Corporate finance glossary for founders

A 13-week cash flow forecast projects the cash coming into and going out of your bank account, week by week, over one rolling quarter.

It uses the direct method, receipts minus payments, so it shows the real closing cash balance each week rather than accounting profit. Updated every week, it usually gives several weeks of warning before a shortfall.

Example: You start week 1 with €200,000, expect €60,000 of receipts and €80,000 of payments, and close the week at €180,000. If that pattern holds, cash reaches zero in week 10, and you can see it coming in week 1.

Go deeper: what a 13-week cash flow forecast is and how to build one

Anti-dilution protection is a clause that lowers an investor's conversion price if the company later raises money at a lower price per share.

The common, founder-friendlier form is broad-based weighted average, which reprices the investor only partly. Full ratchet reprices their whole stake to the new, lower price and can move a large slice of ownership away from founders after one weak round.

Example: An investor paid €2.00 per share and the next round is priced at €1.00. Under full ratchet, their conversion price drops to €1.00, so their share count doubles. Under a broad-based weighted average, it lands between €1.00 and €2.00, depending on how much new money comes in at the lower price.

Go deeper: down rounds, bridge financing and how anti-dilution clauses apply

ARR, annual recurring revenue, is the yearly value of the subscription or contract revenue you expect to repeat, excluding one-off fees.

It is usually MRR multiplied by 12, and it is the base most investors use to compare and value subscription businesses. Setup fees, services and one-time sales stay out of it.

Example: 200 customers each paying €500 a month give MRR of €100,000 and ARR of €1.2 million. A €20,000 one-off setup project in the same year does not count.

Go deeper: what ARR multiple SaaS companies get in 2026

Blended CAC is your total marketing and sales spend divided by all new customers in the same period, whether they came from paid ads or not.

Because it counts every new customer, including referrals and organic search, it cannot be double-counted by ad platforms. Use it, together with MER, to steer the total budget.

Example: €50,000 of total spend and 500 new customers in a month give a blended CAC of €100, even if the ad platforms together claim credit for 600 customers.

Go deeper: ROAS vs MER vs blended CAC, and which one to steer by

A budget is the fixed plan you commit to for the year, while a forecast is your best current estimate of what will actually happen, updated as real numbers arrive.

The budget sets targets and accountability; the forecast guides decisions. Keep the two separate, so the gap between them, the variance, stays visible.

Example: Your budget says €1.0 million of revenue this year. After six months, the forecast says €900,000. The budget stays at €1.0 million, and the €100,000 gap is what you explain to your board.

Go deeper: the difference between a budget and a forecast

The burn multiple is net burn divided by net new ARR over the same period, showing how much cash you spend to add each unit of recurring revenue.

It tests growth efficiency. A common reading: under 1x is excellent, 1–2x is healthy, and above 2x suggests growth is being bought too expensively.

Example: You burned €600,000 last quarter and added €400,000 of net new ARR, so your burn multiple is 1.5x.

Go deeper: what a good burn rate and burn multiple look like

Burn rate is the cash a company spends each month: gross burn is total monthly cash out, and net burn is gross burn minus the cash that comes in from revenue.

Runway is always calculated on net burn, because that is what your bank balance actually loses. Investors also read gross burn to judge cost discipline and what happens if revenue drops.

Example: You spend €120,000 a month and collect €70,000 from customers. Gross burn is €120,000 and net burn is €50,000.

Go deeper: gross burn vs net burn, and why investors read both

CAC, customer acquisition cost, is what you spend on sales and marketing to win one new customer.

A fully loaded CAC includes sales salaries, tools and agency fees, not just ad spend, so it shows the real cost of growth. Compare it with what a customer is worth (LTV) and how fast you earn it back (CAC payback).

Example: €30,000 of ad spend plus €20,000 of sales salaries and tools, divided by 100 new customers, gives a fully loaded CAC of €500.

Go deeper: the financial KPIs a founder should track every month

The CAC payback period is the number of months it takes for the gross profit from a new customer to repay what you spent to acquire them.

It is CAC divided by the monthly gross profit per customer. A shorter payback means growth recycles cash faster; under 12 months is generally read as strong.

Example: A CAC of €600 and a customer paying €100 a month at a 75% gross margin (€75 of gross profit) give a payback of 8 months.

Go deeper: the SaaS metrics investors weight most

The cash conversion cycle is the number of days between paying your suppliers and collecting cash from your customers.

It is days inventory outstanding plus days sales outstanding minus days payables outstanding (DIO + DSO − DPO). The longer the cycle, the more cash is tied up in running the business; you shorten it by selling inventory faster, collecting sooner and paying suppliers later.

Example: Inventory sits for 60 days, customers pay in 10 days and you pay suppliers in 30 days: 60 + 10 − 30 gives a 40-day cycle.

Go deeper: how to calculate and shorten the cash conversion cycle

Churn is the share of customers, or of recurring revenue, that you lose in a given period.

Customer churn counts lost accounts; revenue churn counts lost revenue, and downgrades (contraction) are often tracked next to it. Small monthly rates compound: 3% a month loses roughly 30% of customers over a year.

Example: You start the month with 400 customers and 12 cancel, so monthly customer churn is 3%.

Go deeper: forecasting revenue with a waterfall of new, expansion and churned revenue

Contribution margin is revenue minus all the variable costs of making a sale, which is the money left to pay fixed costs and fund growth.

It is often split into layers: CM1 is revenue minus the cost of goods, CM2 also subtracts fulfilment, shipping and payment fees, and CM3 also subtracts marketing spend. CM3 shows whether each extra sale makes you richer or poorer.

Example: A €100 order with €40 of goods, €15 of shipping and fees and €25 of ad spend leaves CM1 of €60, CM2 of €45 and CM3 of €20, a 20% contribution margin after marketing.

Go deeper: the contribution margin math behind unit economics

A convertible loan is money lent by an investor that turns into shares at the next priced funding round, usually at a discount or a valuation cap, instead of being repaid in cash.

In Germany it is called a Wandeldarlehen and is the usual early-stage instrument for a GmbH or UG, because German company law has no pool of authorised shares a SAFE could convert into automatically. Until it converts, it sits on the balance sheet as debt.

Example: An investor lends €100,000 with a 20% discount. The next round prices shares at €10, so the loan converts at €8 per share into 12,500 shares (interest left aside).

Go deeper: Wandeldarlehen vs SAFE for a German startup

A data room is a secure online folder where you share the documents investors or buyers need to check your company before they commit.

For a fundraise it usually covers the company overview, financials, cap table and equity, legal and corporate records, team, product, commercial traction and prior funding documents. Access control and current, well-labelled files matter more than expensive software.

Example: An early-stage data room might hold around 30 documents across those eight folders, with view-only access for each investor and a log of who opened what.

Go deeper: what to put in a startup data room for fundraising

Dilution is the drop in an existing shareholder's ownership percentage when the company issues new shares.

Your number of shares stays the same, but it becomes a smaller slice of a larger total. If the round raises the company's value enough, the smaller slice can still be worth more.

Example: You hold all 1,000,000 shares. The company issues 250,000 new shares to an investor, so you now hold 1,000,000 of 1,250,000 shares, which is 80%.

Go deeper: how pre-money and post-money valuation decide your dilution

Due diligence is the check an investor, lender or acquirer runs on your finances, legal position, customers and team before committing money.

It tests whether what you said in your investor materials holds up against your documents. Investors increasingly use software to cross-check a data room in hours, so inconsistent numbers get found fast.

Example: An investor compares your model with your bank statements. The model shows €80,000 of monthly revenue and the bank shows €65,000 collected, so you will be asked to explain the €15,000 gap, which may be timing or may be a real problem.

Go deeper: how AI is changing due diligence for fundraises and exits

EBITDA is earnings before interest, taxes, depreciation and amortisation, a rough measure of operating profit before financing and accounting choices.

Acquirers and lenders use it to compare profitability across companies with different debt levels and asset bases, and larger businesses are often valued as a multiple of it. Unlike SDE, it does not add back a manager's salary.

Example: Net profit of €300,000 plus €50,000 of interest, €100,000 of tax and €50,000 of depreciation and amortisation gives EBITDA of €500,000. At an illustrative 5x multiple, that points to an enterprise value of €2.5 million.

Go deeper: SDE and EBITDA multiples explained

A liquidation preference sets who gets paid first, and how much, when the company is sold or wound up.

The usual standard is 1x non-participating: the investor takes either their money back or their percentage of the proceeds, whichever is higher. Multiples above 1x, or participating terms, take a larger share of a modest exit.

Example: An investor put in €2 million for 20% with a 1x non-participating preference. If the company sells for €5 million, they take €2 million rather than 20% (€1 million). If it sells for €50 million, they take their 20%, €10 million.

Go deeper: the liquidation preference and the other term sheet clauses that matter most

LTV, customer lifetime value, is the gross profit you expect from a customer over the whole relationship, and the LTV:CAC ratio compares it with what you paid to win that customer.

A rough LTV is monthly revenue per customer times gross margin, divided by monthly churn. Around 3:1 is the common working floor; a ratio well above 5:1 can mean you are under-investing in growth.

Example: A customer pays €100 a month at an 80% gross margin and monthly churn is 2%, so LTV is €100 × 0.8 ÷ 0.02 = €4,000. With a CAC of €1,000, LTV:CAC is 4:1.

Go deeper: Rule of 40, LTV:CAC and burn multiple, the metrics investors read first

ROAS, return on ad spend, is the revenue one ad channel claims divided by that channel's spend, while MER, marketing efficiency ratio, is total revenue divided by total marketing spend.

Ad platforms tend to overstate ROAS, because several channels claim the same sale. MER cannot be double-counted, so use it to set the overall budget and use channel ROAS only to split that budget between channels.

Example: Total revenue of €400,000 on €100,000 of marketing spend is an MER of 4.0. One channel may report €150,000 of revenue on €30,000 of spend, a ROAS of 5.0, but other channels may claim some of the same sales.

Go deeper: the difference between ROAS, MER and blended CAC

MRR, monthly recurring revenue, is the subscription or contract revenue you expect to repeat every month.

Founders track how it moves as a waterfall: starting MRR plus new and expansion MRR, minus churned and contraction MRR, equals ending MRR. Multiply it by 12 for ARR.

Example: Start at €50,000, add €6,000 of new and €2,000 of expansion MRR, lose €3,000 to churn and €1,000 to downgrades, and ending MRR is €54,000.

Go deeper: how to forecast recurring revenue bottom-up with an MRR waterfall

Net revenue retention is the share of recurring revenue you keep from existing customers over a period after expansion, downgrades and churn, leaving new customers out.

It is (starting MRR + expansion − churn − contraction) ÷ starting MRR. Above 100% means existing customers grow on their own; below 100% means growth depends entirely on winning new ones.

Example: Starting MRR of €100,000, plus €12,000 of expansion, minus €5,000 of churn and €2,000 of contraction, gives €105,000, so NRR is 105%.

Go deeper: how growth and net revenue retention move valuation multiples

Non-dilutive funding is money raised without selling shares, so existing owners keep their ownership percentage.

It includes grants, R&D tax credits, revenue-based financing, invoice and inventory financing, bank loans and customer prepayments. Venture debt is close to non-dilutive: lenders usually take small warrants. Each is priced against something other than equity, such as your research, revenue, receivables or inventory, and most of it must be repaid.

Example: A company takes a €200,000 grant and a €300,000 bank loan. The founders still own the same percentage as before, but the loan adds monthly repayments to the cash forecast.

Go deeper: nine ways to grow without giving up equity

An option pool is a block of shares, or virtual shares, set aside for future employee equity grants.

Investors often ask for the pool to be created before their money comes in, in the pre-money, which means existing shareholders carry all of its dilution. Size it from a real hiring plan rather than a default percentage.

Example: On a €10 million pre-money valuation, a pool worth 15% of the pre-money is carved out before the investment, so the founders' existing shares are effectively valued at €8.5 million, not €10 million.

Go deeper: option pool size and timing in a term sheet

Post-money valuation is the company's value immediately after a funding round, which is the pre-money valuation plus the new money invested.

An investor's ownership equals their investment divided by the post-money valuation. Many offers quote a post-money figure, so check which of the two you are being offered.

Example: €1 million invested at a €10 million post-money valuation gives the investor 10%, and the pre-money valuation was €9 million.

Go deeper: pre-money vs post-money valuation explained

Pre-money valuation is the value agreed for your company before the new investment is added.

It sets the price per share in the round. The same headline number gives away less ownership when it is pre-money than when it is post-money.

Example: €1 million invested at a €10 million pre-money valuation makes the post-money €11 million, so the investor gets about 9.1%, not 10%.

Go deeper: how investors value a startup before it has revenue

Pro rata rights give an investor the option to put money into future rounds so they can keep their ownership percentage.

They are a right, not an obligation. They matter because they reserve part of each future round for existing investors, which leaves less room for new ones, and because existing investors taking up their pro rata is a signal new investors notice.

Example: An investor owns 10% and the next round is €5 million. Full pro rata lets them put in up to €500,000 of it.

Go deeper: managing investor relationships between funding rounds

Revenue-based financing is capital repaid as a fixed share of monthly revenue until an agreed total, usually a multiple of the amount advanced, has been paid back.

There is no equity or board seat involved, and repayments slow down when revenue dips. The cost is real: depending on how fast you repay, the effective annual cost commonly works out at 20–60%.

Example: You receive €200,000 with a 1.4x cap and repay 10% of monthly revenue. You pay back €280,000 in total, and at €100,000 of monthly revenue that takes 28 months.

Go deeper: what revenue-based financing is and what it really costs

The Rule of 40 says a software or subscription company's revenue growth rate plus its profit margin should add up to 40% or more.

It balances growth against profitability: a fast grower can afford losses, and a slow grower should be profitable. Investors usually use EBITDA or free cash flow margin for the profit part.

Example: 50% growth with a −10% margin scores 40. 15% growth with a 25% margin also scores 40. 20% growth with a −5% margin scores 15 and falls short.

Go deeper: why the Rule of 40 moves valuation more than revenue does

Runway is the number of months your company can keep operating at its current net burn before the cash runs out.

It is cash in the bank divided by average monthly net burn; use a three-month average and leave out one-off inflows. A funding round usually takes months to close, so start raising well before runway gets short.

Example: €600,000 in the bank and a net burn of €50,000 a month give 12 months of runway.

Go deeper: how to calculate startup runway and burn rate

A SAFE, simple agreement for future equity, is a US investment contract in which an investor pays now and receives shares at the next priced round, usually with a valuation cap or a discount.

It is not debt, so there is no interest and no repayment date. It relies on US company law; a German GmbH usually uses a convertible loan (Wandeldarlehen) instead.

Example: An investor puts €200,000 into a SAFE with a €4 million post-money cap. At conversion they own 5% (€200,000 ÷ €4,000,000), before the new round dilutes everyone.

Go deeper: how a seed round is raised, on SAFEs or priced equity

Scenario analysis changes several assumptions in a financial model together to describe a coherent possible future, usually a base, best and worst case.

It answers the question: what happens to cash if this whole story plays out? It works best after sensitivity analysis has shown which drivers matter most.

Example: A worst case combines a 20% sales drop, a 10% cost rise and customers paying 60 days late, then shows the week in which the cash balance would turn negative.

Go deeper: how to stress-test a company's finances for a downturn

SDE, seller's discretionary earnings, is EBITDA plus the owner's salary and benefits and any one-off or personal costs run through the business.

Acquirers of smaller owner-run businesses use it because a new owner will step into the seller's role, so the seller's pay is really profit available to them. Larger, team-run companies are valued on EBITDA instead.

Example: Pre-tax profit of €150,000 plus €10,000 of interest and €20,000 of depreciation gives EBITDA of €180,000. Adding back a €90,000 owner salary and €10,000 of one-off legal costs gives SDE of €280,000.

Go deeper: how SDE and EBITDA multiples set a sale value

Sensitivity analysis changes one assumption at a time to show which driver moves your financial model the most.

It tells you where to focus. The five to seven inputs with the biggest effect deserve the most research and become the basis of your scenarios.

Example: In a model, one extra point of monthly churn cuts year-end cash by €150,000, while a 10% rise in salaries cuts it by €40,000, so churn is the assumption to research first.

Go deeper: scenario vs sensitivity analysis in a financial model

A term sheet is a short, mostly non-binding document that sets out the main terms of an investment before the full legal documents are drafted.

The terms that matter most are valuation, liquidation preference, option pool, anti-dilution, pro rata rights and board composition. Exclusivity and confidentiality are usually binding, so prepare your data room before you sign.

Example: A term sheet might offer €2 million at an €8 million pre-money valuation, a 1x non-participating preference, a 10% option pool and one investor seat on a three-person board.

Go deeper: the most important terms in a VC term sheet

A three-statement model links the income statement, balance sheet and cash flow statement, so a change in one flows correctly through the other two.

Net income from the income statement feeds retained earnings and starts the cash flow statement; changes in receivables and payables drive operating cash; ending cash returns to the balance sheet. If the balance sheet does not balance, the model has an error.

Example: You book €100,000 of sales on 60-day payment terms. Profit rises by €100,000 this month, receivables rise by €100,000, and cash does not move until the customer pays (costs left aside).

Go deeper: how the three financial statements link together in a model

Treasury management is how a company holds, protects and earns a return on its cash while keeping enough of it available to pay the bills.

A simple policy splits cash into tiers: operating cash in the main bank, then reserve and strategic cash spread across other banks and low-risk instruments, and only true surplus put to work for yield. Safety and access come first, return second.

Example: With €3 million in cash and €200,000 of monthly outgoings, you might keep around €300,000, about six weeks of outgoings, in the main account and spread the rest across reserve accounts at other banks, money-market funds and short-dated government bills.

Go deeper: where a startup should keep its cash

Unit economics is the revenue and cost of a single unit of your business, such as one customer, one order or one subscription, showing whether each sale makes or loses money.

If one unit loses money after variable costs, growth makes losses bigger, not smaller. The usual measures are contribution margin per order, CAC, LTV and CAC payback.

Example: Each order brings €80 of revenue and €60 of variable costs, marketing included, so each order contributes €20. At 1,000 orders a month, that is €20,000 towards fixed costs.

Go deeper: how unit economics show whether a company is ready to scale

Venture debt is a loan for venture-backed companies, usually taken shortly after an equity round, that extends runway without selling many more shares.

Lenders charge interest and take warrants, typically worth roughly 0.5–2% of equity, so it is only lightly dilutive. It is commonly sized at 20–35% of the latest round and works best when it bridges to a clear milestone.

Example: After raising €5 million, a company adds €1.5 million of venture debt. At a net burn of €250,000 a month, that adds six months of runway.

Go deeper: when venture debt makes sense and how dilutive it is

An ESOP, employee stock option plan, gives employees options on real shares, while a VSOP, virtual stock option plan, promises a cash payment that tracks the value of a share, without making the employee a shareholder.

VSOPs are common in Germany because they need no notary and add nothing to the cap table; tax changes in 2024 made real-share plans more workable there. Either way, grants usually come out of the option pool and dilute founders economically.

Example: An employee holds virtual options equal to 0.5% of the company. If the company sells for €40 million, the VSOP pays out about €200,000 in cash, minus any agreed strike amount.

Go deeper: VSOP vs ESOP in Germany after the 2024 tax changes