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Financial glossary

Find the definitions of key terms in corporate finance, financial management and cash management.

  • Working Capital Requirement (WCR)

    The WCR represents the amount of cash that your company must finance to cover the gap between your customer collections and your supplier and salary disbursements. It is calculated as the sum of inventories and customer receivables, less supplier and tax debts. A positive WCR means that you must advance cash to run your business; a negative WCR (typical of subscription models) means you collect before you pay — a major advantage. A poorly managed WCR can suffocate a profitable business.

  • Cash Burn

    Cash burn (or burn rate) measures a company's monthly net cash consumption — that is, total expenses minus revenue collected. We distinguish between gross burn (total expenses) and net burn (after income). This is the vital metric of a startup: combined with available cash, it gives the runway (time remaining before bankruptcy). A burn that decreases despite growth indicates product-market fit; a burn that increases without compensation of income is a warning signal for investors.

  • CAC (Customer Acquisition Cost)

    CAC is the total cost of acquiring a new customer. It includes all marketing and sales expenses: paid advertising, marketing/sales salaries, CRM tools, events, content. The basic formula: CAC = (Marketing expenses + Sales expenses) / Number of new customers over the period. The CAC is ideally calculated by channel (Google Ads, LinkedIn, content marketing) to identify the most profitable levers and reallocate the budget. This is one of the KPIs scrutinised as a priority by SaaS investors.

  • LTV (Lifetime Value)

    LTV is the total revenue a customer will generate over the entire duration of their relationship with the company. Simplified formula: LTV = ARPU × Gross margin × Average customer lifetime. More precise formula: LTV = ARPU × (Gross margin %) / Monthly Churn. The LTV/CAC ratio is the barometer of a recurring business model: > 3 is healthy, > 5 is excellent, < 1 indicates an unviable model. Warning: for a young startup, the LTV based on 6 months of data is unreliable — it must be recalculated regularly.

  • Term Sheet

    The term sheet is the non-binding letter of intent by which an investor formalises the conditions of a fundraising: amount, pre-money valuation, liquidation preference, anti-dilution, board seats, drag-along, tag-along, vesting of founders, no shop, pro-rata rights. This is the most important document in your fundraising: a poorly negotiated clause can cost millions of euros or control of the company. Standard: 1x non-participating liquidation preference, weighted average anti-dilution, 1 investor seat out of 3, no shop 30 days maximum.

  • Cap Table (Capitalisation Table)

    The cap table is the living register of the capital structure of your company. It lists all the shareholders (founders, investors, employees via BSPCE/BSA) with their number of shares, their percentage of capital and their voting rights. It also includes instruments not yet exercised: BSPCE not exercised, SAFE, convertible bonds. A maintained cap table is essential during a raising — investors scrutinise it first to check dilution and governance structure. Recommended tools: Carta, Pulley, Tougerme.

  • Runway

    Runway is the number of months a company can continue to operate with its current cash flow at its current burn rate. Formula: Runway = Available cash / Monthly net cash burn. It is the vital indicator that drives all strategic decisions: timing of the next fundraising, hiring plan, marketing spend. Golden rule of venture capital: raise when you have 12-18 months of runway, never with less than 9 months (20-40% discount on valuation). To be followed weekly when the runway falls under 12 months.

  • MRR (Monthly Recurring Revenue)

    MRR is a company's monthly recurring revenue — the monthly normalised sum of all active subscriptions. A customer paying €12,000/year contributes €1,000 to the MRR. The MRR is broken down into: New MRR (new customers), Expansion MRR (upsell), Contraction MRR (downgrades), Churned MRR (terminations). The Net New MRR = New + Expansion − Contraction − Churned. This is the #1 metric for any SaaS: its month-to-month growth is the engine of valuation. An MRR that grows by 10%/month doubled every 7 months — the ideal trajectory for an early-stage SaaS.

  • Retention Rate (NRR)

    The retention rate measures the proportion of customers (or revenue) retained over a period. We distinguish between gross retention (terminations only), net retention and especially NRR (Net Revenue Retention) which includes expansion (upsell). An NRR > 100% means that existing customers generate more revenue each year despite churn — this is “negative churn”, the ideal state of a mature SaaS. B2B SaaS benchmarks: NRR > 120% excellent, 110-120% good, 100-110% healthy, < 100% to be corrected. NRR is the most predictive metric of SaaS valuation.

  • EBITDA

    EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) measures the operational performance of a company independently of its financial, tax and investment structure. Formula: EBITDA = Net profit + Taxes + Financial charges + Depreciation charges. It is the reference indicator for comparing companies in the same sector. Used by banks (Debt/EBITDA ratio < 3 for debt capacity), by VCs and PE funds (EV/EBITDA multiple for valuation), and in M&A (acquisition price expressed as a multiple of EBITDA, generally 4x to 8x).

  • Dilution (fundraising)

    Dilution is the reduction in the ownership percentage of existing shareholders when the company issues new shares — typically during a capital raising. Formula: Dilution = New shares / (Existing shares + New shares). During a Series A at €8M pre-money + €2M raised, existing shareholders are diluted by 20%. Founders must anticipate the cumulative dilution over several rounds: 3 successive rounds can reduce their share from 100% to 35-45% — hence the importance of negotiating the valuation and size of the BSPCE pool at each round.

  • Vesting

    Vesting is the mechanism for progressive acquisition of shares or BSPCEs by an employee or a founder, conditional on their presence in the company. The market standard: 4 years with a 1 year cliff. This means: no rights during the first year (cliff), then monthly acquisition of 1/48th until the end of the 4 years. If the employee leaves before the cliff, he loses everything. Vesting protects the company against early departures and aligns long-term interests. Distinction good leaver (non-faulty departure, keeps acquired shares) vs bad leaver (faulty departure, loses everything).

  • SAFE / BSA / BSPCE

    Three financial instruments used in early-stage. **SAFE** (Simple Agreement for Future Equity): agreement by which the investor pays now for shares issued later (typically during the next raising), with cap valuation and/or discount. Practical for bridges. **BSA** (Share Subscription Warrant): right to subscribe for shares at a fixed price, usable by any company and any beneficiary. **BSPCE**: equivalent reserved for employees/managers of SAS and SA under 15 years old, with advantageous taxation (PFU 12.8% after 3 years). See our [BSPCE & BSA page](/resources/glossary/bspce-bsa) for details.

  • Due Diligence

    Due diligence (DD) is the in-depth investigation carried out by an investor or a buyer before finalising a capital transaction (raising, repurchase, M&A). It covers financial due diligence (quality of MRR/ARR, CAC/LTV, burn rate, accounting, projections), legal (customer/supplier contracts, IP, disputes, GDPR compliance), commercial (market, competition, traction) and technical (architecture, security, technical debt). A well-prepared DD runs faster and weighs in your favour in the negotiation. Prepare a structured data room several months before the first investor meetings.

  • Kicker (debt venture)

    The kicker is additional remuneration granted to a venture debt lender, in the form of BSA (warrants) or capital participation, in exchange for a lower interest rate. Market standard: a venture debt fund lends €2-5M at a rate of 10-12% + a warrant giving right to 1-3% of the capital at a fixed strike. The kicker compensates for the lender's risk (venture debt is generally subordinated to bank debt). For the startup: less dilutive financing than pure capital, useful for extending the runway between two fundraising rounds.

  • LTV/CAC ratio

    The LTV/CAC ratio compares the value generated by a customer (LTV) to the cost to acquire it (CAC). It is the #1 barometer of a recurring business model. Standard thresholds: LTV/CAC < 1 = unviable model (each customer costs more than they bring in); 1-3 = viable but fragile; 3-5 = healthy; > 5 = excellent and scalable. Complementary to the CAC Payback Period (time to recover the CAC): < 12 months = excellent for B2B SaaS. SaaS investors apply a significant discount to startups with LTV/CAC < 3 and a premium for > 5. See [CAC & LTV](/resources/glossary/cac-ltv).

Detailed sheets

Certain notions deserve more than a definition: calculation method, alert thresholds and action levers.

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