Founder’s Financial Glossary
The definitive dictionary of capital engineering and startup finance terms.
409A Valuation
An independent appraisal of the fair market value (FMV) of a private company’s common stock. Required by the IRS to grant tax-free stock options to employees. A critical compliance step for any growing startup issuing equity.
Annual Recurring Revenue (ARR)
The value of the recurring revenue of a business’s term subscriptions normalized to a single calendar year. ARR is the most critical metric for B2B SaaS companies, dictating valuation multiples.
Burn Rate
The rate at which a company depletes its cash pool in a loss-generating scenario. Gross burn refers to total monthly operating costs, while net burn is the total amount of cash a company loses each month (operating costs minus revenue).
Capital Engineering
The strategic orchestration of a company’s capital stack (debt, equity, retained earnings) to optimize for growth, minimize dilution, and achieve an optimal weighted average cost of capital (WACC).
Customer Acquisition Cost (CAC)
The total cost of sales and marketing efforts required to acquire a new customer. A healthy SaaS company typically aims for an LTV:CAC ratio of 3:1 or higher.
Deferred Revenue
Money received for goods or services which have not yet been delivered or performed. On the balance sheet, it is recorded as a liability because the company still owes the service to the customer.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A standard measure of a company’s operating performance and profitability, often used as a proxy for cash flow and a basis for valuation multiples in M&A.
Fractional CFO
An experienced financial executive who provides strategic, part-time financial leadership to growing companies. They handle high-level tasks like fundraising, M&A, and long-term financial modeling without the cost of a full-time hire.
Lifetime Value (LTV)
An estimate of the average gross margin a customer will generate before they churn. It is a fundamental metric for evaluating the long-term sustainability of a business model.
Rule of 40
A SaaS rule of thumb stating that a software company’s combined growth rate and profit margin should exceed 40%. Companies exceeding this benchmark command premium valuations.