If you’ve ever sat across from an investor and nodded along while quietly wondering what they just said, you’re not alone. Startup finance has its own language, and getting fluent in it isn’t optional – it’s how you negotiate better, pitch more convincingly, and make smarter decisions for your business.

Here’s a plain-English breakdown of the terms that come up most often, grouped by when and why they matter.

Your Financial Position

Revenue is the total income your business generates before any costs are taken out – often called the “top line.” Profit is what remains after expenses are deducted, and it comes in several forms: gross profit (revenue minus direct costs), operating profit (after overheads), and net profit (after everything, including tax). These aren’t interchangeable, and which one investors ask about depends on your stage and business model.

EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortisation – strips out financing and accounting decisions to show the underlying operating performance of the business. Investors use it to compare companies without the noise of different capital structures or tax positions. At early stage, most UK investors won’t focus heavily on EBITDA – they care more about growth rate and burn – but it becomes increasingly relevant as you approach profitability.

Gross margin is the percentage of revenue left after the direct costs of delivering your product or service. A SaaS business might run at 70-80% gross margin; a hardware business might be closer to 30-40%. Investors pay close attention because it signals how scalable your model actually is.

Your Cash Position

Burn rate is how much cash your startup is spending each month. Gross burn is total spending; net burn accounts for revenue coming in. Knowing your burn rate is non-negotiable – it drives every decision about hiring, fundraising, and growth.

Runway is how long your cash will last at your current burn rate. If you have £600,000 in the bank and a net burn of £50,000 per month, you have twelve months of runway. Most investors want to see at least twelve to eighteen months of runway post-raise before they consider a business properly funded.

Burn multiple is a metric that’s become increasingly common among UK and US investors at Series A and beyond: it measures how much you’re burning to generate each pound of new ARR. A burn multiple below 1x is excellent; above 2x starts to raise concerns about capital efficiency. It’s worth understanding before you walk into a growth-stage fundraise, because investors will ask.

Growth Metrics

Customer Acquisition Cost (CAC) is what it costs to win a new customer – total sales and marketing spend divided by the number of new customers acquired in the same period. Lifetime Value (LTV) estimates the total revenue a customer will generate over their relationship with you. The ratio between the two – LTV:CAC – is one of the most scrutinised metrics in a fundraise. A 3:1 ratio or higher is generally considered healthy.

ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue) measure predictable, contracted revenue. For subscription and SaaS businesses, these are the figures investors care about most – they’re a cleaner signal of business health than total revenue, which can include lumpy one-off deals.

Raising Money

Pre-money valuation is what your company is worth before a new investment comes in. Post-money valuation is the value after. If you raise £500,000 at a pre-money valuation of £2 million, your post-money valuation is £2.5 million, and the new investor owns 20% of the business.

Dilution is the reduction in your ownership percentage that happens when new shares are issued. Every funding round dilutes existing shareholders – including founders. Understanding how dilution compounds across multiple rounds is essential when thinking about what your stake will actually be worth at exit.

A Convertible Loan Note (CLN) is the UK-standard equivalent of what US investors call a convertible note. It’s a short-term debt instrument that converts into equity at the next funding round, typically at a discount to the round price. Advanced Subscription Agreements (ASAs) are increasingly used at pre-seed stage and work similarly – an investor pays now for shares issued at a future round – but without the debt structure, which keeps your balance sheet cleaner. Both instruments let you raise money without immediately agreeing on a valuation.

A term sheet sets out the headline terms of an investment – valuation, equity stake, investor rights, and any special conditions. It’s usually non-binding, but the terms it contains form the basis of the legal agreements that follow. Negotiating a term sheet well matters.

Ownership and Equity

A cap table (capitalisation table) records who owns what in your company – founder shares, investor equity, option pools, and any convertible instruments. Keeping it clean and accurate matters more than founders often realise: a messy cap table is a red flag in due diligence and can slow or derail a raise.

A vesting schedule determines when founders or employees earn their equity over time. The most common structure is four years with a one-year cliff – meaning nothing vests in the first year, then 25% on the anniversary and the remainder monthly over the following three years. For UK startups issuing options to employees, EMI (Enterprise Management Incentive) schemes offer significant tax advantages for both the company and the individual, and are worth understanding before you start handing out equity.

Getting comfortable with these terms won’t make you a CFO overnight – but it will make every investor conversation more productive, every negotiation sharper, and every financial decision better informed.