Finance has its own language and nobody hands you a dictionary.
Whether you’re reading a term sheet, sitting across from a banker, or nodding along in a board meeting hoping nobody notices, we’ve got you covered. This is your no-BS glossary of the finance and business terms that actually come up, defined in plain English, not textbook. Bookmark it. You’ll be back.
A
Accrual Accounting
Records revenues and expenses when earned or incurred, regardless of when cash changes hands. Gives a more accurate picture of financial performance than cash-basis accounting.
Angel Investor
High-net-worth individuals who provide early-stage capital to startups, often in exchange for equity and sometimes mentorship. (Read More: Angel Investing 101)
ARR (Annual Recurring Revenue)
The normalized yearly revenue from subscriptions or recurring contracts. A key metric for SaaS and subscription businesses.
B
Balance Sheet
Financial statement that provides a snapshot of a company’s assets (what it owns), liabilities (what it owes), and equity (owners’ stake) at a specific point in time, following the fundamental equation: Assets = Liabilities + Equity.
Basis Point
A unit of measure equal to 0.01%, used to describe changes in interest rates, yields, and fees. One hundred basis points equals 1%. Traders and lenders use bps instead of percentages to avoid ambiguity, saying a rate moved “25 basis points” is clearer than saying it moved “0.25%,” especially when small differences carry big dollar implications. Math: 1 bps = 0.01% · 10 bps = 0.10% · 100 bps = 1.00%
Bootstrapping
Starting and growing a business using personal funds or operating revenue instead of outside investors. You keep full control but may grow slower.
Break-Even Point
The sales level where total revenue equals total costs zero profit, zero loss. Helps set minimum viable sales targets.
Burn Rate
How fast a company is spending its cash, usually measured monthly. Critical for startups to know how long they can operate before needing more capital.
C
CAC (Customer Acquisition Cost)
The total cost to acquire a new customer, including marketing and sales spend. Healthy unit economics generally require LTV to be at least 3x CAC.
Cap Table
A spreadsheet showing ownership stakes, equity dilution, and securities (common stock, preferred stock, options, warrants) in a company. Essential during funding rounds.
Carried Interest
The GP’s cut of a fund’s profits, typically 20%. After returning capital to LPs, remaining gains are split 80/20 – LPs get 80%, the GP keeps 20% as carry. Example: Fund raises $100M, returns $250M. LPs get their $100M back first. Of the $150M profit, the GP takes $30M (20%) in carry. In the U.S., carry is taxed at long-term capital gains rates rather than ordinary income, which is the part that makes it a perennial political punching bag.
Cash Flow
The movement of money into and out of a business, tracked across operating, investing, and financing activities. A business can show accounting profits and still run out of cash.
Churn Rate
The percentage of customers or revenue lost over a given period. High churn undermines recurring revenue models and signals product/market fit problems.
COGS (Cost of Goods Sold)
Direct costs tied to producing goods sold, including materials, labor, and freight. Revenue minus COGS equals gross profit.
D
DPI (Distributions Paid-In Capital)
Measures the total cash or stock distributions returned to investors relative to the capital they originally invested (DPI = Cumulative Distributions / Paid-In Capital). A DPI above 1.0x means investors have received back more than they put in; it’s a key liquidity metric alongside IRR and TVPI in private equity/VC performance reporting.
Due Diligence
The investigative process buyers or investors use to verify financials, operations, legal standing, IP, and risks before closing a deal.
E
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A common proxy for operating cash flow used in valuations and business comparisons.
F
409A Valuation
An independent appraisal of a private company’s common stock fair market value, required before issuing stock options. Protects founders and employees from IRS penalties.
G
GAAP (Generally Accepted Accounting Principles)
The standardized set of accounting rules, guidelines, and procedures used in the U.S. for preparing and presenting financial statements. It ensures consistency, transparency, and comparability across companies, covering topics like revenue recognition, inventory valuation, and financial reporting.
GP (General Partner)
The management company (or team) that runs the fund, they make all the investment decisions, source deals, manage portfolio companies, handle operations, reporting, and exits.
Gross Margin
(Revenue – COGS) / Revenue, expressed as a percentage. Shows how efficiently a company produces goods or services before overhead costs kick in.
Gross Merchandise Value (GMV)
The total monetary value of goods or services sold through a marketplace or e-commerce platform over a specific period.
H
Hyperscaler
A large-scale cloud computing company that operates massive, globally distributed data centers and infrastructure capable of handling enormous workloads with high elasticity.
I
Illiquidity
The inability to quickly convert an asset or business into cash without significantly reducing its value. The term can also describe a market with limited trading activity, where too few buyers and sellers make it difficult to complete transactions at a fair price.
Income Statement
Also called a profit and loss (P&L) statement, is a financial document that summarizes a company’s revenues, expenses, and profits (or losses) over a specific period, such as a month, quarter, or year.
IRR (Internal Rate of Return)
The discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero. It represents the annualized expected compound return on an investment, commonly used by investors and entrepreneurs to evaluate projects, startups, or private equity deals. Higher IRR is generally better, but it should be compared against the cost of capital and other metrics like MOIC.
J
Jargon
Specialized language or technical terminology used by people in a particular profession, industry, or group.
J-Curve
Think of it as “down before up.” Returns dip early, then take off, creating the familiar J-shaped curve seen in startups, private equity, and post-devaluation trade recoveries.
K
K-1
A tax form issued to partners in pass-through entities (LLCs, partnerships) showing their share of income, losses, deductions, and credits. Gets reported on personal tax returns.
KPI (Key Performance Indicator)
Measurable values that show how effectively a company is hitting key business objectives, things like MRR, churn, or CAC.
L
LTV (Lifetime Value)
The total revenue expected from a single customer over the entire relationship. Used to evaluate long-term profitability and justify acquisition spending.
M
MCA (Merchant Cash Advance)
Type of business financing where a company receives a lump sum of cash upfront in exchange for a percentage of its future sales or receivables.
MRR (Monthly Recurring Revenue)
Predictable monthly revenue from subscriptions, broken into new, expansion, contraction, and churn components.
MOIC (Multiple of Invested Capital)
Also called Multiple of Money (MoM), measures the total value returned to investors relative to the amount invested (MOIC = Total Value / Invested Capital). For example, a 2.5x MOIC means $2.50 returned for every $1 invested; it’s a simple, time-agnostic performance metric commonly used alongside IRR, DPI, and TVPI in private equity and venture capital.
N
Negative Working Capital
When current liabilities exceed current assets. Often a positive sign in efficient businesses that collect from customers before paying suppliers, common in marketplaces and subscription models.
1099-NEC
IRS form used to report payments of $600 or more to independent contractors or freelancers. Required for compliance and deductible as a business expense.
NPV (Net Present Value)
Difference between the present value of cash inflows and the present value of cash outflows over a period of time, discounted at a required rate of return (like your cost of capital or hurdle rate). A positive NPV indicates the investment is expected to generate value (profitable after time value of money), while negative NPV suggests it destroys value. It’s a core metric alongside IRR for evaluating projects, acquisitions, or capital investments.
O
Opportunity Cost
The value of the next-best alternative that is given up when making a decision.
Operating Expenses (OpEx)
The day-to-day costs of running a business.
Owner’s Equity
The owner’s residual interest in a business after liabilities are deducted from assets.
P
Preferred Stock
A class of stock that typically has priority over common stock for dividends and liquidation proceeds.
Put Option
An option contract giving the holder the right to sell an asset at a predetermined price.
Pivot
A strategic change in a company’s business model, product, or market focus.
Preferred Return
The minimum return investors receive before profits are shared with other stakeholders.
Pre-Money Valuation
A company’s valuation immediately before receiving a new investment.
Post-Money Valuation
A company’s valuation immediately after new investment capital is added.
Q
Quantitative Easing (QE)
A monetary policy where a central bank buys government bonds and other financial assets to increase the money supply, lower interest rates, and stimulate economic growth.
R
RBA (Revenue Based Advance)
Form of business financing in which a company receives an upfront cash advance in exchange for agreeing to repay it from a percentage of its future business revenue.
ROI (Return on Investment)
Gain or loss on an investment relative to its cost, expressed as a percentage. Useful for comparing the efficiency of different investments or marketing campaigns.
Runway
How many months a company can operate at its current burn rate before running out of cash. Calculated as cash on hand divided by monthly burn.
S
Statement of Cash Flows
Financial statement that shows how cash and cash equivalents move in and out of a business over a period of time, categorized into operating, investing, and financing activities. It reconciles net income to actual cash generated (or used), revealing liquidity and true cash generation beyond what the income statement shows.
T
Term Sheet
A non-binding document outlining key investment terms valuation, rights, liquidation preferences, and more. The blueprint for final legal agreements.
TVPI (Total Value to Paid-In Capital)
Measures the total current value of an investment (realized distributions + remaining unrealized value) relative to the capital invested (TVPI = (Cumulative Distributions + Residual NAV) / Paid-In Capital). It combines realized (DPI) and unrealized returns into one multiple; a TVPI > 1.0x indicates the investment is currently valued above cost.
U
UCC Filing
A public notice of a lender’s security interest in collateral, filed to protect lenders in secured financing. Common in loans and promissory notes.
V
Valuation
The estimated monetary worth of a company. Methods include discounted cash flow (DCF), comparables, or 409A for private companies issuing equity or options.
Venture Capital (VC)
Professionally managed funds that provide capital to high-growth startups in exchange for equity, typically at Series A and beyond.
W
Working Capital
The difference between a company’s current assets and current liabilities, measuring its ability to meet short-term financial obligations and fund day-to-day operations.
X
XIRR (Extended Internal Rate of Return)
A financial metric used to calculate the annualized return on investments with cash flows that occur on irregular dates. It’s commonly used in spreadsheets like Microsoft Excel and Google Sheets to evaluate real-world investment performance.
Y
Yield
The income generated by an investment, typically expressed as an annual percentage of its price or value. Common examples include dividend yield on stocks and yield to maturity on bonds.
Z
Zero-Sum Game
A situation in which one participant’s gain is exactly equal to another participant’s loss. The concept is often used to describe certain financial markets, trading strategies, and negotiations where the total gains and losses net to zero (before costs).