Plain-language definitions of 30 key terms every founder should know — from fundraising instruments to operating metrics to equity concepts.
Business-to-business software as a service. A company that sells recurring software subscriptions to other businesses rather than to consumers. B2B SaaS companies typically have longer sales cycles, higher contract values, and lower churn than consumer products.
The rate at which a startup spends its cash reserves, expressed as a monthly figure. Net burn is revenue minus expenses; gross burn is total expenses before revenue. Investors use burn rate alongside runway to assess how much time a company has before it needs to raise or reach profitability.
Short for capitalization table. A spreadsheet or ledger that tracks who owns what percentage of a company, including founders, employees (through option pools), and investors. A clean cap table is essential for future fundraising — investors want to understand the ownership structure before writing a check.
See also: how to read a startup cap table.
The percentage of customers (or revenue) lost in a given period, typically monthly or annually. High churn is the primary killer of SaaS businesses — it means the product isn't delivering enough value for customers to stay. Vertical SaaS companies typically achieve lower churn than horizontal competitors because of deeper workflow integration.
See also: SaaS churn rate benchmarks and how to reduce churn.
A short-term debt instrument that converts into equity at a future financing round. Like a SAFE, it delays valuation negotiation. Unlike a SAFE, a convertible note accrues interest and has a maturity date, which creates legal obligations if the company hasn't raised a priced round by that date.
See also: convertible note vs. SAFE — what's the difference?
The total cost to acquire one new customer, including sales, marketing, and related overhead. CAC is most meaningful in relation to LTV (lifetime value). A healthy SaaS business typically targets an LTV:CAC ratio of 3:1 or higher. Vertical SaaS companies often achieve better CAC than horizontal competitors because they can focus outbound on a defined buyer profile.
How equity in a startup is divided among its founders at formation. There is no universally correct split — it depends on relative contributions, risk taken, and timing. Equal splits are common and defensible. Unequal splits should reflect meaningful differences in contribution. Most investors prefer to see all founders on vesting schedules regardless of split.
See also: how to split equity with a co-founder.
The reduction in a shareholder's ownership percentage that occurs when a company issues new shares — typically at a fundraising round or when expanding an employee option pool. Dilution is normal and expected; what matters is whether the total value of your ownership (percentage × company valuation) is increasing.
See also: equity dilution explained for first-time founders.
The practice of founders conducting sales calls and closing deals themselves, rather than delegating to a sales team. Most investors expect founders to run sales through the pre-seed and seed stages. Founder-led sales produces better product feedback, establishes authentic relationships with early customers, and helps the company understand what's actually driving conversions before hiring.
See also: founder-led sales — how to sell before you have a sales team.
The degree to which a founder's background, experience, and network make them uniquely suited to solve a specific problem. Strong founder-market fit typically means 10+ years inside a vertical, direct relationships with the target buyers, and firsthand experience with the broken workflow the product will fix.
The strategy a company uses to bring a product to market and reach its target customers. For early-stage vertical SaaS companies, GTM typically starts with founder-led outbound to known buyers in the vertical, progresses through design partners and early paying customers, and eventually adds inbound, content, and channel partnerships.
See also: the GTM playbook for vertical SaaS startups.
The smallest version of a product that delivers enough value to real users to generate meaningful feedback. An MVP is not a prototype and not a full product — it is the minimum set of features required to test the core hypothesis. Founders often over-build their first product; the goal of an MVP is learning, not completeness.
See also: how to build an MVP for a B2B SaaS startup.
The percentage of recurring revenue retained from existing customers over a period, including expansions, contractions, and churn. An NRR above 100% means your existing customer base is growing even without new customers. Best-in-class vertical SaaS companies achieve 110–130%+ NRR. It is often the single most important metric for SaaS valuation.
See also: B2B SaaS metrics every founder should track.
A founder without software engineering skills. Non-technical founders with deep domain expertise can build exceptional vertical SaaS companies — but they need a reliable way to build the product (technical co-founder, dev shop, or venture studio). The risk is being held hostage to a vendor or co-founder relationship that doesn't work.
See also: how to find a technical co-founder.
A founder who has spent years working inside an industry before starting a company in it. Operator founders have firsthand knowledge of buyer workflows, buyer psychology, and the real pain points that software could solve. This stands in contrast to a "tourist founder" who spotted a gap from the outside. Alder VC exclusively backs operator founders.
See also: from domain expert to founder — making the transition.
The earliest stage of institutional funding, typically ranging from $250K to $2M. Pre-seed is raised before a company has significant revenue or traction, often on the strength of the founding team and a credible thesis. Investors at this stage are betting primarily on the founders' ability to execute, not on a proven business.
The degree to which a product satisfies strong market demand. The classic signal is when customers are pulling the product out of your hands — high retention, word-of-mouth growth, and buyers who are genuinely upset at the prospect of the product going away. PMF is not a single moment; it's a spectrum that you approach and then strengthen.
See also: how to find product-market fit in a vertical SaaS company.
A founder who has previously started and exited (or failed with) at least one company. Repeat founders are often preferred by investors because they've navigated the early stages before. That said, Alder VC backs first-time founders with deep operator experience — domain expertise matters more than prior founding experience at the pre-seed stage.
A form of non-dilutive funding where a company receives capital in exchange for a percentage of future revenue until a fixed multiple of the original amount is repaid. Suited for companies with predictable recurring revenue who don't want to give up equity. Less common at the pre-seed stage; more relevant post-product-market fit.
The number of months a company can operate before running out of cash, calculated as cash in bank divided by monthly net burn. Most investors advise maintaining 18+ months of runway at all times and beginning the next fundraise when you have 9–12 months left. Running out of runway without a bridge kills companies that might otherwise have succeeded.
Simple Agreement for Future Equity. A financing instrument invented by Y Combinator that gives investors the right to convert their investment into equity at a future priced round. SAFEs have no interest rate and no maturity date, making them simpler than convertible notes for very early fundraising. Most pre-seed rounds today use SAFEs.
See also: convertible note vs. SAFE — what's the difference?
The first significant institutional funding round, typically ranging from $1M to $4M. Seed rounds are raised after a company has demonstrated early product-market fit signals — often a small number of paying customers, strong retention, and a clear go-to-market thesis. Alder VC helps founders prepare for and execute the seed raise as part of the studio engagement.
See also: how to raise seed funding for a vertical SaaS company.
The first major institutional funding round, typically ranging from $5M to $20M. Series A investors expect the company to have demonstrated product-market fit, strong NRR, a repeatable sales motion, and a clear plan for using capital to scale. The gap between seed and Series A is where many startups stall.
Equity granted to advisors in exchange for ongoing advice, introductions, or expertise. Standard advisor grants range from 0.1% to 0.5% depending on the advisor's seniority, the stage of the company, and the expected time commitment. Advisor equity typically vests over 1–2 years with no cliff.
The process by which investors verify the information a startup has provided before closing an investment. Due diligence covers cap table, financials, customer contracts, IP ownership, team background, and competitive landscape. At the seed stage, due diligence is lighter than at Series A or beyond, but founders should be prepared to share documentation quickly.
The agreed-upon value of a startup at a given fundraising round. Pre-money valuation is the company's value before new capital is added; post-money is after. At the pre-seed and seed stages, valuations are largely negotiated based on team quality, market size, and traction rather than on revenue multiples. SAFEs and convertible notes defer the valuation question to a future priced round.
A non-binding document outlining the key terms of a proposed investment, including valuation, investment amount, investor rights, board composition, and anti-dilution provisions. Term sheets are the starting point for negotiation — the final legal documents (subscription agreement, shareholders agreement) are what actually bind the parties.
See also: how to read a seed round term sheet.
An organization that builds companies from scratch alongside founders, contributing engineering, design, GTM, and capital in exchange for equity. Unlike a VC fund that writes checks and steps back, a venture studio is an active co-builder. Unlike an accelerator, there's no cohort, no demo day, and no one-size-fits-all curriculum.
See also: what is a venture studio? — a full explainer.
Software built for a specific industry vertical — construction, logistics, healthcare, legal, agriculture — rather than for a broad horizontal market. Vertical SaaS companies benefit from deep workflow integration, higher switching costs, lower CAC (because the buyer universe is well-defined), and stronger NRR than horizontal competitors. It is the primary category Alder VC builds in.
See also: the vertical SaaS founder playbook.
The timeline over which a founder or employee earns their equity. The standard schedule is four years with a one-year cliff — meaning no equity vests until 12 months in, then the remaining three years vest monthly. Vesting protects co-founders and the company from an early departure that would otherwise leave a large equity stake in the hands of someone no longer contributing.
See also: founder vesting schedules explained.
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