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Activation Rate
Activation RateWhat is Activation Rate? The Activation Rate (%) represents the percentage of users that complete a specific action defined by a SaaS company as a “milestone.” Often referred to as the “us...
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Annual Contract Value (ACV)
Annual Contract Value (ACV)What is Annual Contract Value (ACV)? The Annual Contract Value (ACV) refers to the annualized revenue per customer contract, excluding any one-time fees.
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Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR)What is Annual Recurring Revenue (ARR)? Annual Recurring Revenue (ARR) estimates the predictable revenue generated per year by a SaaS company from customers on either a subscription plan or a multi-ye...
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ARR Multiple
ARR MultipleWhat is ARR Multiple in SaaS? The ARR Multiple is an industry-specific valuation ratio commonly used in the SaaS industry and for subscription-based companies. The ARR multiple is calculated as the ra...
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Attrition Rate
Attrition RateWhat is Attrition Rate? The Attrition Rate measures the percentage at which a company’s employees churned over a predefined period (i.e. employee turnover). By tracking a company’s employe...
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Average Cost (Per Unit Cost)
Average Cost (Per Unit Cost)What is Average Cost? The Average Cost, or “per unit cost”, is an economic term that describes the approximate cost incurred to manufacture one production unit.
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Average Revenue Per Account (ARPA)
Average Revenue Per Account (ARPA)What is Average Revenue Per Account (ARPA)? Average Revenue Per Account (ARPA) quantifies a SaaS or subscription-based company’s average monthly recurring revenue (MRR) per account and is most o...
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Average Time on Page
Average Time on PageWhat is Average Time on Page? The Average Time on Page measures the approximate time spent on a specific webpage by the visitors of a website. By tracking the amount of time spent on a page, a company...
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BCG Growth Share Matrix
BCG Growth Share MatrixWhat is BCG Growth Share Matrix? The BCG Growth Share Matrix is a framework designed for companies to better understand a market’s current and future competitive landscape, which helps determine...
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Bessemer Efficiency Score
Bessemer Efficiency ScoreWhat is the Bessemer Efficiency Score? The Bessemer Efficiency Score is a measure of capital allocation and spending habits to determine the efficiency at which a SaaS company is growing.
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Bookings vs. Billings
Bookings vs. BillingsWhat are Bookings vs. Billings? Bookings are a SaaS metric that represents the value of a customer contract with a contractual spending commitment, most often structured as an annual or multi-year agr...
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Burn Multiple
Burn MultipleWhat is the Burn Multiple? The Burn Multiple measures the amount a startup is spending in order to generate each incremental dollar of annual recurring revenue (ARR).
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Burn Rate
Burn RateWhat is Burn Rate? The Burn Rate is the rate at which a company spends its cash, most often used to analyze the spending of early-stage start-ups. In the context of cash flow negative start-ups, the b...
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CAC Payback Period
CAC Payback PeriodWhat is CAC Payback Period? The CAC Payback Period is the number of months needed by a company to recoup the initial costs incurred in the process of acquiring a new customer.
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Capitalization Table
Capitalization TableWhat is Cap Table? The Cap Table is tracked by venture capital (VC) firms to provide a summary of the current capitalization (i.e. equity ownership) in a startup or venture-backed business.
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Cash Runway
Cash RunwayWhat is Cash Runway? The Cash Runway measures the implied amount of time that an early-stage startup can continue operating at a loss before depleting its cash on hand.
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Churn Rate
Churn RateWhat is Churn Rate? The Churn Rate measures the percentage of a SaaS company’s existing customers that opted to cancel their subscriptions (and discontinue being a customer) across a specified time ho...
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Click-Through Rate (CTR)
Click-Through Rate (CTR)What is Click-Through Rate? The Click-Through Rate (CTR) measures the effectiveness of an ad by dividing the number of clicks on the ad (or link) by the total number of impressions.
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Committed Monthly Recurring Revenue (CMRR)
Committed Monthly Recurring Revenue (CMRR)What is CMRR? CMRR—or Committed Monthly Recurring Revenue—is a SaaS company’s monthly recurring revenue (MRR) that takes into account new bookings and churn.
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Conversion Rate
Conversion RateWhat is Conversion Rate? The Conversion Rate refers to the number of conversions (e.g. orders placed, subscribers, trial sign-ups), expressed as a percentage of the total number of visitors to a webpa...
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Convertible Note
Convertible NoteWhat is a Convertible Note? A Convertible Note is a form of short-term financing wherein the loan converts into equity rather than being repaid in cash. Startups rarely qualify for traditional debt fi...
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Cost Per Lead (CPL)
Cost Per Lead (CPL)What is Cost Per Lead? The Cost Per Lead (CPL) is the dollar amount spent on ad and marketing campaigns to acquire a new lead, i.e. a potential customer. CPL is tracked as part of a company’s le...
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Cost-Plus Pricing
Cost-Plus PricingWhat is Cost-Plus Pricing Strategy? Cost-Plus Pricing is a pricing strategy wherein a business determines the selling price of its goods and services to meet a target profit margin, with an embedded m...
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Cross-Sell Rate
Cross-Sell RateWhat is Cross-Sell Rate? The Cross-Sell Rate measures the proportion of a company’s revenue attributable to cross-selling strategies, expressed as a percentage.
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Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC)What is Customer Acquisition Cost? The Customer Acquisition Cost (CAC) is a SaaS metric that measures the amount spent on average by a business to acquire a new customer.
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Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV)What is Customer Lifetime Value? Customer Lifetime Value (CLV) estimates the average profit a customer brings in for a company throughout their entire lifespan of doing business together. The customer...
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Daily Active Users (DAU)
Daily Active Users (DAU)What are Daily Active Users (DAU)? The Daily Active Users (DAU) metric measures user engagement by counting the unique users or visitors that interacted with an app or site on a particular date.
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DAU/MAU Ratio
DAU/MAU RatioWhat is the DAU/MAU Ratio? The DAU/MAU Ratio is a user engagement metric that measures the approximate number of days in a month that users perform a specific action. The DAU/MAU ratio represents the...
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EV/Revenue Multiple
EV/Revenue MultipleWhat is EV/Revenue Multiple? The EV/Revenue Multiple is a valuation ratio that compares the enterprise value of a firm to the net sales generated in a specified period. Generally, the EV/Revenue multi...
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Expansion Revenue (MRR)
Expansion Revenue (MRR)What is Expansion Revenue? Expansion Revenue is the incremental recurring revenue that a SaaS company generates from its existing customer base via upselling, cross-selling, add-ons, and other strateg...
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First Chicago Method
First Chicago MethodWhat is First Chicago Method? The First Chicago Method is a probability-weighted valuation of a company using different cases and a probability weight assigned to each case.
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First Mover Advantage
First Mover AdvantageWhat is First Mover Advantage? The First Mover Advantage (FMA) states that the earliest occupant in a market should be capable of establishing itself as the market leader and outperforming its competi...
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Forward Multiple
Forward MultipleWhat is Forward Multiple? A Forward Multiple is a valuation ratio that reflects a company’s value on the basis of an estimated financial metric, i.e. forecasted earnings performance.
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Golden Handcuffs
Golden HandcuffsWhat are Golden Handcuffs? Golden Handcuffs refer to the deferred incentives offered to employees in an effort to encourage them to remain a part of the company over the long run.
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Gross Revenue Retention (GRR)
Gross Revenue Retention (GRR)What is Gross Revenue Retention? The Gross Revenue Retention (GRR) is the percentage of a SaaS company’s recurring revenue retained from existing customers, inclusive of the effects of downgrade...
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Growth Equity Interview Guide
Growth Equity Interview GuideHow To Prepare For a Growth Equity Interview? For candidates preparing for a Growth Equity Interview, it is important to understand the job’s day-to-day tasks, the fund’s investment criter...
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Hype Factor
Hype FactorWhat is the Hype Factor? The Hype Factor is a ratio that compares the amount of capital raised by a startup to its annual recurring revenue (ARR).
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Lead Velocity Rate (LVR)
Lead Velocity Rate (LVR)What is Lead Velocity Rate? The Lead Velocity Rate (LVR) is a KPI that measures the real-time growth in the number of qualified leads that a SaaS company collects per month. Frequently tracked by earl...
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Liquidation Preference
Liquidation PreferenceWhat is Liquidation Preference? A Liquidation Preference represents the amount the company must pay to the preferred investors at the exit, after secured debt and trade creditors.
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LTV/CAC Ratio
LTV/CAC RatioWhat is LTV/CAC? The LTV/CAC Ratio measures the relationship between the lifetime value of a customer and the cost incurred to acquire that customer. The customer lifetime value (LTV) refers to the pr...
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Market Penetration
Market PenetrationWhat is Market Penetration? The Market Penetration Rate measures the percentage of total customers in a company’s target market acquired by the company as of a specific date.
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Market Sizing
Market SizingWhat is Market Sizing? Market Sizing is a top-down forecasting method for estimating a product’s total addressable market (TAM) and revenue opportunity. The process of estimating the market size...
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Markup Percentage
Markup PercentageWhat is the Markup Percentage? The Markup Percentage represents the excess average selling price (ASP) per unit over the cost per unit. In order for a good or service to be profitable, companies must...
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Monthly Active Users (MAU)
Monthly Active Users (MAU)What is Monthly Active Users (MAU)? Monthly Active Users (MAU) is a user engagement metric that tracks the number of unique visitors that engage with a site, platform, or app within a specified month....
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Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR)What is MRR? The Monthly Recurring Revenue (MRR) is the predictable, subscription-based income anticipated to be generated by a SaaS company per month. The MRR—or Monthly Recurring Revenue—is the norm...
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Months to Recover CAC
Months to Recover CACWhat is Months to Recover CAC? The Months to Recover CAC is the time required by a SaaS business to recoup the initial capital spent to acquire a customer on average.
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Net Dollar Retention (NDR)
Net Dollar Retention (NDR)What is NDR? The Net Dollar Retention (NDR) measures the percentage of revenue retained from existing customers relative to the start of a period upon accounting for expansion revenue and churn. The N...
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Net Negative Churn
Net Negative ChurnWhat is Net Negative Churn? Net Negative Churn occurs when a SaaS or subscription-based company’s expansion revenue (e.g. from upselling, cross-selling) exceeds the lost revenue from churned customers...
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Net Promoter Score (NPS)
Net Promoter Score (NPS)What is Net Promoter Score? The Net Promoter Score—or “NPS”—measures a customer’s willingness to promote a specific product or service to their friends, family, and colleagues.
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Net Revenue Retention (NRR)
Net Revenue Retention (NRR)What is NRR? The Net Revenue Retention (NRR) is the percentage of revenue retained from existing customers at the start of a period after accounting for expansion revenue and churn.
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Pre-Money vs. Post-Money Valuation
Pre-Money vs. Post-Money ValuationPre-Money vs. Post-Money Valuation: When it comes to evaluating early-stage companies, the Pre-Money Valuation refers to how much a company’s equity is worth prior to raising capital in an upcoming ro...
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Product Adoption Rate
Product Adoption RateWhat is Product Adoption Rate? The Product Adoption Rate in SaaS measures the percentage of new users who become active and engaged with a product or feature in a specified timeframe. The product adop...
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Product Stickiness
Product StickinessWhat is Product Stickiness? Product Stickiness is a user engagement metric used to measure the product of a company’s effectiveness at improving customer retention and churn, which ties into rec...
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Quota Attainment
Quota AttainmentWhat is Quota Attainment? The Quota Attainment is the percentage of the sales target a sales representative or sales team achieved over the course of a given period. The sales and marketing (S&M)...
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Recurring Revenue
Recurring RevenueWhat is Recurring Revenue? Recurring Revenue is the portion of a company’s revenue that is expected to continue in the future, in contrast to one-time sales. In particular, the concept of recurring re...
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Red Ocean Strategy
Red Ocean StrategyWhat is Red Ocean Strategy? The Red Ocean Strategy is a business approach in which companies compete in existing market spaces to outperform established incumbents and capture a share of the existing...
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Referral Rate
Referral RateWhat is Referral Rate? The Referral Rate is the percentage of new customers acquired via referred purchases through recommendations made by existing customers. By tracking the referral rate—the propor...
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Renewal Rate
Renewal RateWhat is the Renewal Rate? The Renewal Rate measures the proportion of customers who opt to renew and extend their contracts at the end of a subscription period. SaaS and subscription-oriented companie...
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Repeat Purchase Rate
Repeat Purchase RateWhat is the Repeat Purchase Rate? The Repeat Purchase Rate measures the proportion of a company’s customers that make more than one purchase. By returning to complete another transaction on a later da...
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Retention Rate
Retention RateWhat is Retention Rate? The Retention Rate is the percentage of customers who continue to use a company’s products or services across a specified period.
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Return on Ad Spend (ROAS)
Return on Ad Spend (ROAS)What is ROAS? The Return on Ad Spend (ROAS) measures the revenue earned for each dollar spent on marketing and advertising initiatives. Conceptually, ROAS is practically identical to the return on inv...
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Revenue Churn
Revenue ChurnWhat is Revenue Churn? Revenue Churn measures the percentage of recurring revenue that a company lost due to customer cancellations, non-renewals, and account downgrades in a given period.
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Revenue Multiple
Revenue MultipleWhat is Revenue Multiple? A Revenue Multiple measures the valuation of an asset, such as a company, relative to the amount of revenue it generates. While revenue-based multiples are seldom used in pra...
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Revenue Per Employee
Revenue Per EmployeeWhat is Revenue Per Employee? The Revenue Per Employee measures the sales efficiency of a company by comparing its revenue to its number of employees.
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Revenue Streams
Revenue StreamsWhat are Revenue Streams? Revenue Streams are the sources of income whereby a business generates profit and cash flow from its operating activities. The revenue model is the method by which a particul...
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Run Rate Revenue
Run Rate RevenueWhat is Run Rate? The Run Rate is the expected performance of a company estimated from extrapolating data from a recent period assuming that current conditions will continue.
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SaaS Magic Number
SaaS Magic NumberWhat is the SaaS Magic Number? The SaaS Magic Number metric measures a company’s sales efficiency, which refers to the efficiency at which its sales and marketing (S&M) spend generates incremental...
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SaaS Quick Ratio
SaaS Quick RatioWhat is SaaS Quick Ratio? The SaaS Quick Ratio ensures a company’s recurring revenue growth is balanced with enough customer retention. The industry-specific KPI is intended to measure the efficiency...
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SAFE Note
SAFE NoteWhat is SAFE Note? SAFE Note—or “Simple Agreement for Future Equity”—is a form of early-stage startup financing introduced by Y Combinator in 2013. SAFE notes are financial instruments designed to str...
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Sales Capacity Planning
Sales Capacity PlanningWhat is Sales Capacity Planning? Sales Capacity Planning is a type of predictive model wherein management attempts to optimize a company’s revenue growth (the “top line”) while making efficient hiring...
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Subscription Pricing
Subscription PricingWhat is Subscription Pricing? Subscription Pricing is a business model strategy wherein customers issue payments on a recurring basis for continued access to the product, contributing toward the gener...
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Take Rate
Take RateWhat is Take Rate? The Take Rate refers to the fees collected by a third-party service platform, such as an eCommerce marketplace or payment services provider.
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Target Costing
Target CostingWhat is Target Costing? Target Costing is a market-driven pricing strategy where a company establishes the price point of a product based on achieving a set target profit margin. Given the fact that t...
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The Rule of 40
The Rule of 40What is the Rule of 40? The Rule of 40 states that, at scale, the combined value of revenue growth rate and profit margin should exceed 40% for healthy SaaS companies.
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Tiered Pricing
Tiered PricingWhat is Tiered Pricing? Tiered Pricing—or “Tier-Based Pricing”—is a strategic pricing model implemented by SaaS and subscription-based businesses to offer their product offerings at different price po...
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Total Addressable Market (TAM)
Total Addressable Market (TAM)What is TAM? The Total Addressable Market (TAM) is the estimated market demand for a certain product or service, which can be used to size the implied revenue opportunity attributable to a particular...
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Total Contract Value (TCV)
Total Contract Value (TCV)What is Total Contract Value (TCV)? The Total Contract Value (TCV) represents the full value of a customer’s contract across an agreed-upon term, inclusive of all recurring revenue and one-time fees.
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Total Order Value (TOV)
Total Order Value (TOV)What is Total Order Value (TOV)? Total Order Value (TOV) represents the gross monetary value of all orders placed by customers over a specified period.
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Trial Conversion Rate
Trial Conversion RateWhat is Trial Conversion Rate? The Trial Conversion Rate is a SaaS KPI that measures the percentage of free users that convert to paid users over a predefined period. In practice, the trial conversion...
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Unicorn Startup
Unicorn StartupWhat is a Unicorn Startup? A Unicorn Startup in the venture capital (VC) industry is a term that refers to a private startup that has obtained a total valuation in excess of $1 billion.
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Upselling
UpsellingWhat is Upselling? Upselling refers to the strategies implemented by businesses to generate incremental revenue from their existing customer base, rather than acquiring new customers.
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Venture Capital Due Diligence
Venture Capital Due DiligenceWhat is Due Diligence in Venture Capital? Venture Capital Due Diligence is performed by investors when evaluating potential investments in early-stage startups, which encompass substantial risks. Cons...
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Venture Capital Term Sheet (VC)
Venture Capital Term Sheet (VC)What is a VC Term Sheet? The VC Term Sheet establishes the specific conditions and agreements of venture investments between an early-stage company and venture firm. The term sheet is short, usually l...
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Venture Capital Valuation (VC)
Venture Capital Valuation (VC)What is Venture Capital Valuation? In Venture Capital Valuation, the most common approach is called the Venture Capital Method by Bill Sahlman, which we’ll provide an example calculation in our...
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Venture Debt
Venture DebtWhat is Venture Debt? Venture Debt is a form of flexible, non-dilutive financing offered to startups to extend their implied cash runway and fund near-term working capital needs until their next round...
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Viral Coefficient
Viral CoefficientWhat is Viral Coefficient? The Viral Coefficient (K-Factor) is an estimate of the number of new users that the average customer can refer to using a company’s product or services. While there are vari...