Key Terms Every First-Time Founder Should Know

MVP (Minimum Viable Product)

The simplest version of a product that delivers enough value to attract early users and generate meaningful feedback. An MVP is not a finished product—it's a learning tool designed to test a hypothesis with minimal wasted effort.

Burn Rate

The rate at which a company spends its cash reserves, typically measured monthly. A startup with $300,000 in the bank spending $30,000 per month has a burn rate of $30,000 and roughly ten months of runway.

Runway

How long a company can operate at its current burn rate before running out of cash. Extending runway usually means raising more capital, reducing expenses, or accelerating revenue—ideally a combination of all three.

Cap Table (Capitalization Table)

A spreadsheet or document that tracks who owns what percentage of a company, including founders, investors, and employees with equity. As funding rounds proceed, the cap table grows in complexity.

Dilution

The reduction in an existing shareholder's ownership percentage when new shares are issued—typically during a funding round. Dilution is not inherently bad; a smaller slice of a much larger company can be worth far more than a larger slice of a smaller one.

Convertible Note

A short-term debt instrument used in early fundraising that converts into equity—usually at a discount—when a future funding round is completed. It allows founders and investors to delay the challenge of setting a company valuation at the very earliest stage.

Valuation

An estimate of a company's current worth, often expressed as pre-money (before a new investment) or post-money (after). Valuation is negotiated, not calculated from a fixed formula, and reflects investor expectations as much as current performance.

Seed Round

An early-stage funding round—often from angel investors or small venture funds—used to prove initial product concepts and reach early traction. Seed rounds typically come after a founder's own capital (bootstrapping) has been exhausted.

Term Sheet

A non-binding document outlining the key terms of a proposed investment, including valuation, investment amount, and investor rights. It is the starting point of formal negotiations, not the end.

Vesting Schedule

The timeline over which a founder or employee earns their equity stake. A common arrangement is a four-year vest with a one-year cliff, meaning no equity is earned until the first anniversary, after which it accrues monthly.

Product-Market Fit

The degree to which a product satisfies a real and sizable market demand. Founders often describe it as a feeling—retention improves, word-of-mouth grows organically, and demand begins to pull the business forward without heavy marketing spend.

SAFE (Simple Agreement for Future Equity)

A financing instrument, originally developed by Y Combinator, that gives investors the right to receive equity at a future date under defined conditions. Like a convertible note, it defers valuation—but without accruing interest as debt.