Glossary

Startup and finance terms, explained simply

What EBITDA, PAT, runway, dilution and the rest actually mean, with a quick example for each. Useful before you pitch an investor or read an offer.

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Profit and loss

RevenueSales, turnover, top line: All the money a business earns from selling its products or services, before any costs are taken off.; Example: You sell 1,000 subscriptions at $10 a month: monthly revenue is $10,000.
COGSCost of goods sold: The direct cost of delivering what you sold: materials, manufacturing, hosting for a software product, payment fees, delivery.; Example: Each $10 subscription costs $2 in hosting and payment fees: COGS is $2 per customer.
Gross profit: Revenue minus COGS. What's left to pay for everything else in the business.; Example: $10,000 revenue − $2,000 COGS = $8,000 gross profit.
Gross margin: Gross profit as a percentage of revenue. Software often has 70–90%; shops and restaurants much less.; Example: $8,000 ÷ $10,000 = 80% gross margin.
OPEXOperating expenses: The everyday costs of running the business that aren't COGS: salaries, rent, marketing, software tools, travel.
EBITDAEarnings before interest, taxes, depreciation and amortisation: Profit from the core business, before loan interest, tax and the paper costs of wearing out equipment (depreciation) or intangible assets (amortisation). Often used to compare companies' operating performance.; Example: Revenue $100k − COGS $30k − OPEX $50k = EBITDA $20k.
EBITEarnings before interest and taxes: EBITDA minus depreciation and amortisation. Also called operating profit.; Example: EBITDA $20k − depreciation $5k = EBIT $15k.
PBTProfit before tax: EBIT minus interest paid on loans (plus any interest earned). The profit that gets taxed.; Example: EBIT $15k − interest $3k = PBT $12k.
PATProfit after tax, net profit, net income, bottom line: What's left after every cost, interest and tax. It belongs to the owners: kept in the business or paid out as dividends.; Example: PBT $12k − 25% tax ($3k) = PAT $9k.
Net margin: PAT as a percentage of revenue: how much of each dollar of sales ends up as profit.; Example: $9k ÷ $100k = 9% net margin.
Depreciation: Spreading the cost of a physical asset (laptops, machines, vehicles) over the years it's used, instead of counting it all at once.; Example: A $3,000 laptop used for 3 years: $1,000 depreciation a year.
Amortisation: The same idea as depreciation, for intangible assets like software you bought, patents or licences. Also means paying off a loan in instalments.
P&LProfit and loss statement, income statement: The report that shows revenue, costs and profit over a period, usually a month, quarter or year.
Break-even: The point where revenue exactly covers all costs: no profit, no loss.; Example: $5,000 fixed costs a month and $8 profit per sale: break-even is 625 sales a month.

Cash and runway

Cash flow: Money actually coming in and going out in a period. A profitable company can still run out of cash if customers pay late.
Burn rate: How much cash a startup spends each month. Gross burn is total spending; net burn is spending minus revenue.; Example: Spend $30k, earn $10k: gross burn $30k, net burn $20k a month.
Runway: How many months the company can survive on the cash it has at its current net burn.; Example: $240k in the bank ÷ $20k net burn = 12 months of runway.
Working capital: Short-term assets (cash, money owed by customers, stock) minus short-term debts. Shows whether you can pay the bills of the next few months.
Bootstrapping: Building a company with your own money and its revenue, without outside investors.

Growth and SaaS metrics

MRRMonthly recurring revenue: Predictable subscription revenue per month, excluding one-off fees.; Example: 200 customers × $25 a month = $5,000 MRR.
ARRAnnual recurring revenue: MRR × 12. The yearly value of subscriptions running right now.; Example: $5,000 MRR = $60,000 ARR.
ARPUAverage revenue per user: Revenue divided by the number of customers (or users) in a period.
CACCustomer acquisition cost: What you spend on sales and marketing to win one new customer.; Example: $2,000 on ads brings 40 customers: CAC is $50.
LTVLifetime value, CLV: The gross profit you expect from one customer over the whole time they stay.; Example: $20 a month at 80% margin, staying 25 months: LTV ≈ $400.
LTV:CAC: How many times the value of a customer covers the cost of winning them. Around 3:1 or more is usually healthy.
Payback period: Months of a customer's gross profit needed to recover their CAC. Under 12 months is good for most startups.
Churn: The share of customers (or revenue) lost in a period.; Example: Start with 200 customers, lose 6 this month: 3% monthly churn.
Retention: The opposite of churn: the share of customers who stay.
Conversion rate: The share of people who take the next step: visitors who sign up, trials who pay.
MoM / YoYMonth over month / year over year: Growth compared with the previous month or the same month last year.
DAU / MAUDaily / monthly active users: Unique users in a day or a month. DAU ÷ MAU shows how often people come back.
Unit economics: The profit or loss on a single unit: one customer, one order, one ride. Good unit economics means each sale makes money once you're at scale.
GMVGross merchandise value: Total value of goods sold through a marketplace. The marketplace's revenue is only its fee on top of that.
Take rate: The percentage of GMV a marketplace keeps as its fee.

Funding and equity

Equity: Ownership of a company, usually in shares. Selling 10% equity means the investor owns 10% of the company.
Pre-money valuation: What the company is worth just before new money comes in.
Post-money valuation: Pre-money valuation plus the new investment. The investor's share = investment ÷ post-money.; Example: $50k for 10%: post-money is $500k, pre-money is $450k.
Dilution: When new shares are issued, existing owners keep the same number of shares but own a smaller percentage.; Example: You own 100%, sell 20%: you now own 80%. Sell another 20% later: 64%.
Cap tableCapitalisation table: The list of who owns what in a company: founders, investors, employee options, and how it changed in each round.
Pre-seed / Seed: The earliest funding rounds, often from founders, friends and family, angels or accelerators, to build and test the product.
Series A, B, C: Later, larger rounds from venture capital firms to scale a business that already has traction.
Angel investor: An individual who invests their own money in early-stage startups, often with advice and contacts.
VCVenture capital: Firms that invest other people's money in high-growth startups in exchange for equity, expecting a few big wins to pay for many losses.
SAFESimple agreement for future equity: An investor pays now and receives shares later, at the next priced round, usually with a valuation cap or discount. No valuation needs to be agreed today.
Valuation cap: The highest valuation at which a SAFE or note converts into shares, protecting early investors if the company's value jumps.
Discount: A percentage off the next round's share price that SAFE or note investors get for investing early, often 10–25%.
Convertible note: A short-term loan that turns into shares at a later round instead of being repaid, usually with interest, a cap and a discount.
ESOPEmployee stock option pool: Shares set aside for future employees, often 10–15% of the company, to attract talent with ownership.
Vesting: Earning your shares over time instead of all at once, so someone who leaves early doesn't keep everything. Four years is common.
Cliff: A waiting period before any shares vest, often one year. Leave before the cliff and you get nothing.
Liquidation preference: When the company is sold, certain investors get their money back (or a multiple of it) before others are paid.
Pro rata rights: An investor's right to invest in later rounds to keep their ownership percentage.
ROIReturn on investment: Profit from an investment as a percentage of what was put in.; Example: Invest $10k, get back $25k: ROI is 150%.
MOICMultiple on invested capital: How many times the money came back.; Example: $10k became $50k: 5× MOIC.
Exit: When founders and investors sell their shares: the company is bought (acquisition) or lists on a stock exchange (IPO).

Deals and legal

Term sheet: A short, mostly non-binding document listing the main terms of an investment before the full legal contracts are written.
Due diligence: The checks an investor does before investing: finances, legal, product, team and customers.
Shareholders' agreement: The contract between a company's owners about how decisions are made, what happens if someone leaves and how shares can be sold.
Founders' agreement: An agreement between co-founders on roles, equity split, vesting and what happens if someone leaves. Best signed early.
NDANon-disclosure agreement: A contract to keep shared information confidential. Most investors won't sign one for a first conversation.
IPIntellectual property: Ideas the law can protect: code, designs, brand names, patents. Investors check the company, not a founder personally, owns it.
Sweat equity: Ownership earned by contributing work instead of money.

Market and strategy

TAMTotal addressable market: Total yearly revenue if every possible customer in the world bought your product.
SAMServiceable addressable market: The part of the TAM your product and business model can actually reach, for example one country or one type of customer.
SOMServiceable obtainable market: The share of the SAM you can realistically win in the next few years.
MVPMinimum viable product: The simplest version of the product that lets real customers use it and gives you real feedback.
PMFProduct-market fit: When a product clearly satisfies a strong market demand: users stay, recommend it and would be very disappointed to lose it.
B2B / B2CBusiness-to-business / business-to-consumer: Whether you sell to companies or to individual people.
Go-to-marketGTM: The plan for reaching customers: who they are, which channels, pricing and sales approach.
Moat: What makes a business hard to copy: network effects, brand, data, technology, cost advantage or regulation.
Pivot: A big change in direction, such as a new customer, product or business model, based on what you learned.

These explanations are simplified for learning. They aren't financial, legal or tax advice.