A Guide to the Venture World: 20 Terms Every Startup Founder Should Know

1. Minimum Viable Product, MVP

This is the first version of the product with a minimal set of features sufficient to test a hypothesis, acquire initial users, and gather feedback.

A good MVP is not a rough product, but a tool for rapid learning and idea validation.

2. Pre-money and Post-money Valuation

Pre-money is the company's valuation before investment.
Post-money is the company's valuation after investment.

Formula:
Post-money = Pre-money + investment amount

If an investor contributes $500,000 at a $2 million pre-money valuation, the post-money valuation will be $2.5 million, and the investor's stake will be 20%.

3. Cap Table 

A cap table is a capitalization table showing the structure of share ownership. It reflects: founders, investors by round, and the option pool.

Chaos in the Cap Table is a red flag for investors.

4. Dilution 

Dilution is the reduction in the stake of existing shareholders after new investment rounds.

It is important to understand how much you are being diluted and under what conditions.

5. SAFE and Convertible Note

Both forms are alternatives to traditional equity investment at early stages.

SAFE, Simple Agreement for Future Equity — an agreement for future equity, without debt and interest.
Convertible Note — a loan that later converts into equity. It has a maturity date and interest.

They often include:
Cap — the maximum valuation at which the investor will enter.
Discount — a price reduction compared to future investors, as a bonus for risk.

6. Term Sheet

An informal agreement with key deal terms: investment amount, valuation, investor rights, option pool, and so on. 

7. Op Pool, option pool

A reserve of shares allocated for future employees.

Important: if an investor asks to expand the pool before the deal, it affects your stake. Calculate who and how much will actually receive shares.

8. Liquidation Preference

Guarantees the investor a return on investment upon exit.

Example: 1x liquidation preference — the investor receives their $1 million first, and the remainder is divided among others.

9. Drag-Along and Tag-Along Rights

Drag-along — the right of a majority shareholder to force minority shareholders to sell their stake when the company is sold.
Tag-along — the right of minority shareholders to join the sale on the same terms.

10. Runway and Burn Rate

Runway — how many months the startup can survive on current cash.
Burn Rate — monthly expenses.

If runway is less than six months, it is a warning signal for investors.

11. Equity 

Ownership percentage in the company. You transfer part of your equity to an investor in exchange for capital.

Important: your stake may decrease, but the company's value may grow — this is a normal growth dynamic.

12. Pre-seed, Seed, Series A, B, C

Stages of startup funding.

Pre-Seed — the initial stage when the product is still under development, and investments go toward research and initial tests.

Seed — the stage when the startup already has an MVP and begins attracting its first customers.

Series A, B, C — subsequent funding rounds aimed at scaling the business.

13. Pivot 

A sharp change in the startup's strategy. It may concern the business model, product, or target audience. Often necessary if the initial hypothesis proves incorrect.

14. Exit

The moment when founders and investors monetize their stake: sale of the company, IPO, buyback of shares.

Everyone works toward an exit, but the paths to it differ. This is the key goal of any VC investor.

15. Due Diligence

In-depth verification before a deal: finances, legal documents, ownership structure, IP assets.
A founder must be prepared for DD in advance — otherwise, the deal will fall through.

16. Product-Market Fit 

A state where the product genuinely solves a problem and customers are willing to pay for it.

Signs of PMF:
— steady growth of paying users
— high engagement
— repeat purchases or subscriptions.

PMF is a key stage before scaling and attracting growth capital.

17. Growth Capital

Growth Capital refers to investments for scaling: the business has already proven its model, there is revenue, the product is in demand, and now money is needed for growth — entering new markets, expanding the team, strengthening marketing. Usually comes from late-stage VCs or growth funds, which impose high requirements on unit economics and financial reporting.

18. Valley of Death

Valley of Death is a dangerous early stage between launch and stable income. Money is spent, revenue is absent or low, the team burns out, and investors are reluctant to invest. To pass this stage, it is important to sharply reduce the burn rate, focus on traction, and quickly test growth channels.

19. Monthly Recurring Revenue, MRR 

This is monthly recurring revenue. One of the key metrics for SaaS startups and subscription models.

Formula:
MRR = number of paying customers × average monthly subscription cost

MRR is a health indicator of the startup: the more stable and faster it grows, the higher the investor's trust.

20. Annual Recurring Revenue, ARR  

This is a metric showing how much a company earns annually on a subscription model, excluding one-time sales.

Formula:
ARR = MRR × 12

This is only a basic set of terms without which it is difficult for a founder to conduct dialogue with investors and make strategic decisions. In the next article — continuation of the glossary.