VC Vernacular: The Vocabulary You’ll Need To Fundraise

This is part three of "The Ultimate Pitch Deck Guide for Startups," a fundraising guide made in partnership with DECKO, a leading pitch deck development company that’s helped ~180 startups raise over $100M from investors.

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Introducing "VC Vernacular," a pivotal chapter in our series, "The Ultimate Pitch Deck Guide For Startups."

In this segment, we'll demystify the language that defines the startup landscape, breaking down acronyms and phrases that often baffle even the savviest entrepreneurs. Whether you're preparing to pitch your idea or seeking investment, our guide equips you with the linguistic tools to navigate the startup ecosystem with confidence.

From deciphering "GTM" strategies to harnessing the power of "LTV" and "CAC," we'll empower you to use startup jargon to your advantage.

We separate this post into 8 sections to make it easier to navigate and so you can always come back to this helpful guide.

• IMPORTANT METRICS
• REACHING CUSTOMERS
• MEASURING SUCCESS
• YOUR MARKET LANDSCAPE
• DEFINING YOUR PRODUCT/ SERVICE
• DIFFERENT REVENUE MODELS
• FINANCIAL JARGON
• COMMON INVESTMENT TERMS

If you’re looking for a specific term, there’s a good chance it’s in this guide. We recommend hitting Ctrl F on PCs or Command F on Macs to search for a term on this page. 

Now, let’s dive in.

Startup Metrics

• ARR (Annual Recurring Revenue): The total yearly revenue generated from subscription-based products or services.
• Example: Our ARR is $600,000 as we have $50,000 per month in subscription revenue.

• BURN RATE: The rate at which a company spends its cash reserves or funding to cover expenses before generating positive cash flow. 
• Example: Our burn rate is $50,000 per month. We did $200,000 in revenue but had $250,000 in expenses so we need to secure additional funding to extend our runway.

• CAC (Customer Acquisition Cost): The cost a company incurs to acquire a new customer, including marketing and sales expenses.
• Example: Our CAC is $200 per customer, and our goal is to bring it down while maintaining customer quality.
• CASH-OUT DATE: The day in which a company will run out of cash if they continue to burn capital at their current pace and do not raise any additional capital. 
• Example: With $1M in the bank and a burn rate of $100,000/ month, we are looking at a Cash-Out Date of January 1st (10 months from today). We should raise money soon to avoid going out of business. 
• CHURN: The rate at which customers stop using or subscribing to a service.
• Example: Our churn rate has decreased by 20% since implementing our new onboarding process.
• COGS (Cost of Goods Sold): The direct costs associated with producing or delivering a product.
• Example: Our COGS for each unit is $30, allowing us to maintain a healthy gross margin as we sell it for $60.
• GROSS MARGIN: The difference between total revenue and COGS, expressed as a percentage of total revenue.
• Example: Our gross margin is 50%, indicating efficient cost management. We spend $30 to produce our product but sell it for $60.
• LTV (Customer Lifetime Value): The estimated total revenue a business can expect to generate from a single customer over their entire relationship with the company.
• Example: The LTV of our average customer is $1,500, which justifies our marketing spend of $200 per customer
• MRR (Monthly Recurring Revenue): The total monthly revenue generated from subscription-based products or services.
• Example: Our MRR has increased by 25% over the last quarter.
• RETENTION: The ability of a business to retain customers over time, often measured by customer churn rate.
• Example: Our customer retention rate is 85%, indicating strong loyalty among our user base.

• ROAS (Return on Ad Spend): A marketing metric that calculates the revenue generated for every dollar spent on advertising.
• Example: Our latest campaign achieved a ROAS of 4, meaning we earned $4 for every $1 spent on ads.

• ROI (Return on Investment): A measure of the profitability of an investment, typically calculated as (Gain from Investment - Cost of Investment) / Cost of Investment.
• Example: The ROI on our marketing campaign was 150%, yielding $15,000 in profit for a $10,000 investment.

• RUNWAY: The period of time a company's available funds can sustain its operations without additional financing.
• Example: With our current cash reserves, our runway extends for the next 12 months.

Growth & Marketing

• FLYWHEEL: Positive actions or inputs lead to cumulative momentum and self-sustaining growth over time, creating a cycle that reinforces itself.
• Example: Exceptional customer service leads to customer satisfaction, leading to word-of-mouth referrals, which in turn attract more customers. Each satisfied customer contributes to the overall growth of the business.
• GTM (Go-To-Market): The strategy a company employs to launch and sell its product or service to its target customers.
• Example: Our GTM strategy involves targeting tech-savvy millennials through social media advertising and influencer partnerships.

• K-FACTOR: A metric used to measure the growth and virality of a product, often in the context of user engagement and referrals. It calculates the rate at which new users are brought in through existing users.
• Example: Our social media platform achieves a K-Factor of 0.3, indicating that for every 10 new users, we bring in an additional 3 users through sharing and referrals, driving organic growth.

• NETWORK EFFECT: Occurs when the value of a product or service increases as more people use it. It often results in a positive feedback loop where more users attract even more users.
• Example: A messaging app becomes more valuable as more people join because users can communicate with a larger network of contacts. As the user base grows, the app's network effects amplify its utility and attractiveness.

• USP (Unique Selling Proposition): The distinctive advantage or benefit that a product or service offers to customers.
• Example: Our USP is our 24/7 customer support, providing quick assistance to our clients.

Measuring Success

• KPI (Key Performance Indicator): A measurable metric used to evaluate the success of a business or project.
• Example: Our KPIs include customer acquisition cost, customer retention rate, and revenue growth.
• LOI (Letter of Intent): A formal document expressing a party's intention to engage in a particular business transaction.
• Example: We received a LOI from a potential enterprise customer interested in buying software licenses for 10,000 of their employees.
• MILESTONE: A significant achievement or event that marks progress toward a goal or project.
• Example: Launching our mobile app was a major milestone in our development timeline.
• MOM (Month over Month): A comparison of data or metrics for the current month to the previous month.
• Example: Our MOM revenue growth for June was 15%, reflecting a successful marketing campaign.

• SCALABILITY: The ability of a business to grow its operations and revenues without proportionally increasing its costs.
• Example: Our digital platform is highly scalable, enabling us to serve more users without significant resource increases.

• YOY (Year over Year): A comparison of data or metrics for the current year to the same period in the previous year.
• Example: Our YOY growth in Q2 is 30%, indicating strong progress.

Market Landscape

• CAGR (Compound Annual Growth Rate): The average annual growth rate of an investment or business over a specific period, accounting for compounding.
• Example: Our company has achieved a CAGR of 15% over the last five years.
• COMPETITIVE ADVANTAGE: A factor that enables a company to outperform its rivals and achieve superior results in the market.
• Example: Our low production costs give us a competitive advantage, allowing us to offer competitive pricing.

• COMPETITIVE MATRIX: A visual tool that compares a company's products or services against those of its competitors.
• Example: We created a competitive matrix to analyze features, pricing, and customer satisfaction across our industry.
• KEY DIFFERENTIATOR: The unique feature or characteristic that sets a product or service apart from its competitors.
• Example: Our key differentiator is our AI-powered recommendation engine that personalizes user experiences.

• TAM (Total Addressable Market): The total market demand for a product or service if every potential customer purchased it.
• Example: The TAM for our online education platform is estimated at $1 billion. There are 100 Million students in the country that can potentially purchase our $10 online course pack. 

• SAM (Serviceable Addressable Market): The portion of the TAM that a company can realistically target and serve.
• Example: Our SAM consists of college students since we are focusing on college course content. Our SAM is $200M because there are 20 Million college students .

• SOM (Serviceable Obtainable Market): The part of the SAM that a company can realistically capture based on its resources and efforts.
• Example: Our SOM in the first year is projected to be 10% of the total SAM. We’re starting with Ivy League students so our SOM is $20M (2 Million Students)

Describing your startup

• B2B (Business-to-Business): Companies that sell products or services to other businesses.
• Example: Our software company specializes in providing B2B solutions for supply chain management.

• B2C (Business-to-Consumer): Companies that sell products or services directly to individual consumers.
• Example: Our online clothing store operates as a B2C business, selling fashion items to customers.
• IP (Intellectual Property): Proof of ownership for ideas you came up with, such as patents, copyrights, and trademarks.
• Example: We filed for a patent to protect our innovative technology.
• MVP (Minimum Viable Product): The initial version of a product with enough features to satisfy early adopters and gather feedback for further development.
• Example: We launched our MVP to test the market, gather feedback, and find out who our ideal customers are. Now, we’re launching a new version of our product for mass-market adoption.

• ROADMAP: A visual representation of a company's product development and strategic plans over a specific period.
• Example: Our product roadmap outlines new features and enhancements for the next two quarters.

• SaaS (Software as a Service): A software distribution model where applications are hosted by a third-party provider and accessed via the internet.
• Example: Our SaaS platform offers project management tools for remote teams.

Revenue models

• LAND-AND-EXPAND: Securing a small deal or customer ("land") and then expanding the relationship over time by upselling additional products or services (“expand”).
• Example: A software company offers a basic version of its project management tool to a small team within an organization. As the team experiences success, they expand their usage and add more features, leading to an upsell for the company.
• RAZOR-AND-BLADE: Selling a primary product (the "razor") at a low cost or even a loss, with the intent of generating recurring revenue from complementary or consumable products (the “blades").
• Example: Keurig sells their coffee machines for a one-time fee and then makes recurring revenue every time a customer purchases a K-Cup. 
• SUBSCRIPTION: Customers pay a recurring fee at regular intervals (monthly, annually, etc.) in exchange for ongoing access to a product or service.
• Example: A streaming platform offers a subscription model where users pay a monthly fee to access a library of movies and shows, providing a steady revenue stream for the company.

• USAGE BASED: Charges customers based on their actual usage of a product or service, allowing for flexible costs that align with usage levels.
• Example: A cloud storage provider like AWS offers a usage-based pricing plan where customers pay based on the amount of data they store, accommodating businesses with varying storage needs.

Finance and accounting terms 

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance, excluding certain financial factors.
• Example: Our EBITDA margin is 25%, indicating efficient cost management.

• EBT (Earnings Before Taxes):A measure of a company's operating income before accounting for taxes.
• Example: Our EBT for the fiscal year was $1.5 million.
• NTM (Next Twelve Months): A projection of financial performance for the upcoming 12-month period.
• Example: Our NTM forecast predicts a 20% increase in revenue compared to the current year.

• P&L (Profit and Loss Statement): A financial statement that summarizes a company's revenues, costs, and expenses during a specific period.
• Example: Our P&L statement for Q2 shows a net profit of $50,000.

• TTM (Trailing Twelve Months): A measurement of financial performance over the most recent 12-month period.
• Example: Our TTM revenue is $2 million, demonstrating consistent growth.

Classic VC terms

• ACQUISITION: The process by which one company purchases another company in its entirety. 
• Example: Apple put in an acquisition offer to buy us for $200 Million
• ADVISOR: An experienced individual who provides guidance and advice to a startup's founders or management team.
• Example: We appointed a marketing advisor to help us develop our branding strategy.
• BOOTSTRAPPING: The practice of starting and growing a business without external funding, relying on personal savings or revenue generated.
• Example: We bootstrapped our way to our first $1M in revenue and are now ready to take on outside capital to hit $10M in revenue.
• CAP TABLE (Capitalization Table): A record of a company's ownership and equity distribution among shareholders.
• Example: The Cap Table shows that the founders own 60% of the company, employees own 10%, and 5 different venture capital firms own the remaining 30%
• CONVERTIBLE NOTE: A debt instrument that can be converted into equity at a later date, typically tied to a future funding round.
• Example: The investor provided funding through a convertible note, which will convert into equity in our next Series A round.
• IPO (Initial Public Offering): The first sale of a company's stock to the public, allowing it to become publicly traded.
• Example: Our successful IPO raised $50 million, providing capital for further growth.
• MARKET CAP (Market Capitalization): The total value of a company's outstanding shares, calculated by multiplying the share price by the number of shares.
• Example: Our company's market cap is $100 million based on a share price of $10 and 10 million outstanding shares.

• MERGER: Two companies joining forces to take on their target market together.
• Example: DOW Chemical and Dupont merged to create the world’s largest chemical company by sales. 

• M&A (Mergers and Acquisitions): The process of combining two companies through acquisition or merger.
• Example: We completed an M&A deal with a competitor to expand our market reach.
• PRE-MONEY VALUATION: The valuation of a company before a new investment or funding round.
• Example: Our pre-money valuation is $18 million, and we're raising $2 million in our Series A round. At the end of the round, our company will be worth $20 million

• POST-MONEY VALUATION: The valuation of a company after a new investment or funding round.
• Example: After our Series A funding, our post-money valuation is $20 million.

• PRE-SEED, SEED: Early-stage funding rounds that provide initial capital for product development and market validation.
• Example: We secured pre-seed funding to build our prototype and prove our concept.

• SAFE (Simple Agreement for Future Equity): A type of investment agreement that allows investors to provide capital in exchange for the right to convert into equity in future funding rounds.
• Example: We secured funding through a SAFE agreement, allowing us to raise capital without setting an immediate valuation.
• SERIES A/B/C/D...: Stages of funding rounds in which a startup raises capital from investors in exchange for equity.
• Example: We successfully closed our Series A funding round, raising $5 million to fuel expansion.
• SECONDARY: One investor sells their shares in a company to another investor. 
• Example: Our company's secondary offering allowed early investors to cash out their investments.

• SPAC (Special Purpose Acquisition Company): A shell company formed to raise capital through an IPO with the intention of acquiring an existing company.
• Example: Our startup was acquired by a SPAC, providing us with a pathway to go public.

• SPV (Special Purpose Vehicle): An entity created for the specific purpose of investing in another company and holding the asset. This entity compiles multiple checks from different investors to provide the company they are investing in with one larger check. 
• Example: We established an SPV to invest in Uber’s Series B. 50 investors put in $100,000 each, so we were able to send them one check for $5 Million

• TERM SHEET: A preliminary agreement outlining the terms and conditions of a potential investment.
• Example: We negotiated a term sheet with the investor that includes equity percentage, valuation, voting rights, a board seat, and investment amount.

• VALUATION CAP: The maximum valuation in which an investor’s Convertible Note or SAFE can convert into equity. 
• Example: We raised money via a SAFE at a $3M valuation. Our company was issued a valuation of $6M in a Priced Round. Investors on our SAFE received converted into equity at a $3M valuation and received a 2x return. 

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This concludes the Strategy portion of “The Ultimate Guide to Creating the Perfect Pitch Deck.” Now, let’s get Tactical. In the coming blog posts, we’ll go deep into each individual commonly used slide in a pitch deck to show you how to nail it - starting with your Problem statement.