The Startup Finance Terms Founders Actually Need

Annualized value of your subscription revenue at a point in time.

ARR is the normalized annual value of your active recurring contracts as of a measurement date. It excludes one-time fees, usage overages (unless contractually guaranteed), and services revenue. ARR is the north-star top-line metric most SaaS investors use.

Monthly equivalent of ARR, useful for month-over-month tracking.

MRR is ARR divided by 12, reflecting the monthly recurring revenue from active subscriptions. Track it as a waterfall: starting MRR + new + expansion − contraction − churn = ending MRR.

Revenue from your existing customer base 12 months later, including expansion and churn.

NRR = (Starting ARR + Expansion − Contraction − Churn) / Starting ARR, measured on a fixed cohort over 12 months. Best-in-class SaaS companies see NRR above 120%. Below 100% means the base is shrinking.

NRR without upsell — what you keep before expansion.

GRR = (Starting ARR − Contraction − Churn) / Starting ARR. Capped at 100%. A better view of pure retention quality than NRR since expansion can mask churn.

Fully-loaded cost to acquire one new customer.

CAC = (Sales + Marketing spend) / New customers acquired. Fully-loaded CAC includes salaries, benefits, tools, and allocated overhead — not just ad spend. Investors evaluate CAC alongside payback period and LTV.

Total gross profit a customer generates over their lifetime.

LTV = ARPU × Gross Margin / Churn Rate. The right LTV uses gross margin (not revenue) and a churn rate measured on the same cohort. LTV/CAC above 3x is a rule-of-thumb minimum for a healthy SaaS business.

Number of months to recover CAC from gross profit.

CAC Payback = CAC / (MRR × Gross Margin). Measured in months. Best-in-class SaaS is under 12 months; under 18 is healthy; over 24 is a red flag.

ARR growth rate + operating margin should sum to 40%+.

The Rule of 40 is a shorthand SaaS health check: a company growing 30% with a 10% operating margin (30 + 10 = 40) is 'at rule'. It captures the tradeoff between growth and profitability and is widely used by investors and boards.

Net cash consumed per month.

Gross burn is total cash out; net burn is cash out minus cash in. When founders say 'burn' they usually mean net burn. Track it monthly and against forecast. A spike in net burn without a matching revenue increase is a warning sign.

Months of cash remaining at current net burn.

Runway = Cash on hand / Average net monthly burn. Investors generally want to see 18–24 months of runway at fundraise close. Less than 6 months and you're in raise-or-die territory.

Sales efficiency metric — new ARR per dollar of S&M spend.

Magic Number = (Quarterly ARR growth × 4) / Prior-quarter S&M spend. Above 1.0 is strong, above 0.75 is healthy, below 0.5 means your GTM isn't returning efficient growth.

Net burn divided by net new ARR — a capital efficiency metric.

Burn Multiple = Net Burn / Net New ARR. Popularized by David Sacks. Under 1x is outstanding; 1–2x is healthy; over 3x is poor capital efficiency.

Year-over-year revenue retained from existing customers, including expansion, contraction, and churn. >100% means existing customers grew.

NDR (Net Dollar Retention) = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR, measured over a fixed period (usually 12 months). NDR > 100% means existing customers more than offset churn through upsells/expansion — the holy grail for SaaS. Best-in-class SaaS hits 130%+ NDR. 110% is healthy. <90% signals real problems. The single most-watched SaaS metric by growth-stage investors.

Revenue retained from existing customers WITHOUT counting expansion — strictly measures churn and contraction.

GDR = (Starting MRR - Contraction - Churn) / Starting MRR. Unlike NDR, GDR can never exceed 100% (no expansion credit). Reveals true customer-base stickiness. Healthy SaaS targets 90%+ GDR. The gap between GDR and NDR reveals the company's expansion engine — a healthy SaaS with 92% GDR and 125% NDR has 33 points of expansion offsetting 8 points of churn.

Average annualized value of a customer's contract, normalized to a 12-month basis regardless of actual contract length.

ACV measures the typical first-year revenue from a customer. For a $24K 3-year contract, ACV = $8K. For a $12K 1-year contract, ACV = $12K. For a $100K 2-year contract, ACV = $50K. Used in pipeline planning, sales compensation, and unit economics. Distinguishes inside sales motions ($5-30K ACV) from enterprise motions ($50K+ ACV) — different go-to-market entirely.

Total dollar value of a customer contract over its entire term, including all renewals and upgrades committed at signing.

TCV is the gross dollar commitment a customer makes. A 3-year, $24K/yr contract has TCV = $72K. TCV minus discounts and adjustments = net TCV. TCV is meaningful in bookings reports (especially for sales credit and quotas) but less meaningful in revenue or ARR — for those, you'd use the annualized recurring portion only. Don't confuse TCV with revenue or ARR.

ARPU is revenue per user; ARPA is revenue per account (account = customer/company). Use ARPA for B2B SaaS, ARPU for consumer.

ARPU (Average Revenue Per User) divides total revenue by number of individual users — useful for consumer products where each user is a paying unit. ARPA (Average Revenue Per Account) divides revenue by number of customer companies — used for B2B SaaS where a single 'account' may have many users. Use the metric that matches your billing model. ARPA is more relevant for most B2B startup CFOs.

The share of revenue from your top customers. High concentration is a critical fundraising and acquisition risk.

Customer concentration measures revenue dependency on top customers. Investors red-flag: any single customer >20% of revenue, or top 3 customers >40% of revenue. Audit standard: disclose any customer >10% of revenue in financial statements. High concentration is the single biggest fundraising killer at Series B+. Mitigate by deliberately diversifying upmarket while protecting your largest accounts.

(New MRR + Expansion MRR) / (Contraction + Churn MRR) — measures the ratio of new revenue gained vs. revenue lost in a period.

SaaS Quick Ratio measures how efficiently you're growing despite churn. >4 is excellent, 2-4 is healthy, <1 means you're losing more than you're winning. Calculated for any period (typically monthly). Useful trend line because it captures the dynamic between acquisition, expansion, contraction, and churn in one number. Distinct from the accounting quick ratio (current assets minus inventory over current liabilities).

Quarterly New ARR ÷ Prior Quarter's Sales & Marketing Spend. >1 means you're winning more revenue than you're spending to win it.

Magic Number = (Current Q Net New ARR × 4) / Prior Q Sales & Marketing Spend. >1.5 is excellent (lots of room to invest more), 0.75-1.5 is healthy, <0.5 means stop spending and fix the engine. Computed quarterly. Measures the return on sales and marketing investment one quarter at a time. Watched closely by growth-stage investors.

The ratio of qualified pipeline to the bookings target for a given period — healthy is 3x or higher.

Pipeline coverage = (Total qualified pipeline) / (Bookings target). Sales orgs target 3-5x coverage to comfortably hit targets given typical win rates (20-33%). Below 2x: red alert, won't hit number. Above 5x: pipeline may include too much noise, or quotas are sandbagged. Computed weekly or monthly. Combined with win rate trends, it's the leading indicator for next-period revenue.

Percentage of qualified opportunities that close as won deals (vs. lost, no-decision, or stalled).

Win Rate = Closed-Won / (Closed-Won + Closed-Lost). Excludes no-decision/stalled deals. Healthy B2B SaaS: 20-35% win rate. Below 15% suggests qualification problems or product-market fit gaps. Above 40% often means you're not casting wide enough. Tracked by segment, deal size, source, and sales rep — variance reveals where to invest in training or process.

Average time from first opportunity creation to closed-won, used for forecasting and pipeline planning.

Sales cycle length is critical input for capacity planning and runway forecasting. SMB SaaS: 14-45 days. Mid-market: 30-90 days. Enterprise: 90-180+ days. Longer cycles require more upfront pipeline and higher cash reserves. Track by segment and ACV — they correlate strongly. Sudden cycle length increases are an early signal of buying-market deterioration.

Bookings = contracts signed (forward-looking). Revenue = service delivered (GAAP recognized). Cash = money received (bank balance).

Three different lenses on the same customer relationship. A 3-year $36K contract signed today = $36K bookings, ~$1K monthly revenue over 36 months, and (if paid annually upfront) $12K cash today. Investors look at all three: bookings for momentum, revenue for accounting integrity, cash for runway. Misalignment between them (e.g., bookings way up but revenue flat) signals contracts with delayed delivery or seasonal billing terms.

Schedule showing when deferred revenue will be recognized as revenue over future periods.

A deferred revenue waterfall projects how much of your current deferred revenue balance will be recognized in each future month. Critical for revenue forecasting (gives you a 'committed' baseline) and for cash flow planning (you've already received this cash; you're just recognizing the revenue over time). Required for ASC 606 disclosure at audit. Built from contract details (start date, term, billing schedule).

GAAP revenue recognition standard for contracts with customers.

ASC 606 is the US GAAP standard for recognizing revenue from contracts with customers. It requires a 5-step model: identify the contract, identify performance obligations, determine transaction price, allocate price, and recognize revenue as obligations are satisfied. Matters for SaaS (deferred revenue), usage-based pricing, and multi-element arrangements.

GAAP rules for expensing stock-based compensation.

ASC 718 governs how companies recognize compensation expense for equity awards (options, RSUs). Expense equals grant-date fair value spread over the service (vesting) period, with adjustments for forfeitures. Drives a significant non-cash expense on most startup P&Ls.

GAAP standard requiring leases to be recognized on the balance sheet.

ASC 842 requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for most leases. Matters for startups with office space or equipment leases — surprises many founders their first audit.

Cash received in advance of delivering the service.

Deferred revenue (a liability) represents cash collected for services not yet delivered — like an annual SaaS subscription paid upfront. Revenue is recognized over time as the service is provided, under ASC 606.

Accrual recognizes revenue/expense when earned; cash when money moves.

Accrual accounting recognizes revenue when earned and expenses when incurred — regardless of cash timing. Cash accounting records them when cash moves. GAAP requires accrual. Investors, auditors, and lenders expect accrual-basis financials.

Generally Accepted Accounting Principles — the US accounting standard.

GAAP is the common set of rules governing US financial reporting, set by the FASB. Most investors and all auditors expect GAAP-compliant financials. Non-GAAP adjustments (like backing out SBC) are common in investor reporting but must be clearly labeled.

The process of finalizing a month's books for reporting.

Monthly close involves reconciling accounts, posting accruals, and producing GAAP-compliant financial statements for the month. A well-run close finishes within 10 business days of month-end; slower close times signal process or staffing issues.

The structured list of categories all transactions are booked to.

A chart of accounts (COA) is the master list of all accounts in your general ledger, organized by type (asset, liability, equity, revenue, expense). A startup-appropriate COA is granular enough for analysis but simple enough to maintain.

Convertible instrument commonly used for early-stage rounds.

A SAFE is a contract giving an investor the right to future equity in exchange for cash now — no interest, no maturity date. Created by Y Combinator. Common variants: post-money SAFE (simpler cap table math) and pre-money SAFE. Converts to preferred stock at the next priced round.

Independent valuation of common stock used to set option strike prices.

A 409A valuation is a third-party appraisal of your common stock's fair market value, required by IRS Section 409A. It sets the strike price for stock options. Must be refreshed after priced rounds and annually to maintain safe-harbor protection.

A record of all ownership interests in your company.

A capitalization table tracks every share, option, warrant, and convertible instrument — by holder, class, and vesting status. Most startups run their cap table on platforms like Carta, Pulley, or AngelList. Accuracy matters intensely at diligence.

An investor's right to maintain their ownership % in future rounds.

A pro rata right lets an existing investor invest in future rounds at their current ownership percentage, avoiding dilution. Standard in VC term sheets. Founders should track who has pro rata rights and how much future capital is implicitly reserved.

Original SAFE form (2013) that converts based on the company's valuation cap before the new round, diluting only existing holders.

A pre-money SAFE applies its valuation cap to the company's pre-money valuation at the priced round. The new investor's percentage is calculated against the company's value before the new round closes — so the SAFE holders are diluted alongside founders when the round closes. Largely replaced by the post-money SAFE (2018) for cleaner founder math, but you'll still see pre-money SAFEs in older cap tables.

YC's 2018 SAFE form that locks in the investor's ownership percentage post-conversion regardless of subsequent SAFE stacking.

A post-money SAFE applies its valuation cap to the company's post-money valuation, fixing the SAFE holder's percentage at conversion. The advantage for the investor: their ownership doesn't dilute if more SAFEs are issued before the priced round. The disadvantage for founders: stacking multiple post-money SAFEs causes founder dilution that's not immediately obvious. Always model post-money SAFE dilution before signing.

The maximum company valuation at which a SAFE or convertible note converts into equity.

The valuation cap protects early investors from paying for too much dilution if the company raises at a sky-high valuation. If your priced round happens above the cap, the SAFE/note converts at the cap (giving the investor more shares than a higher valuation would). If below the cap, it converts at the actual round price (or with a discount, whichever is better for the investor). Caps typically range from $5M (pre-seed) to $50M+ (later bridge rounds).

Percentage discount the SAFE/note investor gets on the priced round price.

When a SAFE or convertible note converts, the holder gets either the valuation cap price or a discount off the priced round price, whichever is better for them. Typical discount rates are 10–20%. So a $10M post-money round with a 20% discount means the SAFE converts at an $8M effective valuation. The investor takes the cap or the discount — never both layered.

Debt instrument that converts to equity at a future priced round; includes a valuation cap, discount, interest, and maturity date.

Convertible notes are short-term debt that accrues interest (typically 5–8% annually) and converts into equity at the next priced round, with the principal + accrued interest converting at either the valuation cap price or with a discount. Unlike SAFEs, notes have a maturity date — if no qualifying round happens by then, the note matures and must be repaid, repriced, or extended. SAFEs have largely replaced convertible notes for seed-stage financing because they're simpler.

The amount preferred shareholders get back before common holders in an exit, expressed as a multiple of their investment.

A 1x non-participating liquidation preference is standard: preferred investors get their original investment back first, then common splits the rest. A 2x preference means they get 2x their money back first — bad for founders. Participating preferred means investors get their preference AND share in the remaining proceeds — even worse for founders. Modeled in every term sheet exit waterfall; carefully review participation and stacking before signing.

Preferred stock that returns the liquidation preference AND also participates pro-rata in remaining proceeds with common holders.

With participating preferred, investors 'double dip' at exit: they receive their original investment back as the liquidation preference, then also share in remaining proceeds as if their preferred shares had converted to common. Heavy founder unfriendliness — model the exit waterfall carefully before agreeing to this term. Common in 2008–2012 vintage deals, increasingly rare in modern SAFE/standard preferred sheets.

Mechanism that protects investors from down-round dilution by adjusting their conversion price.

Broad-based weighted average is the founder-friendly standard: it recalculates the conversion price using a weighted formula that accounts for both the new shares and existing fully diluted shares — moderate dilution adjustment. Narrow-based weighted average is harsher (uses only outstanding common). Full ratchet is the most punitive — it resets the prior investor's conversion price to the new (lower) round price entirely, severely diluting founders. Push for broad-based weighted average.

Investor's contractual right to participate in future rounds at their existing ownership percentage to avoid dilution.

Pro rata rights let existing investors buy enough shares in future rounds to maintain their ownership percentage. Standard in venture term sheets. Founders should care because: (1) it limits how much new investors can buy in later rounds, and (2) good investors will exercise pro rata, signaling confidence — bad ones won't, signaling problems. Major-investor-only pro rata is common.

Allows majority shareholders to force minority holders to sell their shares in an acquisition.

Drag-along rights are critical for clean acquisitions — if a majority of preferred shareholders approve a sale, the minority must sell on the same terms. Without drag-along, a single small holder can block an acquisition. Combined with tag-along rights (the minority's right to join a sale on the same terms), they form standard exit mechanics. Always included in modern preferred stock financings.

Allows minority shareholders to join a sale on the same terms as majority shareholders.

Tag-along rights protect minority shareholders from being left behind if majority holders sell. If a major shareholder sells to a third party, tag-along entitles minority holders to participate in the same sale at the same price. Pairs with drag-along; both are standard in preferred stock terms. Critical for founders who want to ensure liquidity events benefit everyone proportionally.

Investor's right to match any third-party offer to buy shares from existing shareholders.

ROFR (right of first refusal) gives current investors first dibs on any shares being sold by other shareholders — they can match the third-party offer before the sale closes. Standard in preferred stock financings. Functions alongside ROFO (right of first offer) and co-sale rights. For founders, ROFR limits your ability to sell shares to outsiders without giving investors first crack.

The investor who sets the terms of a financing round, typically commits the largest check, and signs the term sheet first.

The lead investor negotiates the term sheet, sets the valuation, and often takes a board seat. Other investors in the round generally accept the lead's terms (or negotiate marginal changes). Without a lead, rounds stall — known as 'party rounds' where many small checks come in without anyone driving terms. Securing a lead is the hardest part of a fundraise; once you have one, the rest typically follows.

A small interim financing (often a SAFE or note extension) raised to extend runway between two priced rounds.

Bridge rounds typically happen when a startup needs more runway than its last priced round provided but isn't ready (or able) to raise the next priced round. Usually done as SAFEs or convertible notes from existing investors. Bridge-to-Series-A is the most common variant. A 'bridge to nowhere' is a bridge that doesn't lead to a clean next round — usually a bad sign.

A priced round at a lower valuation than the previous round, triggering anti-dilution and signaling distress.

Down rounds are bad for founders and existing investors: they dilute everyone heavily, trigger anti-dilution clauses, and signal market or business challenges. Often paired with employee re-pricing, board changes, and reset 409As. Sometimes the right call (especially in tough markets) — better to take a down round than to run out of cash. Always model the founder dilution before signing.

Structured opportunity for existing shareholders (often employees) to sell shares to incoming investors or the company.

A tender offer lets employees and early investors sell some of their shares to a buyer (the company itself, a secondary-market investor, or the lead of a new round) on standardized terms. Common at Series B+ when valuations are high but no liquidity exists. Tax-efficient if structured as QSBS-eligible secondary. Requires careful 409A coordination because the tender price typically becomes the new fair-market value.

The process by which stock or options become 'earned' over time, typically 4 years with a 1-year cliff.

Standard startup vesting: 4-year schedule with a 1-year cliff. Nothing vests for the first 12 months; on the cliff date, 25% of the grant vests in a lump; the remaining 75% vests monthly over the next 36 months. Vesting applies to both employee equity and founder equity (yes — founders should vest too; investors require it). Unvested shares are forfeited on departure.

The initial waiting period (typically 1 year) before any portion of a vesting grant becomes earned.

A cliff means an employee/founder must stay at least one year before any equity vests. On day 365, 25% of the grant vests in a single lump. Before that, leaving forfeits the entire grant. The cliff protects companies from quick exits walking away with equity. Investors require cliffs on all employee equity grants and on founder reverse-vesting schedules.

Provision that vests unvested shares immediately upon a triggering event (acquisition, termination, or both).

Single-trigger acceleration vests shares upon an acquisition alone — founders love it, acquirers hate it (they prefer ongoing employee retention). Double-trigger requires BOTH an acquisition AND involuntary termination within a defined window post-close (usually 12 months). Double-trigger is the negotiated norm: founders/key employees keep retention skin in the game, and the acquirer can still keep talent post-close.

Common stock issued to the founders at formation, usually for nominal consideration; subject to reverse vesting and a §83(b) election.

Founder shares are typically issued at incorporation for fractions of a penny per share. Subject to reverse vesting (the company can buy back unvested shares if a founder leaves) and almost always requires a Section 83(b) election filed within 30 days to lock in tax treatment at the (near-zero) grant date FMV rather than at vesting. Critical: file the §83(b) on time — missing the 30-day window can cost millions in future taxes.

Tax-advantaged employee stock option with potential long-term capital gains treatment if holding-period rules are met.

ISOs allow employees to defer income recognition until they sell the stock — and if held >2 years from grant and >1 year from exercise, profits are taxed at long-term capital gains rates. The catch: exercising ISOs may trigger AMT (alternative minimum tax) on the spread between exercise price and FMV. Limited to $100K worth of ISOs (by grant value) that can vest in any single year for any one employee; excess auto-converts to NSO. Common for early/mid-stage employees.

Standard employee stock option taxed as ordinary income at exercise on the spread between exercise price and FMV.

NSOs are taxed at exercise: the spread between the strike price and current FMV is treated as ordinary income (subject to payroll tax withholding). On subsequent sale, additional gains are capital gains. NSOs are simpler than ISOs (no AMT issues, no $100K limit) but less tax-advantaged. Common for contractors, advisors, and grants above the ISO $100K threshold.

IRS filing within 30 days of receiving restricted stock that elects to pay tax upfront at the (low) grant FMV rather than at vesting.

When founders or early employees receive restricted stock (subject to reverse vesting), the default tax treatment recognizes income at each vesting event at the then-current FMV — potentially massive ordinary-income hits as the company appreciates. A Section 83(b) election filed with the IRS within 30 days of issuance lets you pay tax NOW on the entire grant at the (typically negligible) initial FMV. Critical for founders: missing the 30-day window costs millions later. No extensions allowed.

Common stock is what founders + employees hold; preferred stock is what investors hold, with downside protection and special rights.

Common stock: ordinary equity with voting rights, last in line in liquidation. Held by founders and employees. Preferred stock: investor stock with liquidation preference (1x non-participating standard), anti-dilution protection, pro-rata rights, board seats, and other protective provisions. In an exit, preferred holders get their preference first, then common splits the rest (unless preferred elects to convert to common for better economics).

Restricted stock is actual shares issued upfront subject to vesting; RSUs are promises to deliver shares at vesting (and only at vesting).

Restricted stock: actual common stock issued at grant, owned by recipient immediately but subject to forfeiture if vesting conditions aren't met. Eligible for §83(b) election. Common at founding. RSUs (Restricted Stock Units): contractual promise that shares will be delivered at vesting. No §83(b) eligibility. Tax due at vesting on then-current FMV (ordinary income). Common at large public companies and increasingly used at late-stage privates.

Non-cash compensation expense recorded on the P&L for stock options, RSUs, and other equity grants, per ASC 718.

ASC 718 requires companies to recognize the fair value of equity awards as compensation expense over the vesting period. Computed using Black-Scholes or similar models. Non-cash — reduces net income but not cash. Often material at growth-stage startups (20%+ of revenue). Investors often back it out when computing 'true' burn or EBITDA. Required disclosure starting from your first audit.

Federal credit for qualified research expenses, usable against payroll tax by startups.

Qualifying startups can claim up to $500,000/year of R&D tax credits against payroll tax (post-IRA). Qualifying spend includes US engineering wages, contractor research (65% of cost), and cloud compute used in development. Filed on Form 6765 with your return.

Annual tax for Delaware corporations, often quoted wildly too high if calculated incorrectly.

Delaware franchise tax applies to all Delaware-incorporated C-Corps. The default 'authorized shares' method can produce enormous bills for startups. Most startups should use the 'assumed par value capital' method, which is typically 10–100x cheaper. Due March 1 annually.

The connection with a state that triggers a tax-collection obligation.

Post-Wayfair (2018), states can require remote sellers to collect sales tax once 'economic nexus' thresholds are met — typically $100K–$500K of sales or 200+ transactions per year. Most SaaS and e-commerce startups have nexus in many states within a year of material growth.

Tax exemption for gains on qualifying startup stock held 5+ years.

Under IRC Section 1202, gains on QSBS held 5+ years can be excluded from federal tax (up to $10M or 10x basis). Founders and early employees should confirm QSBS eligibility at the time of grant — it's one of the most valuable tax breaks available to startup employees.

Tax election for restricted stock holders to be taxed on grant-date value instead of vesting value.

A Section 83(b) election lets you pay ordinary income tax on the value of restricted stock at grant instead of at vesting — nearly always beneficial if current value is low and expected to rise. Must be filed with the IRS within 30 days of grant.

S-corps and LLCs pass income through to owners' personal returns (single layer of tax). C-corps pay corporate tax, then shareholders pay tax on dividends (double tax).

C-corps face double taxation (corporate income tax + shareholder dividend/cap-gains tax) but offer unlimited shareholders, multiple share classes, and §1202 QSBS eligibility — required for VC-backed startups. S-corps offer pass-through taxation but are limited to 100 US-resident shareholders, one class of stock, and no §1202 — incompatible with venture funding. LLCs are flexible (default partnership taxation or election to be taxed as S-corp or C-corp) but most VC-backed startups convert to C-corp Delaware at first institutional financing.

IRS form an LLC files to elect taxation as a corporation (default is partnership for multi-member LLCs).

Form 8832 (Entity Classification Election) lets an LLC choose corporate taxation. Filed at formation or at any subsequent time (subject to a 60-month rule that prevents flip-flopping). Most VC-backed startups go further: they incorporate a new Delaware C-corp and merge the LLC into it (an F-reorganization) rather than electing corporate tax on the LLC itself, because investors prefer the clean Delaware corporate form.

IRS form a corporation files to elect S-corp (pass-through) taxation — must be filed within 2.5 months of formation or start of the tax year.

Form 2553 must be signed by all shareholders and filed within 75 days of either (a) the corporation's formation or (b) the beginning of the tax year for which the election should apply. Late elections may qualify for relief under Rev. Proc. 2013-30. Only viable if you have ≤100 shareholders, all US residents/citizens, and one class of stock — incompatible with most venture financing.

Tax change effective 2022 requiring R&D expenses to be capitalized and amortized over 5 years (US) or 15 years (foreign) instead of expensed immediately.

The 2017 Tax Cuts and Jobs Act phased out immediate expensing of R&D under §174, starting in tax year 2022. Now: domestic R&D must be capitalized and amortized over 5 years (60 months); foreign R&D over 15 years. This dramatically increases reported taxable income for software startups (whose engineer salaries are R&D). Combine with the §41 R&D credit for offset. Congress has repeatedly tried to restore immediate expensing — watch for legislation.

Lets QSBS holders defer gain by rolling proceeds into other QSBS within 60 days, with holding period tacking.

Section 1045 lets QSBS holders who haven't held shares for 5 years (and thus can't yet exclude gains) sell and reinvest proceeds in other QSBS within 60 days — gain is deferred and the holding period from the original investment tacks. Critical exit-planning tool: lets you sell early without losing §1202 eligibility on the rolled portion. Strict 60-day window; coordinate with tax counsel before selling.

30 calendar days from the date restricted stock is issued — no extensions, no exceptions.

The §83(b) election must be POSTMARKED within 30 days of stock issuance. No filing extensions allowed. Missing the deadline forfeits the election — and means taxes are computed at each vesting event on then-current FMV instead of at grant. For founders, missing §83(b) can cost millions later. File via certified mail with return receipt; keep proof of postmark date. Email confirmation of filing to the company is good practice.

Quarterly tax payments required for corporations expecting to owe $500+ in tax for the year. Due Apr 15, Jun 15, Sep 15, Dec 15.

C-corps that expect to owe $500+ in federal income tax must pay quarterly estimates: 25% of prior year's tax liability (or current year if larger), due on the 15th day of the 4th, 6th, 9th, and 12th month of the tax year. Underpayment penalties apply. Safe harbor: pay 100% of prior year's liability (110% if prior year AGI >$1M). S-corp passthrough income is paid via owner's individual quarterly estimates on Form 1040-ES.

Connection between a business and a state that triggers state tax obligations — can be physical, economic, or affiliate.

Nexus is the legal threshold for state tax obligations. Physical nexus: employees, office, inventory, or property in the state. Economic nexus (post-Wayfair, 2018): typically $100K+ in sales or 200+ transactions per state per year, triggering sales tax obligations. Affiliate nexus: connection via a related party. Each state defines nexus differently. Multi-state SaaS startups commonly hit economic nexus in 10+ states by year 2.

SaaS subscriptions are taxable in some states (TX, NY, AZ, OH, others) and not in others — varies dramatically by state.

SaaS taxability varies wildly: ~20 states tax SaaS as a service (TX, NY, AZ, OH, PA, WA, MA, CT, others), others treat it as nontaxable software/services (CA, FL, GA, OR). Some states (HI, NM, SD) have a gross-receipts tax on everything. Each state has its own definition of 'SaaS' vs 'software' vs 'digital service'. Once you have economic nexus, register and start collecting. Failure to collect creates personal liability for the CFO/CEO in some states.

Formula for dividing a company's income across states for state income tax purposes, typically based on sales, payroll, and property.

Apportionment determines how much of your total income each state can tax. Most states use a single-sales-factor formula (% of sales in that state ÷ total sales = % of income taxed in that state). A few still use three-factor (sales, payroll, property). Critical for multi-state businesses — done wrong, you can be double-taxed (or pay less than you owe and face audit penalties). Coordinate with a multi-state tax CPA at Series A+.

Parallel tax system that ensures high-income individuals pay a minimum tax. Often triggered by ISO exercises with large unrealized spreads.

AMT (Alternative Minimum Tax) is a parallel tax calculation that adds back certain deductions and preference items. For startup employees, the big trigger is ISO exercise: the spread between exercise price and FMV is an AMT preference item — you pay AMT on phantom income even though no cash is received. The AMT credit can be recovered in future years, but cash-out risk at exercise is real. Plan ISO exercises around AMT exposure.

The AMT (Alternative Minimum Tax) liability triggered when you exercise ISOs and the spread between strike price and FMV is large.

When you exercise an ISO, you don't pay ordinary income tax — but for AMT purposes, the spread between exercise price and current FMV (e.g., $0.10 strike vs $5 409A = $4.90 spread per share) is treated as preference income. On 10,000 shares, that's $49,000 in 'phantom income' you'd pay ~28% AMT on. The AMT paid becomes a credit recoverable in future years. Model AMT carefully before exercising — many founders cash-out-stress at exercise time.

Tax form issued by S-corps, partnerships, and LLCs to each owner showing their share of income, loss, deductions, and credits.

Schedule K-1 is the partnership/S-corp equivalent of a W-2 — but instead of wages, it shows each owner's pass-through share of business income/loss for the year. Owners receive K-1s and report the amounts on their individual returns (Form 1040). K-1s often arrive late (March-September), forcing owners to extend their personal returns. Multi-state K-1s create state nexus for the owner in every state the entity does business.

1099-NEC reports contractor payments ($600+ for services); 1099-MISC reports other payments (rent, royalties, prizes).

The IRS split 1099-NEC (Non-Employee Compensation) from 1099-MISC in 2020. Use 1099-NEC for: independent contractor payments, professional fees, commissions to non-employees — any service payment $600+. Use 1099-MISC for: rent, royalties, prizes, awards, other income. Both must be issued to recipients by Jan 31 and filed with the IRS. Misclassification triggers IRS scrutiny. Required for every contractor you pay >$600 in a year.

IRS form used to claim the federal R&D tax credit under IRC §41.

Form 6765 (Credit for Increasing Research Activities) is where you claim the federal §41 R&D credit. Reports qualified research expenses (QREs), selects calculation method (Regular vs Alternative Simplified Credit), and computes credit. Must be filed with your annual return. For QSB payroll-tax offset election, also file Form 8974 with quarterly payroll tax returns. Most startups need a §41 study to substantiate QREs — DIY filing is risky if audited.

Annual income tax return for C-corporations. Due April 15 (or 15th day of 4th month after fiscal year end) for calendar-year filers.

Form 1120 is the standard corporate income tax return for C-corps. Reports gross income, deductions, taxable income, and tax liability. Due April 15 for calendar-year filers; 6-month automatic extension available via Form 7004 (extended due date October 15). Most growth-stage startups file 1120 even at a loss because of net-operating-loss carryforward planning and to maintain good standing.

Annual return for S-corporations reporting income that passes through to owners on Schedule K-1.

Form 1120-S reports the S-corp's income, deductions, gains, losses, and credits — but the S-corp itself usually doesn't pay tax. Instead, each shareholder receives a K-1 with their pro-rata share of income/losses and reports it on their personal 1040. Due March 15 (or 15th day of 3rd month after fiscal year end). 6-month extension available via Form 7004.

Annual return for partnerships (including multi-member LLCs taxed as partnerships) reporting income that passes through to partners on K-1.

Form 1065 reports the partnership's income, deductions, gains, losses — and the entity itself doesn't pay tax. Each partner gets a K-1 with their share. Due March 15 (or 15th day of 3rd month after fiscal year end), with 6-month extension via Form 7004. Mandatory for multi-member LLCs that haven't elected corporate tax treatment.

A direct-method weekly forecast of cash inflows and outflows.

The 13-week cash forecast is a CFO-standard short-term liquidity tool. It lists weekly expected receipts, payments, and ending cash for a rolling 13-week window. Catches cash-timing issues (big AR receipt slipping a week, payroll plus rent hitting the same week) that a P&L forecast misses.

The monthly or quarterly report delivered to your board of directors.

A board pack typically includes CEO commentary, KPI dashboard, P&L and cash trends vs. plan, runway forecast, departmental updates, and cap-table detail. Delivered 48–72 hours before the board meeting. A tight board pack builds board trust; a messy one burns it.

A secure repository of documents investors review in diligence.

A data room holds the financial, legal, and operating documents investors or acquirers review during diligence — financials, cap table, customer contracts, HR files, IP documentation. Organized, complete data rooms close rounds faster.

The revenue and cost per unit of output (customer, transaction, seat).

Unit economics measure the profitability of a single 'unit' — a customer, a transaction, a seat — after direct costs. Every investor asks for unit economics: CAC vs. LTV in SaaS, contribution margin per transaction in fintech, per-SKU margin in e-commerce.

CFO-set thresholds for safe monthly spend across categories.

Spend guardrails are monthly or quarterly limits on categories (payroll growth, S&M, infrastructure) that, if exceeded, trigger a CFO conversation. They let a founder move quickly on spend decisions while keeping runway and unit economics in control.

Measuring behavior of users grouped by time of acquisition.

Cohort analysis tracks a group of customers acquired in the same period over time — retention, revenue per user, payback. Reveals whether new cohorts are performing better, worse, or flat vs. older cohorts. Foundational for SaaS and subscription businesses.

Type I attests controls are designed correctly at a point in time; Type II attests they operated effectively over 6–12 months.

SOC 2 (Service Organization Control 2) is the AICPA-developed framework for SaaS security/availability/confidentiality controls. Type I report: a snapshot showing controls are properly designed as of a specific date — cheaper, faster, less rigorous. Type II report: an audit over 6–12 months showing controls operated effectively — the report enterprise buyers actually require. Most startups start with Type I, then move to Type II ~12 months later. Total cost: $20K–$80K depending on auditor.

Attestation report focused on internal controls over financial reporting (ICFR). Relevant for vendors whose services affect customers' financial statements.

SOC 1 (formerly SSAE 16 / SAS 70) focuses on financial reporting controls — relevant for payroll providers, accounting platforms, transaction processors. Less common than SOC 2 for startups. If your product is part of a customer's financial close (e.g., revenue platform, billing platform), enterprise customers may require it. Otherwise SOC 2 is the right target.

Healthcare Information Privacy regulation governing protected health information (PHI). Required for any startup handling patient data.

HIPAA (Health Insurance Portability and Accountability Act) governs the handling of Protected Health Information (PHI). Healthtech startups must sign Business Associate Agreements (BAAs) with every customer handling PHI through your platform. Requires implementing administrative, physical, and technical safeguards. Annual risk assessments. Penalties: $100–$50K per violation, up to $1.9M/year per provision. Use HIPAA-eligible cloud services (AWS HIPAA tier, Google Cloud Healthcare API).

EU General Data Protection Regulation governing how you handle personal data of EU residents — even if you're a US company.

GDPR (General Data Protection Regulation, 2018) applies to any company processing personal data of EU residents, regardless of where the company is based. Requirements: lawful basis for processing, data subject rights (access, deletion, portability), data breach notification within 72 hours, appointment of a Data Protection Officer (DPO) in some cases. Penalties: up to €20M or 4% of annual global revenue. Most US startups become subject when they sign their first EU customer.

California Consumer Privacy Act (2020) + California Privacy Rights Act (2023). Grants California residents data privacy rights similar to GDPR.

CCPA (effective 2020) gave California residents the right to know what data businesses collect, the right to delete it, and the right to opt out of its sale. CPRA (effective 2023) extended these rights with new protections for sensitive personal information. Applies to businesses with >$25M revenue OR processing data of 100K+ California consumers OR earning 50%+ revenue from selling personal information. Most B2B startups eventually trigger it.

International standard for information security management systems (ISMS). Required by some European and Asian enterprise customers.

ISO 27001 is the international standard for Information Security Management Systems. More process-heavy than SOC 2 (requires documented ISMS, risk treatment plan, statement of applicability). Common in Europe, Asia-Pacific, and some US enterprise sales. Annual surveillance audits + 3-year recertification. Total first-year cost: $40K-$100K. US startups typically pursue SOC 2 first; add ISO 27001 if specific customers demand it.

Directors & Officers liability insurance — protects the company's directors and officers from lawsuits alleging wrongful acts.

D&O (Directors & Officers) insurance protects board members and executives from personal liability for management decisions. Covers defense costs and settlements for shareholder lawsuits, regulatory actions, and employment claims. Standard term sheet condition for venture-funded startups: investors require D&O coverage before joining the board (typically $3-5M coverage at Series A, scaling up). Annual premium: $5K-$50K depending on stage and risk profile.

Life insurance policy on a founder or critical employee where the company is the beneficiary, providing cash if they die or become disabled.

Key person insurance protects the company from the financial impact of losing a critical founder/executive (death, long-term disability). The company pays premiums and is the beneficiary. Common requirement in venture debt and term loans (lenders want to ensure their loan is repaid if the founder dies). Typical coverage: $1-5M per key person. Annual premium: $1-3K per $1M of coverage for healthy founders.

Federal notice filed with the SEC within 15 days of the first sale in a Regulation D exempt private offering.

Most venture-funded rounds use Reg D Rule 506(b) or 506(c) to be exempt from full SEC registration. Form D is the notice filing — a short form documenting the offering size, types of securities sold, type of exemption claimed. Due within 15 days of the first sale. State 'blue sky' filings often also required (varies by state). Failure to file Form D doesn't void the exemption but can complicate future SEC dealings.

SEC regulations enabling smaller companies to raise capital from non-accredited investors via online crowdfunding.

Reg CF (Regulation Crowdfunding): raise up to $5M/year from anyone (accredited or not) via SEC-registered crowdfunding portals (Republic, Wefunder, StartEngine). Reg A+: 'mini-IPO' allowing up to $75M/year from anyone, with more disclosure but less restriction than full registration. Both require formal disclosure documents and audited financials. Not common for VC-track startups; popular for consumer brands seeking community investors.

SEC and state-level filings required when issuing equity (stock, options, SAFEs, notes) to investors or employees.

Every equity issuance (stock, options, SAFEs, convertibles) is a security and triggers filing requirements. Federal: Form D within 15 days of first sale (Reg D exemption). State: blue-sky notices in each state where investors reside (typically due 15-30 days post-close). Employee equity (Rule 701 for private companies): exempt up to $10M/year + thresholds. Late filings: typically still curable but distract during due diligence.

Formal written documentation of board decisions and meeting deliberations — required for corporate governance and audit support.

Board resolutions document major corporate actions: approving fundraises, option grants, executive compensation, M&A, asset sales, debt issuance, and similar decisions. Board minutes record the deliberations at each meeting. Required for corporate governance; reviewed during due diligence and audits. Best practice: every formal board action documented in writing; minutes signed by the secretary and approved at the next meeting.

Contract transferring all intellectual property rights from founders/employees to the company. Critical for fundraising.

Every founder and employee MUST sign an IP assignment (often part of the broader Proprietary Information and Inventions Assignment Agreement, PIIA). Transfers all work-product IP (code, designs, inventions) created during employment to the company. Without this, the company doesn't technically own its own product — a critical due diligence killer. Founders especially: sign at incorporation, assigning all pre-formation IP related to the business.

Contract obligating parties to keep specific information confidential. Mutual NDAs go both ways; unilateral protect only the discloser.

NDAs are common with: customers (during sales), vendors (during evaluations), partners (during BD), employees (often part of PIIA). Mutual NDAs protect both parties; unilateral protect only one. VCs almost universally refuse to sign NDAs (too many founders pitch them similar ideas). Term length typically 2-5 years. Use sparingly; relying on NDAs alone isn't an IP protection strategy.

MSA sets long-term terms between two parties; SOWs (Statements of Work) define specific projects under the MSA.

MSA (Master Service Agreement) is a foundational contract setting the terms (payment, IP, liability, dispute resolution) for an ongoing business relationship between two companies. SOW (Statement of Work) is a project-specific addendum defining scope, timeline, and pricing for specific work under the MSA umbrella. Common in services businesses, consulting, and enterprise SaaS. Reduces friction for repeat engagements — negotiate the MSA once, then sign SOWs without renegotiating the legal framework.

The discipline of managing a company's cash, liquidity, banking relationships, and short-term investments.

Treasury management covers: cash flow forecasting, bank account management, idle cash investment (T-bills, money markets), FX management (for international companies), and counterparty risk monitoring. Post-SVB (2023), startups have become much more disciplined: spreading deposits across multiple banks, maintaining sweep accounts, and laddering treasuries. Often the CFO's direct responsibility at Series B+.

Bank arrangement that automatically transfers excess cash from a checking account into a higher-yielding investment account.

Sweep accounts move idle cash above a target balance from a low-yield operating account into a money market fund, treasury fund, or interest-bearing account daily. Modern fintechs (Mercury Treasury, Brex Cash) sweep into government-backed money funds yielding 4-5%, vs ~0% in a checking account. On $10M cash, that's $400-500K/year in additional yield essentially for free. Standard for startups with $5M+ in cash.

Federal Deposit Insurance Corporation insurance covers $250K per depositor per FDIC-insured bank per ownership category.

FDIC insurance protects bank deposits up to $250K per depositor per institution per ownership category. A startup with $5M in a single bank has $4.75M uninsured. Post-SVB (March 2023), this became existential: SVB customers had their deposits frozen until the FDIC's special action. Mitigation: spread cash across multiple banks, use programs like ICS/CDARS that distribute deposits across many banks while preserving FDIC coverage, or use sweep accounts that hold cash in T-bills (full government backing).

Mutual fund holding short-term, highly liquid debt (T-bills, commercial paper, repos) targeting stable $1/share value plus yield.

Money market funds are mutual funds investing in short-duration debt instruments. Typically yield close to the Fed funds rate (~4-5% in 2024-2026). Three types: government MMFs (treasuries + repos, safest), prime MMFs (commercial paper, slightly higher yield), municipal MMFs (tax-exempt). For startup treasury, government MMFs are standard — full liquidity and government-backed. Not FDIC-insured but SIPC-insured up to $500K at most brokerages.

Debt financing for venture-backed startups, typically structured as a term loan with warrants — extends runway without immediate dilution.

Venture debt is term-loan financing (typically $1-50M) from specialized lenders (Silicon Valley Bank, Hercules Capital, Trinity Capital). Structured as: 3-4 year term, monthly interest payments (prime + 2-6%), 10-30% warrant coverage. Common after a Series A/B to extend runway without diluting further. Less risky than raising equity but introduces fixed obligations and covenants. Use for clear, financeable expansions (sales hires, marketing programs) rather than basic burn extension.

Revolving credit facility lets a startup borrow up to a limit, repay, and re-borrow — used for short-term working capital needs.

A line of credit gives access to revolving capital — borrow up to the limit, pay it back, borrow again. Pricing: interest only on drawn amount, usually prime + 1-4%. Often secured by accounts receivable or inventory. Useful for managing seasonal cash flow or bridging AR collection delays. Distinct from a term loan (lump-sum drawn upfront, paid over time). Available from traditional banks and fintech lenders (Pipe, Capchase, Stripe Capital).

Selling unpaid invoices to a factor for immediate cash (at a discount), transferring collection responsibility.

Factoring lets you convert AR into cash immediately — the factor pays 80-95% of the invoice value upfront, then collects from your customer and remits the balance (less their fee, usually 1-5% of invoice). Useful when AR is slow but you need cash NOW. Differs from invoice financing (you keep collection responsibility). Often expensive vs other forms of credit; best for short-term emergencies or specific accounts where customer credit is weak.

ACH is electronic bank-to-bank transfer (1-3 days, low cost). Wire is real-time (same-day) with higher fees ($15-50).

ACH (Automated Clearing House): batch-processed electronic payments between US banks. 1-3 business days. ~$0.25-3 per transaction. Used for payroll, vendor payments, customer collections. Wire transfers: real-time settlement, higher cost ($15-50 outgoing), final and irrevocable. Used for time-critical or large transfers (deal closes, M&A). Wire fraud is irreversible — verify recipient details out-of-band before sending large wires.

Fee paid by a business's bank to the card-issuing bank on every credit/debit card transaction — typically 1.5-3% of the transaction.

Interchange fees compensate the card-issuing bank for the convenience and rewards of card payments. Rates: 1.5-2% for debit, 2-3% for credit, higher for premium/rewards cards. The merchant's processor passes interchange through plus their markup. On $1M monthly card revenue, ~$25K/month goes to processing fees — meaningful at scale. Interchange-plus pricing models (e.g., Stripe, Adyen) are more transparent than flat-rate (e.g., Square's 2.9% + $0.30).