Glossary

An Alternative Investment Fund is a privately pooled investment vehicle registered with SEBI that raises money from investors and deploys it under a defined strategy, and it is the legal wrapper most Indian venture capital and private equity funds use. SEBI's AIF Regulations, 2012 sort them into three categories: Category I (venture capital, angel, SME, infrastructure, and social funds that back early-stage or priority sectors), Category II (private equity and debt funds, including most standard VC funds), and Category III (hedge-fund-style vehicles that use leverage and complex strategies). The minimum investment is generally Rs 1 crore per investor, with a lower Rs 25 lakh floor for angel funds, which is why AIFs pool capital from HNIs and institutions rather than retail investors. For founders, a fund's AIF category signals its mandate, typical ticket size, and how it can structure a cheque.

An angel investor is a wealthy individual who invests their own money into early-stage startups, usually at the pre-seed or seed stage, in exchange for equity or a convertible instrument. Angels typically write smaller cheques than venture funds, decide faster, and often bring operating experience, mentorship, and introductions alongside the capital. In India, angels frequently invest individually, through angel networks, or via SEBI-regulated angel funds (a sub-type of Category I AIF), and, before its abolition, angel tax was a notable friction point for this group. Because they back companies before there is much data, angels rely heavily on their read of the founder and the market thesis.

Angel tax was a levy under Section 56(2)(viib) of the Income-tax Act that taxed the share premium an unlisted Indian company raised above its fair market value, treating the excess as taxable income from other sources. It hit early-stage startups hardest, because investors often pay a premium on the promise of future growth that tax officers could later dispute. In the Union Budget of July 2024 the government announced its abolition for all classes of investors, and the Finance (No. 2) Act, 2024 provided that Section 56(2)(viib) no longer applies from assessment year 2025-26. Founders raising rounds today no longer face angel tax, though assessments from earlier years may still be under litigation.

Anti-dilution protection adjusts an investor's conversion price downward if the company later raises money at a lower valuation, a down round, giving them extra shares to offset the loss in value. The two main methods are full-ratchet, which resets the earlier investor's price to the new lower price regardless of how few shares were issued (very investor-friendly and punishing to founders), and broad-based weighted-average, which adjusts the price only partially based on how much new stock was issued and at what price (the balanced market standard). In Indian priced rounds this is written into the CCPS terms and the Shareholders Agreement, and weighted-average is the norm; founders should resist full-ratchet, since it can cause severe founder dilution after even a small down round.

Annual Recurring Revenue, the value of contracted recurring revenue normalised to a one-year period. The headline metric for SaaS.

Bootstrapping means building and growing a startup using personal savings and revenue from customers instead of raising external investment. It keeps founders in full control of ownership and decisions, forces early discipline on unit economics, and avoids dilution, but it usually means slower growth and tighter cash. Several well-known Indian companies, such as Zoho and Zerodha, scaled largely without venture capital, showing that bootstrapping can be a deliberate long-term strategy rather than only a starting phase. Founders often bootstrap to a point of real traction, then raise on stronger terms or choose to stay independent.

Interim financing between two priced rounds to extend runway, often via a convertible note or SAFE.

The rate at which a company spends cash, usually measured monthly. Gross burn = total spend; net burn = spend minus revenue.

Customer Acquisition Cost is the average amount you spend to win one new paying customer, calculated as total sales and marketing spend in a period divided by the number of new customers acquired in that same period. Load it fully: include ad spend, salaries, tools, agency fees, and sales commissions, not just media cost, or you will badly understate the real number. The benchmarks that matter are relative, not absolute: aim for an LTV:CAC around 3:1 and a CAC payback period under 12 months, so acquisition pays for itself quickly. In India's price-sensitive markets, blended CAC is often kept low through referrals, organic, and regional-language content, but track paid CAC separately so cheap organic growth does not hide an unsustainable paid channel.

A record of who owns what, every shareholder, option holder and convertible, and their ownership percentage.

CCDs are debentures, a debt instrument, that compulsorily convert into equity shares on a set date or trigger, giving investors bond-like documentation with an equity outcome. They behave like debt until conversion and like equity afterwards, which creates a useful split in India: FEMA treats CCDs as equity for foreign-investment and FDI-cap purposes, while the Income-tax Act treats them as debt until conversion, so interest paid to CCD holders is tax-deductible for the company (unlike dividends on CCPS). Founders often prefer CCPS for cleaner cap tables and use CCDs where the deductible-interest cash-flow benefit matters; foreign CCD allotments are also reported to the RBI in Form FC-GPR within 30 days.

CCPS are preference shares that must convert into equity shares on a pre-agreed trigger such as the next priced round, an exit, or a fixed date, rather than staying as preference capital or being redeemed. They are the default instrument for priced venture rounds in India because they can carry liquidation preference, anti-dilution protection, and reserved-matter (veto) rights while still counting as equity. Under FEMA, only compulsorily convertible instruments (not optionally convertible ones) qualify as equity for foreign investment, so CCPS are how most VC money legally enters an Indian company; foreign allotments are reported to the RBI in Form FC-GPR within 30 days.

The rate at which customers or revenue are lost over a period. The inverse of retention.

A group of users grouped by a shared start period, tracked over time to measure retention and behaviour.

A convertible note is short-term debt that converts into equity at a later priced round instead of being repaid in cash, letting a startup raise money without fixing a valuation upfront. It usually carries a valuation cap and/or a conversion discount that reward early investors, plus interest that accrues and converts along with the principal. In India a convertible note is a specifically defined FEMA instrument: only a DPIIT-recognised startup can issue one to a foreign investor, the minimum is Rs 25 lakh per investor in a single tranche, and it must convert into equity or be repaid within 10 years of issue, with the investment reported to the RBI in Form CN within 30 days.

The reduction in existing shareholders' ownership percentage when new shares are issued in a funding round.

A financing where shares are sold at a lower valuation than the previous round, often triggering anti-dilution.

DPIIT Recognition is the official startup certification granted by India's Department for Promotion of Industry and Internal Trade under the Startup India scheme. To qualify, an entity must be a private limited company, registered partnership firm, or LLP, incorporated for up to 10 years, with annual turnover not exceeding Rs 100 crore in any financial year, and it must be working on innovation or a scalable, high-potential business model. It is applied for free online through the government portal, and it unlocks benefits such as the Section 80-IAC three-year tax holiday, self-certification on labour and environment laws, faster IPR processing, and easier public procurement. For most founders it is the first formal step to access India's startup tax and regulatory incentives.

Drag-along rights let a specified group of shareholders, often majority holders or lead investors, force the remaining shareholders to join a sale of the company on the same terms. They exist so that a willing buyer can acquire 100 percent of the company without a small minority blocking the deal, which matters because acquirers usually want full ownership. In Indian Shareholders Agreements the drag threshold and which shareholders can trigger it are heavily negotiated; founders should watch the trigger conditions closely, since a low threshold can force them into an exit they do not want.

Due diligence is the detailed investigation an investor or acquirer runs on a startup before committing money, to verify what the founders have claimed and to surface risks. It usually spans financial, legal, tax, technical, and commercial checks, including the cap table and share records, key contracts and IP ownership, statutory and GST filings, core metrics, and customer or reference calls. In India it commonly examines founder vesting, ESOP pool documentation, FEMA and RBI compliance on foreign investment, and DPIIT or tax-benefit eligibility. It typically follows a signed term sheet and precedes final funding, and clean, well-organised records in a data room speed it up and build investor confidence.

An ESOP (Employee Stock Option Plan) gives employees the right to buy company shares at a fixed exercise price after they vest, letting them share in the upside they help build. In India ESOPs are taxed at two separate stages: first as a perquisite (salary income) at exercise, on the gap between fair market value and the exercise price, with the employer deducting TDS; and again as capital gains at sale, on the gain over the FMV taken at exercise. A common cash-flow trap is that employees can owe tax at exercise before they are able to sell any shares; to ease this, DPIIT-recognised startups holding a Section 80-IAC certificate can defer the perquisite tax until the earliest of about five years, the sale of the shares, or the employee leaving the company.

Gross Merchandise Value is the total rupee value of all goods or services sold through a marketplace over a period, before deducting discounts, returns, cancellations, or platform fees. It measures scale of activity, not income: a marketplace typically books only its take rate (commission) as revenue, so GMV can be many times larger than actual revenue. Treat GMV quoted on its own as a vanity metric, because it can be inflated by returns and cancellations, which is why net GMV and take rate matter far more. Indian consumer-tech companies long led with GMV, but investors and public-market disclosures now push for revenue, contribution margin, and net GMV to judge real business quality.

Gross margin is the share of revenue left after subtracting the direct cost of delivering your product or service (cost of goods sold), expressed as a percentage. It shows how much of each rupee of sales is available to cover fixed costs and profit, and it sets the ceiling on how efficient a business can ever be: software often runs 70 to 90 percent, while commerce, hardware, and food delivery run much thinner. Investors watch it closely because a low-margin model must reach enormous scale to make real money, and margin directly caps a usable LTV. In India, quote gross margin net of GST, since GST is a pass-through tax collected on behalf of the government and is not part of your true revenue.

A liquidation preference sets who gets paid first, and how much, when a company is sold, wound up, or has another liquidity event, before ordinary shareholders receive anything. A 1x non-participating preference, the founder-friendly market standard, lets the investor take back their money or convert to equity and share pro-rata, whichever is greater, but not both. A participating preference is more aggressive: the investor takes their money back and then also shares in the remaining proceeds as if converted, a double dip that can sharply reduce founder payouts in a modest exit. In India these terms sit in the CCPS and the SHA and matter most in down-side or middling exits, not in large ones where investors simply convert to common shares.

Customer Lifetime Value (LTV or CLV) is the total gross profit a business expects to earn from a typical customer over the entire time they stay, usually estimated as average revenue per customer times gross margin, divided by the churn rate. Founders pair it with CAC to form the LTV:CAC ratio, a fast read on whether acquisition pays for itself: a ratio near 3:1 is the widely used rule of thumb for a healthy business, while below 1:1 means you lose money on every customer. Always use gross-margin-based LTV rather than raw revenue, and recompute it per cohort, because early adopters rarely behave like the mass market. In India's low-ARPU consumer segments, thin margins and high churn make a strong LTV:CAC especially hard, so many startups lean on referrals and organic channels to keep CAC down.

Monthly Recurring Revenue, recurring revenue normalised to a month. ARR ÷ 12.

Net Revenue Retention measures how much recurring revenue you keep and grow from your existing customers over a period, after upgrades, downgrades, and churn, but excluding any new customers. It is calculated as starting recurring revenue plus expansion minus contraction and churn, divided by starting recurring revenue: above 100 percent means your current base grows even if you add no new logos, the hallmark of a strong subscription business. Comfortably above 100 percent (often 110 to 120 percent or more for the best companies) signals durable product love and pricing power, while below 100 percent means you are leaking revenue. For India-built SaaS selling globally, high NRR is often the clearest proof of product-market fit and the metric investors weight most in a subscription model.

Product-market fit is the point at which your product satisfies a strong market demand so clearly that customers adopt it, keep using it, and recommend it faster than you can comfortably serve them. There is no single formula, but common signals include high retention and NRR, organic word-of-mouth, and the pain customers would feel if the product vanished (Sean Ellis's test: at least 40 percent of users saying they would be very disappointed to lose it). Before PMF the priority is learning and iterating, not scaling spend, because pouring money into acquisition without fit just amplifies churn. In India, teams often prove PMF within a single segment or city first, since a product that fits metro English-speaking users may need real rework for price-sensitive or vernacular markets.

Pro-rata rights let an existing investor put more money into future rounds to maintain their percentage ownership, rather than being diluted as new shares are issued. For example, an investor holding 10 percent can buy enough of the new round to stay at 10 percent. Funds value these rights because they let them double down on their best portfolio companies; founders should track who holds them, since a full pro-rata exercise by early backers can leave little room in a hot round for new strategic investors.

A right of first refusal (ROFR) requires a shareholder who wants to sell shares to first offer them to designated parties, often the company, founders, or existing investors, on the same terms before selling to an outsider. It gives insiders control over who joins the cap table and a chance to buy back stock before it goes to a third party. In Indian startups ROFR is a standard clause in the Shareholders Agreement and is often paired with a right of first offer (ROFO) and with tag-along rights; because it can slow down secondary sales, the transfer mechanics and timelines are worth negotiating.

The number of months a startup can operate before running out of cash, at the current net burn rate.

A SAFE (Simple Agreement for Future Equity) is a Y Combinator instrument in which an investor pays now for the right to shares in a future priced round, with no interest, no maturity date, and no debt to repay. Conversion is governed by a valuation cap and/or a discount, making it faster and cheaper to close than a full priced round. A pure US-style SAFE does not fit Indian company law and FEMA cleanly, so the Indian equivalent is the iSAFE, introduced by 100X.VC in 2019 and legally structured as compulsorily convertible preference shares (CCPS). This means an Indian SAFE is actually equity from day one and can carry liquidation preference and anti-dilution rights that the plain US SAFE does not.

Section 80-IAC of the Income-tax Act gives eligible startups a 100% deduction on their profits for any three consecutive financial years out of their first ten years. To claim it, a startup must be DPIIT-recognised, incorporated as a private limited company or LLP, and have turnover not exceeding Rs 100 crore in the year the deduction is claimed. The Union Budget 2025 extended the eligibility window so that startups incorporated up to 31 March 2030 can apply. Because most startups are loss-making in their first year or two, founders usually elect their three-year window once the business turns consistently profitable.

The Share Subscription Agreement (SSA) is the contract under which investors actually buy, or subscribe to, new shares, setting the amount, price, number of shares, and the conditions to be met before money changes hands. The Shareholders Agreement (SHA) is the longer-term governance rulebook among the shareholders, covering board composition, reserved matters, transfer restrictions such as ROFR and tag or drag rights, anti-dilution, liquidation preference, and information rights. In India the two are usually signed together at a priced round, and key SHA terms are typically also written into the company's Articles of Association so they are enforceable against the company itself, not just between the signing parties.

Startup funding stages describe the sequence of rounds a company raises as it grows, with each stage tied to a level of proof and a larger cheque. Pre-seed and seed rounds fund building the product and finding product-market fit, usually from founders, angels, and early-stage funds; Series A backs a repeatable business model and go-to-market; Series B scales it; and Series C and beyond fund expansion, new markets, or acquisitions ahead of an eventual exit or IPO. Each round is normally priced off a higher valuation and dilutes existing shareholders, and there is no fixed cheque size, since amounts vary widely by sector, geography, and market conditions. Founders should raise a given stage only when they can show the milestones the next class of investors expects.

Sweat equity is shares issued to founders, employees, or directors in return for non-cash contributions such as know-how, intellectual property, or value addition, rather than for money. In India it is a formal instrument under Section 54 of the Companies Act, 2013 and Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014, requiring a special resolution, a registered valuer's valuation, and a three-year lock-in. Ordinary companies can issue up to 15 percent of paid-up equity in a year (or Rs 5 crore, whichever is higher) and 25 percent overall, but DPIIT-recognised startups may issue up to 50 percent of paid-up capital within 10 years of incorporation; the shares are taxed as a perquisite in the recipient's hands, much like ESOPs.

Tag-along rights, also called co-sale rights, let minority shareholders join a sale on the same terms when a major shareholder, usually a founder, sells their stake to a buyer. They protect investors from being left behind with a new, unknown controlling owner by giving them the option to tag along and exit proportionally. In Indian venture deals this is a standard investor-protection clause in the Shareholders Agreement, typically triggered when a promoter sells above a set threshold; it is the mirror image of drag-along rights, which compel rather than merely permit a sale.

Total Addressable Market, the total revenue opportunity if you captured 100% of your market.

TAM, SAM, and SOM are three nested estimates of market size used to show how big an opportunity is and how much of it you can realistically win. TAM (Total Addressable Market) is total demand if you captured 100 percent of the market; SAM (Serviceable Addressable Market) is the slice your product and business model can actually serve; and SOM (Serviceable Obtainable Market) is the share you can capture in the near term given competition and your resources. Build these bottom-up (customers times price) rather than top-down from headline figures, because a credible SOM persuades investors far more than a giant TAM. In India specifically, resist the reflex of citing a 1.4 billion population as your TAM: the real addressable base is gated by income, internet access, digital-payment adoption, and willingness to pay, so a realistic SAM is often a small fraction of the population.

A term sheet is a short document from an investor setting out the key proposed terms of an investment, such as valuation, amount, board seats, liquidation preference, and option pool, before lawyers draft the full contracts. It is mostly non-binding: it signals serious intent but commits neither side to close, with the usual exceptions being the confidentiality, exclusivity (no-shop), and cost-sharing clauses, which do bind once signed. What comes next is due diligence (commonly 8 to 12 weeks), followed by the definitive agreements that actually close the round: in India these are typically the Share Subscription Agreement (SSA) and the Shareholders' Agreement (SHA), which are legally binding and where the real negotiation of rights sits. A useful recent tailwind for Indian priced rounds is that the angel tax (Section 56(2)(viib) of the Income-tax Act) was abolished for all classes of investors with effect from the 2025-26 financial year, announced in the July 2024 Union Budget, removing a valuation-linked tax that used to complicate share pricing.

A unicorn is a privately held startup valued at 1 billion US dollars or more, a term coined by investor Aileen Lee in 2013 to capture how rare such companies once were. A soonicorn (a label popularized in India by startup data trackers such as Tracxn) is a fast-growing startup widely expected to reach unicorn status soon, while a decacorn is a private company valued at 10 billion dollars or more. India is one of the world's largest startup hubs: the ASK Private Wealth Hurun India report counted 73 unicorns in 2025, with 11 new entrants that year and Bengaluru as the leading hub. India has also produced decacorns such as Flipkart, though these labels reflect private valuations at a single point in time and can shift sharply once a company lists, raises a down round, or is repriced.

Unit economics measures the direct revenue and costs tied to a single unit of your business, typically one customer or one order, to test whether the core model makes money before you scale it. The usual lens is contribution margin per unit (price minus variable costs) alongside the LTV:CAC relationship: if a single unit loses money, growth simply multiplies the losses. Model this on fully loaded costs, including payment-gateway fees, shipping, returns, and discounts, not just the sticker price. This is central for Indian commerce and delivery startups, where cash-on-delivery returns, last-mile logistics, and deep discounting can quietly turn a seemingly profitable order negative.

The agreed worth of a company. Pre-money is before the new investment; post-money = pre-money + investment.

A valuation cap is the maximum company valuation at which a convertible note or SAFE converts into equity, protecting early investors from being penalised if the next round prices very high. If the startup raises its priced round above the cap, the earlier investor still converts as though the valuation were the cap, giving them more shares per rupee than the new investors. Caps are usually paired with a conversion discount, with the investor getting whichever produces the better (lower) price; a cap set too low can hand away more dilution than founders expect, so it is negotiated as carefully as a headline valuation.

Venture debt is a loan made to a venture-backed startup that complements an equity round rather than replacing it, letting a company extend its runway without selling more shares. It is typically a term loan of 12 to 36 months carrying interest plus warrants that give the lender a small equity upside, and it is best raised during or just after an equity round when the startup's cash position is strongest. In India it is provided by specialist funds structured as SEBI Category II AIFs or RBI-registered NBFCs rather than commercial banks, with interest rates commonly in the low-to-mid teens. Founders use it to fund working capital, inventory, or a bridge to the next round while minimising dilution.

Earning equity over time, typically a 4-year schedule with a 1-year cliff, to retain founders and employees.