Starting A Company? The Key Terms You Should Know

Caldwell says an MVP must be useful to someone, not merely simple or incomplete. He explains venture capital as investing in risky startups for the chance that a few large successes will cover losses, and defines angel investors as people who invest their own money, often in smaller early-stage checks. He also describes profitability through monthly income and spending, and how margins may change as a business grows.

Burn rate is the money a company spends from its bank balance over a period; a drop from $1 million to $900,000 in a month means a $100,000 burn rate. Caldwell advises founders to track cash closely. He describes a seed round as a startup's first consequential fundraise, while Series A, B, and later rounds often have a lead investor and may include a board seat.

Caldwell describes product-market fit as having a product that customers use and like enough that the main challenges shift toward growth, scaling, or sales. Before that point, founders should focus on testing assumptions, building, and talking with customers; afterward, they need to maintain fit while growing. Bootstrapping means building without venture capital, using personal funds or business revenue, and can suit companies expected to reach roughly $5 million to $10 million in annual revenue.

A convertible note is debt-like and may include interest or repayment terms, so founders should read its terms carefully. Caldwell explains that a SAFE, created at Y Combinator by Carolyn Levy, is an alternative for raising money before a priced equity round and generally has fewer terms and rights. Equity is ownership, while stock options give employees the right to receive equity later.

TAM estimates the revenue opportunity if all potential customers bought a product, but Caldwell says it is only a thought experiment and can underestimate market growth, as with Tesla and Uber. Valuation usually reflects the terms of a company's latest investment, not a liquid market price. He defines an IPO as selling shares to public markets and ARR as recurring annual revenue, using ten renewing $100,000 contracts as an example of $1 million ARR; monthly subscriptions are more commonly described as MRR.