I had wandered into a foreign land. The people spoke a strange tongue…CAC, LTV, SMB.
How could I join their tribe and learn their ways? I consulted the oracle: Google.
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The world of startups has a language all its own. When I started angel investing last spring, I found it nearly impenetrable.
Here are some of the terms I hear, and use, the most:
ARR = Annual Recurring Revenue. If you have subscription-based revenue, this is how much revenue you would make from those subscriptions in a year.
Burn Multiple = Measures capital efficiency by comparing how much money you’re losing to how much you’re growing. More here.
CAC = Customer Acquisition Cost. Measures what it costs to get a new customer. If you have 10 customers and spent $1,000 to get them, your CAC is $100. CAC is also measured by channel (Instagram, YouTube, etc.). More here.
Cohort = Customers who signed up at a particular time, usually a calendar month. You look at that group of customers over time and see how many stayed, how many left, etc.
Churn = Customers leaving you. Churn is often measured per cohort to understand which customers are leaving and which ones are staying.
D2C = Direct to Consumer. This is a type of startup that sells a physical product to consumers — think Peloton. It’s a tough business and is avoided by most investors today.
Gross Margin = Your profit margin on each additional sale. You take the revenue and subtract costs like customer support, CAC, etc. This gives you a sense of how much profit you could make as you scale and fixed costs become less of a burden.
Land and Expand = Doing more business with existing customers, like selling them more seats for your software. Closely related to NRR (below).
LTV = Lifetime Value. Measures how much money you can expect to make from a customer. This should usually be 3 times your CAC or more. More on LTV here.
MoM = Month over month. Let’s say you doubled ARR from 2020 to 2021. Your monthly growth would be 6% MoM.
MRR = Monthly Recurring Revenue. The monthly equivalent of ARR.
NRR = Net Revenue Retention. Measures how much new revenue you’re getting from existing customers minus what you lose in churn. Especially relevant for SaaS businesses. Also called Net Dollar Retention (NDR). More here.
PMF = Product Market Fit. Do customers want what you’re selling? If so, you have it.
SMB = Small and Medium Sized Businesses. This usually means businesses with 1,000 employees or less. The term is used to describe potential customers.
SaaS = Software as a Service. Software that customers pay for by subscription. SaaS usually refers to business software, but consumer SaaS is also an important category. These are consumer subscription companies like Calm.
YoY = Year over Year (similar to MoM above).
If you know these terms, life in startupland gets a lot easier! They also provide you with helpful ways to understand a business.
What did I leave out? Leave a comment at the bottom and let me know!
More on tech:
The Top 5 Things I’ve Learned from Angel Investing
Inside the Seed Funding Slowdown
Twilight of the Quick Delivery Startups
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