI is short for Total Value to Paid In capital multiple. Essentially, it’s the total value of the fund’s holdings (realized and unrealized) divided by the capital that has been called by the fund (or paid in by the LPs). One can think of this somewhat like a multiple, although it’s a little bit different since it also is inclusive of the effect of fees, recycling, etc.

Quick example, let’s say a VC has a $100M fund. If they have called 50% of the capital ($50M), returned $20M to their investors from exits, and the remaining portfolio is worth $55M, then TVPI = ($20 + $55) / $50 = 1.5.

Question 17

TCV / ACV

Answer 17

TCV (total contract value) is the total value of the contract, and can be shorter or longer in duration. Make sure TCV also includes the value from one-time charges, professional service fees, and recurring charges.

ACV (annual contract value), on the other hand, measures the value of the contract over a 12-month period. Questions to ask about ACV

Question 18

ATV calculation

Answer 18

Question 19

CAC blended vs Paid

Answer 19

One common problem with CAC metrics is failing to include all the costs incurred in user acquisition such as referral fees, credits, or discounts. Another common problem is to calculate CAC as a “blended” cost (including users acquired organically) rather than isolating users acquired through “paid” marketing. While blended CAC [total acquisition cost / total new customers acquired across all channels] isn’t wrong, it doesn’t inform how well your paid campaigns are working and whether they’re profitable.

This is why investors consider paid CAC [total acquisition cost/ new customers acquired through paid marketing] to be more important than blended CAC in evaluating the viability of a business — it informs whether a company can scale up its user acquisition budget profitably. While an argument can be made in some cases that paid acquisition contributes to organic acquisition, one would need to demonstrate proof of that effect to put weight on blended CAC.

Question 20

Gross churn

Net churn

Answer 20

Gross churn: MRR lost in a given month/MRR at the beginning of the month.

Net churn: (MRR lost minus MRR from upsells) in a given month/MRR at the beginning of the month.

Question 21

Burn Rate Monthly / Net / Gross

Answer 21

Burn rate is the rate at which cash is decreasing. Especially in early stage startups, it’s important to know and monitor burn rate as companies fail when they are running out of cash and don’t have enough time left to raise funds or reduce expenses. As a reminder, here’s a simple calculation:

Monthly cash burn = cash balance at the beginning of the year minus cash balance end of the year / 12

It’s also important to measure net burn vs. gross burn:

Net burn [revenues (including all incoming cash you have a high probability of receiving) – gross burn] is the true measure of amount of cash your company is burning every month.

Gross burn on the other hand only looks at your monthly expenses + any other cash outlays.

Investors tend to focus on net burn to understand how long the money you have left in the bank will last for you to run the company. They will also take into account the rate at which your revenues and expenses grow as monthly burn may not be a constant number.

Question 22

Economic “moat”

Answer 22

An economic “moat” is a differentiating factor that contributes towards a sustainable, long-term competitive advantage – as well as protection of its market share and profit margins.

Question 23

operating leverage

Answer 23

The proportion of total costs that are fixed relative to those that are variable. Thus, companies with a higher proportion of fixed costs in their cost structure have more operating leverage.

If the operating leverage of a company is high, then each marginal unit sold comes with fewer costs and the product can be scaled more rapidly, in theory.

Question 23

TheCapitalization Table

Answer 23

TheCapitalization Tableis tracked by venture capital (VC) firms to provide a summary of the current capitalization (i.e. equity ownership) in a startup or venture-backed business.