Reference

Startup glossary: funding, equity and metrics terms

The words that come up when you raise money, hire with equity or report your numbers, each defined in a line or two, with the Indian usage where it differs. Follow a term's link for the full explainer, calculator or guide.

At a glance2026

The glossary

terms defined: 90
with a deeper page: 66

A

Accelerator: A fixed-term programme, often three to six months, that gives early-stage startups mentoring, connections and usually a small investment in exchange for equity. Cohorts typically end with a demo day at which founders pitch to investors. Y Combinator is the best-known example; India has many corporate, university-linked and independent accelerators.
Acquihire: An acquisition made mainly to hire a startup's team rather than to buy its product, revenue or customers. The product is often shut down after the deal. Acquihires are a common soft landing for startups that have not found product-market fit, and investors may recover only part of what they put in. Read more →
AIF (Alternative Investment Fund): A privately pooled investment fund registered with SEBI under its Alternative Investment Funds Regulations, 2012. Most Indian venture capital and angel funds are set up as Category I or Category II AIFs. They pool money from domestic and foreign investors and invest it in unlisted companies, among other assets.
Angel investor: An individual who invests their own money in an early-stage startup, usually at the pre-seed or seed stage, in return for equity or a convertible instrument. Angels often back founders before institutional investors will, and many invest through angel networks or syndicates. Their cheques are usually smaller than a venture fund's.
Angel tax: The informal name for Section 56(2)(viib) of India's Income-tax Act, 1961, which taxed an unlisted company on the amount it received for new shares above their fair market value. DPIIT-recognised startups could claim an exemption. The Union Budget of July 2024 abolished it for all classes of investors. Read more →
Anti-dilution protection: A clause that protects investors if the company later issues shares at a lower price than they paid. It adjusts the conversion price of their preference shares so they receive more shares on conversion. Broad-based weighted average is the common, founder-friendlier form; full ratchet is the harsher one. Read more →
ARR (annual recurring revenue): The yearly value of a company's subscription or contracted recurring revenue, excluding one-off fees such as setup charges or services. For monthly plans it is usually MRR multiplied by 12. It is the headline metric for SaaS businesses and a common basis for their valuation multiples. Read more →

B

Board seat: The right to appoint a director to a company's board, usually negotiated by the lead investor in a priced round. A director votes on major decisions such as budgets, senior hires, fundraising and a sale of the company. Smaller investors may get an observer seat instead, which allows attendance but no vote.
Bootstrapping: Building a company with founders' own savings and revenue from customers, without raising outside equity. Bootstrapped founders keep full ownership and control, but usually grow more slowly and need to become profitable sooner. Zoho is the most widely cited Indian example of a large bootstrapped company.
Break-even: The point at which a company's revenue exactly covers its costs, so it makes neither a profit nor a loss. The break-even volume equals fixed costs divided by the contribution margin per unit, which is price minus variable cost. Startups track it to see how far they are from self-sufficiency. Read more →
Bridge round: A smaller, interim financing that keeps a company going until its next priced round or an exit. It is usually raised from existing investors, often as a convertible note or SAFE. A bridge can buy time to reach milestones, but repeated bridges can signal difficulty raising a full round.
Burn multiple: Net burn divided by net new ARR over the same period, a measure of capital efficiency popularised by investor David Sacks. A burn multiple of 1x means a company burns ₹1 for every ₹1 of new annual recurring revenue it adds. Lower is better. Read more →
Burn rate: The rate at which a company spends cash, usually measured per month. Gross burn is total monthly spending; net burn is spending minus the cash coming in from revenue. Net burn, together with the cash in the bank, determines how much runway the company has left. Read more →

C

CAC (customer acquisition cost): Total sales and marketing spending in a period divided by the number of new customers won in that period. It is compared with customer lifetime value and gross margin to judge whether growth pays for itself. Blended CAC includes organic customers; paid CAC counts only customers from paid channels. Read more →
CAGR (compound annual growth rate): The steady yearly growth rate that would take a value from its starting level to its ending level over a number of years, assuming growth compounds. It equals the ending value divided by the starting value, raised to the power of one over the number of years, minus one. Read more →
Cap table: Short for capitalisation table: a record of who owns what in a company, listing every shareholder, their shares, options and convertible instruments, and their percentage ownership. It changes after each funding round, ESOP grant or share transfer, and investors check it closely during due diligence. Read more →
CCD (compulsorily convertible debenture): A debt instrument that must convert into equity shares at a set time or on a set event. Under Indian foreign investment rules, instruments that are fully and compulsorily convertible are treated as equity, so foreign investors can use them. Unlike preference shares, a CCD can pay interest before it converts. Read more →
CCPS (compulsorily convertible preference shares): Preference shares that must convert into equity shares by a set date or on a trigger such as an IPO. They are the most common instrument in Indian venture rounds: investors get preferences such as liquidation priority, and the shares count as equity under foreign investment rules. Read more →
Churn: The rate at which a company loses customers or revenue over a period. Customer churn is customers lost divided by customers at the start of the period; revenue churn measures recurring revenue lost to cancellations and downgrades. High churn slows growth because new sales must first replace what was lost. Read more →
Cliff: A period at the start of a vesting schedule, typically one year, during which nothing vests. A person who leaves before the cliff gets nothing; on the cliff date, the first portion vests all at once. Four years of vesting with a one-year cliff is the common standard for founders and employees. Read more →
Convertible note: A short-term loan from investors that converts into equity at the next priced round, usually at a discount or subject to a valuation cap. Unlike a SAFE, it carries interest and a maturity date. In India, convertible notes are a route open to DPIIT-recognised startups, subject to conditions under company and foreign exchange rules. Read more →
Credit Guarantee Scheme for Startups: A Government of India scheme, set up by DPIIT and run through the National Credit Guarantee Trustee Company, that guarantees part of the loans eligible lenders make to DPIIT-recognised startups. Because the guarantee reduces the lender's risk, startups can borrow, including through venture debt, without pledging collateral. Read more →

D

Data room: A secure online folder in which a startup shares documents with investors or acquirers during due diligence, such as incorporation papers, the cap table, financial statements, material contracts, IP assignments, statutory filings and employee agreements. A well-organised data room shortens diligence and shows the company is run carefully. Read more →
Dilution: The fall in an existing shareholder's ownership percentage when a company issues new shares, for example in a funding round or when the option pool is enlarged. The number of shares held stays the same, but each now represents a smaller slice of a company that is, ideally, worth more. Read more →
Down round: A funding round priced at a lower share price than the company's previous round, meaning its valuation has fallen. Down rounds can trigger anti-dilution protection for earlier investors, dilute founders and employees heavily and hurt morale, but are sometimes the only way to keep a company funded. Read more →
Drag-along rights: A clause in a shareholders' agreement that lets a specified majority of shareholders force the others to join a sale of the company on the same terms. It stops a small holder from blocking an acquisition. Founders usually negotiate the approval threshold, a minimum price and limits on the warranties they must give. Read more →
Due diligence: The investigation an investor or acquirer carries out before committing money, checking a company's legal standing, finances, cap table, contracts, intellectual property, tax and regulatory compliance, and team. Its findings can change the price or terms, add conditions to closing, or end the deal. Read more →

E

EBITDA: Earnings before interest, taxes, depreciation and amortisation: operating profit with the non-cash charges for depreciation and amortisation added back. It is a rough proxy for cash profit from operations and is widely used to compare companies and in valuation multiples, but it ignores capital spending and working capital. Read more →
ESOP (employee stock option plan): A scheme under which a company grants employees options to buy its shares later at a fixed exercise price, subject to vesting. In India, ESOPs are governed by the Companies Act and its rules. Employees are generally taxed on the gain as a perquisite when they exercise, and again on any capital gain when they sell. Read more →
Exclusivity (no-shop): A term-sheet clause that bars a company, for a set period, from seeking or negotiating with other investors or buyers while the lead investor completes due diligence and the legal documents. Periods of 30 to 60 days are common. It is one of the few term-sheet clauses that is usually legally binding. Read more →
Exit: The event through which founders and investors turn their shares into cash, usually an acquisition, an IPO or a secondary sale. Venture funds have a fixed life and must return money to their own investors, so a credible path to an exit is central to their decision to invest.

F

Fair market value (FMV): The price at which a share would change hands between a willing buyer and a willing seller, both fully informed. In India, issues and transfers of unlisted shares often need a valuation report from a qualified valuer under tax, company or foreign exchange rules. In the US, the equivalent for pricing stock options is a 409A valuation. Read more →
Family office: A private firm that manages the wealth of one wealthy family, or of several families in the case of a multi-family office. Many Indian family offices invest in startups directly or as limited partners in venture funds, and they can be more patient than funds because they have no fixed fund life.
FC-GPR: Foreign Currency-Gross Provisional Return: the form an Indian company files with the Reserve Bank of India, through its bank on RBI's online FIRMS portal, to report shares or other equity instruments it has issued to a foreign investor. It must be filed within a fixed period after allotment, and late filing attracts a fee. Read more →
FDI (foreign direct investment): Investment by a person resident outside India in the equity instruments of an Indian company, including unlisted startups. Most sectors allow up to 100% foreign ownership under the automatic route, without prior government approval. Some sectors have caps or need approval, and investment from countries sharing a land border with India always needs government approval. Read more →
Flip: Restructuring an Indian startup so that a newly formed holding company abroad, often in the US or Singapore, owns the Indian business, usually through a share swap. Founders have flipped to reach foreign investors and stock exchanges. It involves Indian foreign exchange, tax and company law steps, and is also called externalisation. Read more →
Founder vesting: An arrangement under which founders' shares vest over time, so a founder who leaves early forfeits or must sell back the unvested part, often at a nominal price. Investors ask for it to protect the company if a co-founder departs. Because founders already own their shares, it is set up as reverse vesting in the shareholders' agreement. Read more →
Fully diluted basis: A way of counting a company's shares that assumes every option, warrant and convertible instrument has become shares, and usually includes the unallocated option pool. Ownership percentages and share prices in term sheets are normally calculated on this basis, because it shows each holder's real stake. Read more →
Fund of Funds for Startups: A Government of India fund, managed by SIDBI under the Startup India initiative, that does not invest in startups directly. Instead it commits money to SEBI-registered Alternative Investment Funds, which in turn invest in startups. It was set up to increase the amount of domestic venture capital available to Indian founders.

G

GP (general partner): The firm or individuals that manage a venture capital or private equity fund: they choose investments, sit on portfolio boards and decide when to sell. GPs are usually paid an annual management fee plus a share of the fund's profits called carried interest, conventionally around 2% and 20% respectively.
Gross margin: Revenue minus the direct cost of delivering a product or service, expressed as a percentage of revenue. For a software company, direct costs include hosting and customer support; for a D2C brand, they include the cost of the goods sold. A higher margin leaves more money for growth and overheads.
Growth round: A later-stage funding round, usually Series C or beyond, raised by a company with proven product-market fit to enter new markets, add products or buy other companies. Growth rounds are larger than earlier rounds and are often led by growth equity funds, crossover investors or private equity firms. Read more →

I

Incubator: An organisation that supports very early startups, often at the idea or prototype stage, with workspace, mentoring and access to networks, sometimes in exchange for a small equity stake or a fee. In India, many incubators are hosted by universities and institutes such as the IITs and IIMs, and some receive government grants.
Information rights: An investor's contractual right to receive regular information about the company, such as monthly or quarterly accounts, the annual budget, audited financial statements and notice of material events. Often limited to investors above a minimum holding, these rights let investors monitor the investment and meet their own reporting duties. Read more →
IPO (initial public offering): The first sale of a company's shares to the public, after which they trade on a stock exchange. In India, IPOs are regulated by SEBI and list on the NSE and BSE, with separate SME platforms for smaller companies. An IPO gives early investors and employees a way to sell their shares.
IRR (internal rate of return): The annualised rate of return at which the net present value of an investment's cash flows equals zero. Unlike a multiple such as MOIC, it accounts for time, so the same 3x return is a much weaker result if it takes ten years than if it takes five. Read more →

L

Lead investor: The investor that sets the terms of a funding round, usually by issuing the term sheet, and typically commits the largest share of the money. The lead negotiates valuation and rights, runs due diligence and often takes a board seat; other investors in the round usually invest on the same terms.
Liquidation preference: A right that lets preference shareholders get their money back, or a multiple of it, before ordinary shareholders when a company is sold or wound up. Under a 1x non-participating preference, the common standard, investors receive the greater of their original investment or what their shares would be worth if converted to equity. Read more →
LP (limited partner): An investor in a venture capital or private equity fund, such as a pension fund, insurer, endowment, family office or wealthy individual. LPs provide most of the fund's capital but take no part in investment decisions, which the general partner makes. In Indian AIFs set up as trusts, LPs are usually called contributors.
LTV (customer lifetime value): The total gross profit a company expects to earn from an average customer over the whole relationship. A simple estimate is average revenue per customer per period, multiplied by gross margin, divided by the churn rate for that period. It is compared with CAC, and a 3:1 ratio is a commonly cited benchmark. Read more →

M

MOIC (multiple on invested capital): The total value an investment has returned or is still worth, divided by the amount invested. A ₹1 crore investment that is now worth ₹3 crore has a MOIC of 3x. Unlike IRR, it ignores how long the money was tied up, so the two are usually read together. Read more →
MRR (monthly recurring revenue): The predictable subscription revenue a company earns each month, excluding one-off fees. Teams track how it changes through new, expansion, contraction and churned MRR to see where growth comes from. Multiplying MRR by 12 gives annual run-rate revenue, or ARR. Read more →
MVP (minimum viable product): The simplest version of a product that real users can use, built to test whether a problem and a proposed solution are worth pursuing. The aim is to learn quickly and cheaply from how people actually behave before spending heavily on features, design or scale.

N

Net revenue retention (NRR): The percentage of recurring revenue kept from an existing group of customers over a period, usually a year, after counting upgrades, downgrades and churn but excluding new customers. Above 100% means existing customers are spending more over time, so revenue grows even without new sales. Read more →

O

Option pool: A block of shares a company sets aside for future employee stock options. Investors often ask for the pool to be created or enlarged before they invest, so the dilution falls on existing shareholders and the effective pre-money valuation ends up lower than the headline figure. Read more →

P

Payback period: The time an investment takes to earn back what it cost. In startup metrics it usually means CAC payback: the number of months of gross profit from a customer needed to recover the cost of acquiring them. Shorter payback means growth needs less cash up front. Read more →
Pitch deck: A short presentation, usually 10 to 20 slides, that founders use to explain their business to investors: the problem, solution, market size, traction, business model, competition, team, and how much money they are raising and what it will be used for. It is often sent before a first meeting.
Post-money valuation: A company's value immediately after a funding round, equal to the pre-money valuation plus the new money invested. An investor's ownership equals the investment divided by the post-money valuation, so ₹2 crore invested at a ₹10 crore post-money valuation buys 20% of the company. Read more →
Pre-emptive rights: The right of existing shareholders to buy new shares before they are offered to outsiders, usually in proportion to their current holding, so they can avoid being diluted. In Indian startups, investors' pre-emptive rights are usually written into the shareholders' agreement and the articles of association. The idea is closely related to pro-rata rights. Read more →
Pre-money valuation: A company's agreed value immediately before new money is invested in a funding round. Pre-money valuation plus the new investment equals the post-money valuation. Whether the option pool is counted inside the pre-money figure makes a material difference to how much founders are diluted. Read more →
Pre-seed: The earliest funding stage, raised from the founders themselves, friends and family, angel investors or specialist pre-seed funds to build a prototype or MVP and test early demand. Amounts are small, and the money is often raised on simple instruments such as SAFE-style agreements or convertible notes. Read more →
Pro-rata rights: An investor's right to invest in future funding rounds so it can keep its percentage ownership. An investor that owns 10% can buy up to 10% of the new shares in the next round. The right is often limited to major investors and can be valuable when a company's later rounds are hard to get into. Read more →
Product-market fit: The stage at which a product meets strong market demand, so customers keep using it, pay for it and recommend it without heavy selling. Signs include strong retention, organic growth and demand that outpaces the team's capacity. Investor Marc Andreessen popularised the term, and many investors see it as the point at which to scale.
Protective provisions: Veto rights that let investors, or a specified majority of them, block certain company actions, such as issuing new senior shares, changing the articles, selling the company, taking on large debt or changing the size of the board. In Indian shareholders' agreements they are usually called affirmative vote matters or reserved matters. Read more →

Q

QIP (qualified institutional placement): A SEBI-regulated route that lets a company already listed in India raise money quickly by issuing shares or convertible securities to qualified institutional buyers, such as mutual funds and insurers, without a full public offer. It is available only to listed companies, not to private startups.

R

Revenue-based financing: Funding in which a provider advances money in return for a fixed share of the company's future revenue until an agreed total, usually a multiple of the advance, has been repaid. It suits businesses with steady, predictable revenue, and the company gives up no equity. Read more →
Reverse flip: Moving a startup's holding company back to India from abroad, typically by merging the foreign parent into the Indian company or by swapping shares, so the business is once again owned through an Indian entity. Several Indian startups have done this ahead of listing in India, and it can create a tax bill for shareholders. Read more →
ROFR (right of first refusal): A right that, when a shareholder such as a founder wants to sell shares to an outsider, lets the company or existing investors buy those shares first on the same terms. It gives existing investors control over who joins the cap table and is a standard clause in shareholders' agreements. Read more →
Rule of 40: A rule of thumb for software companies: revenue growth rate plus profit margin should add up to at least 40%. A company growing 60% a year with a margin of minus 20% passes, as does one growing 10% with a 30% margin. EBITDA or free cash flow margin is commonly used. Read more →
Runway: The number of months a company can keep operating before it runs out of cash at its current rate of spending, calculated as cash in the bank divided by monthly net burn. Founders usually start fundraising with plenty of runway left, because a round can take several months to close. Read more →

S

SAFE (simple agreement for future equity): An instrument created by Y Combinator in 2013 under which an investor pays now for the right to receive shares in a future priced round, usually at a valuation cap or a discount. It is not debt, so it carries no interest or maturity date. Indian startups use locally adapted versions, as the US form does not fit Indian law. Read more →
Secondary sale: A sale of existing shares by current holders, such as founders, employees or early investors, to new or existing investors. The money goes to the sellers rather than the company, so it does not fund operations. Secondaries give early backers some cash before an exit and often happen alongside a primary round.
Section 80-IAC: The Indian startup tax holiday commonly known as Section 80-IAC: an eligible DPIIT-recognised startup, set up as a company or LLP, can deduct 100% of its profits for any three consecutive years out of its first ten years from incorporation. The startup needs a certificate from the Inter-Ministerial Board to claim it. Read more →
Seed round: Usually a startup's first institutional funding round, used to build out the product, look for product-market fit and hire a core team. It is typically led by seed funds or angels and may be a priced round or raised on convertible instruments. A Series A usually follows once traction is clear. Read more →
Series A: The first major priced venture round, typically raised once a startup has early product-market fit and growing revenue or usage. A venture fund usually leads, takes preference shares, which are generally CCPS in India, and often a board seat. The money pays for scaling the team, sales and product. Read more →
Series B: The venture round after Series A, raised to scale a business that has shown it works by expanding sales, entering new markets or broadening the product. Investors at this stage focus on growth rate, unit economics and how efficiently the company turns capital into revenue. Read more →
Series C: A later-stage round for a company with a proven, growing business, often used to expand internationally, acquire other companies or prepare for an IPO. Investors at this stage include growth equity funds, crossover funds and private equity firms. Rounds after it continue as Series D, E and so on. Read more →
Share subscription agreement (SSA): The contract under which an investor agrees to subscribe for new shares in a company. It sets out the number and price of shares, the amount invested, the conditions that must be met before closing, and the representations and warranties given by the company and founders. It is usually signed alongside the shareholders' agreement. Read more →
Shareholders' agreement (SHA): A contract between a company and its shareholders that sets out how the company is run and how shares can change hands: board composition, investor rights, transfer restrictions, drag-along and tag-along rights, exit terms and founder obligations. In India, key SHA terms are usually also written into the articles of association so they bind the company. Read more →
Startup India (DPIIT recognition): Official recognition of a company, LLP or registered partnership firm as a startup by the Department for Promotion of Industry and Internal Trade, under the Startup India initiative. Limits on age and turnover apply. Recognition is the gateway to benefits such as eligibility for the Section 80-IAC tax holiday and the Credit Guarantee Scheme for Startups. Read more →
Syndicate: A group of angel investors who invest together in a deal, usually behind an experienced lead angel who finds the deal, negotiates terms and handles follow-up with the company. Backers often invest through a single vehicle, so the startup gets one line on its cap table instead of many small holders.

T

Tag-along rights: A right that lets minority shareholders join a sale when a majority holder, often a founder, sells their shares, at the same price and on the same terms. It protects investors from being left behind with a new controlling owner while others exit. It is also known as a co-sale right. Read more →
TAM, SAM and SOM: Three nested estimates of market size. Total addressable market is the whole demand for a product category; serviceable addressable market is the part a company's product and channels can reach; serviceable obtainable market is the share it can realistically win in the near term. Investors trust bottom-up estimates more than top-down ones.
Term sheet: A short document setting out the main terms of an investment: valuation, amount, instrument, liquidation preference, board composition, investor rights and conditions. Most of it is not legally binding, though clauses such as exclusivity and confidentiality usually are. The full legal agreements, in India usually an SSA and an SHA, follow. Read more →
Ticket size: The amount a single investor puts into a company in one round. Angels and funds usually state a typical ticket range, which helps founders target investors whose cheques fit the round they are raising and work out how many investors they will need to fill it.

U

Unicorn: A privately held startup valued at $1 billion or more. Investor Aileen Lee coined the term in 2013, when such companies were rare. Startups valued at $10 billion or more are sometimes called decacorns, and Indian coverage uses soonicorn for companies expected to reach unicorn status soon.
Unit economics: The revenue and costs tied to a single unit of the business, usually one customer or one order. It shows whether each sale makes money before overheads, using measures such as contribution margin per order, LTV, CAC and payback period. Good unit economics mean growth improves profits rather than deepening losses. Read more →

V

Valuation cap: The highest valuation at which a SAFE or convertible note converts into equity. If the next priced round values the company above the cap, the early investor converts as though the valuation were the cap, so it receives more shares for its money than new investors do. Read more →
Venture debt: Loans made to venture-backed startups, usually alongside or soon after an equity round, to extend runway with less dilution than raising more equity. Lenders rely mainly on the company's investors and its ability to raise again rather than on assets or profits, and often take warrants as well as interest. Read more →
Vesting: The process by which a person earns full ownership of shares or options over time or on reaching milestones. A typical schedule runs four years with a one-year cliff, then vests monthly or quarterly. Unvested shares or options are usually forfeited if the person leaves the company. Read more →

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Written by the StartupReader editorial desk with AI assistance. Definitions are general; tax and legal rules change, so check the official sources or an adviser before acting. Spotted something wrong? Tell us.

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