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Glossary

Assumption is a commonly used, ‘plain English’ word. So why have we included a definition here?

The Collins Dictionary defines the meaning as follows: “If you make an assumption that something is true or will happen, you accept that it is true or will happen, often without any real proof.”

This is problematic because the term ‘real proof’ is subjective.

For example, when we have spent many years in an industry, navigating a problem and speaking to people who agree it’s a problem, we often consider that to be ‘real proof’ that there’s a market for our solution. Unfortunately, we also run the risk of bias - asking biased questions or people, for example. So during Discovery, we pursue an objective standard of ‘real proof’ and either enable founders to carry out unbiased, formal, research themselves or do it on their behalf.

Sometimes founders are surprised by the results, sometimes they just learn a little more, but the most valuable part of this process is that investors LOVE this objective standard of ‘real proof’.

Customer Acquisition Cost, one of the most important metrics investors consider. CAC is a measure of how much it costs to bring a new customer on board. It’s calculated by the total of sales and marketing spend divided by the number of new customers that spend has generated. See also - LTV:CAC ratio.

The monetary value of the resources (e.g. sales and marketing) needed to convert a potential customer to a live customer. Typically compared with the LTF to form the LTF:CAC ratio.

Funds lent to a company by an institution in the form of a loan which requires interest payments and the eventual repayment of the loan. Increasingly flexible options are now available through various FinTech companies.

A Delivery Manager facilitates the timely production of software through the effective management of team members and work schedules. They clear any impediments that may slow down their team's progress on a project and set the timelines on which products will be delivered.

Find out more about Delivery Managers here.

Dilution occurs when external funds are raised - with new shares issued to investors in exchange for cash. If a founder owned 500 out of 1,000 shares (50% ownership), but 500 new shares were issued in a pre-seed round to raise funds, once the round closed the founder would only own 500 out of 1,500 shares (33% ownership). This represents equity dilution.

When a company's valuation is lower than the valuation that was set in the previous funding round. Valuations are expected to increase with every funding round, so a down round can be a very negative signal to existing and prospective investors.

Due Diligence is an in-depth analysis of a business undertaken by a prospective buyer or investor. It investigates the company’s health by analysing assets, liabilities, financial information and evaluating its commercial potential.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This metric is a core measure of a company's financial performance and profitability. Is also useful for comparing similar businesses or trying to determine a company's cash flow potential.

In its simplest form, equity represents ownership of a company, with equity stakes of a company being held by shareholders. When a start-up raises funds, they issue equity in the form of new shares to investors in exchange for cash. Different classes of equity exist that give the shareholders different voting rights, i.e. class A and class B shares.

An exit occurs when a founder or investor sells the majority of their shares (typically all of their shares) to another party. Exits most commonly occur when either a much larger company operating in the same sector buys the start-up, known as a 'trade exit’; when a Private Equity firm buys a majority of the start-up, known as a 'PE buyout’; or, for the lucky few, the start-up launches an IPO and lists on a stock exchange.

A privately held company that manages and invests the wealth of ultra-high net worth families. Usually with tens of millions of pounds available to invest. Can be comprised of the wealth of a single family, or several families together all managed by the same Family Office. Historically private, risk-averse investors, there's increasing interest in investing into early-stage ventures offering higher returns, like start-ups.

The financial projections of a start-up, typically covering the next 3-5 years. A financial model should include at a minimum a P&L, cashflow detail and key balance sheet items - with more advanced financial models having a full P&L, cashflow statement and balance sheet for the whole 3-5 year period.

The first time a founder raises capital outside of their own savings - raising funds from their family and close personal network. Founders may need this funding to get to prototype or MVP stage. Generally, investors in the pre-seed round want to see that founders have raised some cash from their friends and family. Round sizes vary, but usually the first £5-75k will come from here and the Founder's own investment.

Defined by the Financial Conduct Authority as someone with an income greater than £100k per year, or net assets (excluding primary residence) greater than £250k. HNWs investing in start-ups are angel investors, bringing funds and expertise to a start-up.

Ideal Customer Profile is a hypothetical description of the perfect customer or business your company could have as a client. These tend to have the quickest sales cycle, the greatest customer retention rates and the highest number of advocates for your brand. ICP is very useful if your business utilizes ABM (account-based marketing) as it helps you focus on selling to targeted accounts that fit your company. 

Intellectual Property covers patents, trademarks and copyrights. It is a good way to protect your “secret sauce”. Think of it like this:
• Patents: the DNA of your product. They are typically used to protect your design.
• Trademarks: they are used to protect your brand. Depending on which one you register, you can add a “™ “ or “®” (Registered Trademark) next to your logo.
• Copyright: they are used to protect your creative content (like film, music or art) and it allows you to use a “©” symbol on your content.

The monetary value an individual customer will bring to a company over the course of their time using/purchasing the company's services and products. Typically compared with the CAC to form the LTF:CAC ratio.

Lifetime Value, sometimes referred to as Customer Lifetime Value (CLTV). This is a crucial metric to measure and monitor. It represents the gross profit a customer is expected to generate throughout the whole time you expect them to be a customer of your business. See also - LTV:CAC ratio.

This metric measures how much value a customer will generate over their lifetime with your business compared to how much sales and marketing spend is required to attract them to be a customer in the first place. Different sectors have different benchmarks, but a minimum ratio of 3:1 is a good minimum ratio to aim for.

Non-Executive Director. It's someone who sits on the board, bringing expertise and balance of opinion, but it's not involved in the day to day tactics like a typical Director would be.

Short for Private Equity.

The valuation of a company including the most recent round of financing raised. If a company raised £500,000 at a pre-money valuation of £4.5m, the post-money valuation includes the funds raised, which would make it £5m. Post-money valuation is used to determine equity ownership %.

The valuation that a company raises funds at, excluding the value of the funds they are seeking in their current round. This is the valuation founders will tell investors, i.e. "We are raising £500,000 at a pre-money valuation of £4.5m". Pre-money valuation is often shortened to just "pre", i.e. "We are raising £500,000 at a £4.5m pre". When the £500k is raised, it is added to the pre-money valuation of £4.5m to create the post-money valuation.

Where a start-up is not generating any revenue. They may have no customers and still be developing their MVP, or they could have a launched product but are more interested in onboarding customers using it to learn from their feedback, as opposed to charging for it.

Follows the Friends & Family round, this round is the first time external investors are brought in. Some form of prototype or MVP is expected (but this can vary by sector). Typically angel investors make up most of this round, but SEIS/EIS funds and some very early-stage VC funds. Round sizes can vary, but generally this round seeks to raise £150-500k.

Private Equity (PE) as a general term refers to shares that aren't listed on a public exchange. PE funds are institutions that specialise in making large investments in late-stage companies.

A Product Manager is a professional responsible for the development of products for an organisation. Product Managers own the business strategy behind a product, specify its functional requirements, and generally manage the launch of features.

Find out more about Product Managers here.

A prototype is an early sample, model or release of a product built to test a concept or process. It is a term used in a variety of contexts, including semantics, design, electronics, and software programming. A prototype is generally used to evaluate a new product or feature with an end user to gather feedback and insight to inform your next move.

Read more about prototypes here.

QA stands for Quality Assurance. QA Engineers (also QA Testers or QA Analysts) examine and evaluate every application to identify errors and user-experience problems, as well as prevent software regressions.

Find out more about QAs here.

A concept used by both founders and investors to determine how much value will be generated by an investment. Founders need to consider for example the value of the return they will see by investing in new features or staff, whereas an investor will consider what their equity stake could be worth on exit against their original investment.

The way by which a start-up generates or plans to generate revenue.

Software as a Service - a model whereby software is licensed to customers on a subscription basis.

SAM, or Serviceable Available Market, is the segment of the Total Available Market (TAM) targeted by your products and services that's within your geographical reach.

Follows the Pre-seed round. Angels can still invest in this round but expect more interest from funds and early-stage VC. Some degree of commercial traction and revenue is expected at this stage, but this can vary depending on the sector. Round sizes vary but can be £500k-2m. Bridging rounds between Seed and Series A exist in different forms, such as 'late seed' and 'growth' rounds.

Following the Seed round, the Series A round is usually led by Venture Capital funds, given the amount of capital being raised and higher valuations; as such expect rigorous a due diligence process. Companies raising a Series A round are usually revenue-generating, but can still be pre-profit. Round sizes can vary, but generally north of £3m.

Servant-leadership is an important behaviour skill required for projects developed in Agile. At Founder and Lightning, the Delivery Managers act as servant-leader - they lead a team as a servant, putting team members’ needs above theirs. As a result, this creates a more positive and productive work environment, which improves productivity and performance.

Software regression is when an active piece of software or feature stops working. It usually happens after changes or updates in the code that didn’t pass acceptance criteria on QA (quality assurance) testing.

SOM, or Serviceable Obtainable Market, is the portion of Serviceable Available Market (SAM) that you can capture - that means, it's your short-term target.

TAM, or Total Available Market, is the total market demand for a product or service.

Technical Spike is a type of user story that helps you evaluate options and choose the best technical approach. In other words, picking a distinct part of the product and getting it working without worrying about how it looks or how it fits into the wider product. It's a throwaway experiment to learn and to prove that something can be done in a particular technology.

A generally non-legally binding document outlining the key terms of an investment by a fund, VC and occasionally by angel investors - such as valuation, voting rights, board seats, use of funds and restrictions.

“Traction” is evidence of having found your product-market fit. Traction can be generated before you’ve built a thing - using Smoke Tests for example - but is more commonly (and robustly) demonstrated using metrics such a sign-ups, repeat use, paid-for subscriptions and renewals.

Similar to an HNW (High Net Worth Individual), but ultra High Net Worth individual will generally have a net worth in the tens of millions.

Valuation is the process of calculating the value of a company or asset using objective measures and evaluation of all aspects of the business. See also "pre-money valuation" and "post-money valuation".

Short for Venture Capital.

Waterfall is a method of building software where each phase of development is completed and fixed, before sequentially moving on to the next.

• The requirements are set and documented
• Then all the designs are fully created
• Next, all the software is built
• Before being released, the software is tested against the original requirements and designs

A white label solution is a product that offers functionality off the shelf and can be procured by other companies so that they don’t need to build a bespoke solution. The solution can usually be customised to suit a particular customer journey or functionality and can often be be embedded seamlessly into a customers existing product.

Wireframe is a draft of the layout of a page or software that's being built. It helps Designers visualise how elements are distributed in order to provide the best user experience.

Low-fidelity prototypes are also often called wireframes.

Anything as a Service - A general term referring to the delivery of a wide array of products and tools to customers on a subscription (generally) basis. This could include for example PaaS (Platform as a Service).