A pricing strategy is the method a startup uses to determine the best price for its product or service. The goal is to strike a balance between maximizing profit, staying competitive, and meeting customer expectations. Your pricing impacts growth, positioning, and how investors view your business model.
Why it matters for startups
Getting pricing right can make or break your startup. Price too low, and you risk unsustainable margins. Price too high, and you might scare off early users. For investors, pricing is a sign of how well you understand your market and unit economics.
Pro forma financials are financial statements that project a company’s future performance or reflect hypothetical scenarios. These reports include income statements, balance sheets, and cash flow statements and are commonly used in strategic planning, fundraising, mergers, acquisitions, and other financial planning processes.
Product-Market Fit refers to the stage in the lifecycle of a startup where its product or service successfully meets the needs and demands of the market it serves. It is a critical milestone for any company as it signifies the alignment between the offering and the target customers, leading to sustainable growth and customer satisfaction.
Profit margin is a financial metric that measures the percentage of revenue a company retains as profit after accounting for expenses. It is a key indicator of a company’s financial health, efficiency, and profitability. Profit margin is calculated by dividing net income by revenue and multiplying by 100 to express it as a percentage.
Profit sharing is a financial incentive program in which a company distributes a portion of its profits to employees, partners, or stakeholders. This distribution is often based on predetermined formulas, such as an employee’s salary or tenure, and aims to align interests, boost motivation, and reward performance.
A Profit and Loss Statement (P&L or PNL), also known as an income statement, is a financial document that summarizes a company's revenues, expenses, and profits (or losses) over a specific period. It is a key financial statement used to evaluate a business’s performance and profitability.
The profitability index (PI), also known as the profit investment ratio (PIR) or value investment ratio (VIR), is a financial metric used to evaluate the attractiveness of an investment or project. It is calculated by dividing the present value (PV) of future cash flows by the initial investment cost. A profitability index greater than 1 indicates that the project or investment is likely to generate value and is worth pursuing.
A Proof of Concept (PoC) is a demonstration or prototype that validates the feasibility and potential of a startup's idea or product. It provides evidence to investors that the idea or product can be successfully developed and commercialized.
Fore more information, read our full guide on proof of concept.
Qualified Financing refers to a specific type of financing round that occurs in the context of startup funding. In this round, investors must meet certain criteria to participate. It is an important milestone for startups as it often signifies a significant level of progress and validation.
The quorum refers to the minimum number of members required to be present at a meeting in order to conduct official business.
Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment. It measures the gain or loss generated on an investment relative to the amount of money invested. ROI is expressed as a percentage and is a key indicator for assessing the success of an investment.
A revenue forecast is an estimate of the amount of revenue a business expects to generate over a specific period, based on historical data, market trends, and planned strategies. It helps businesses project their financial performance and plan for future growth, investments, and expenses.
A revenue model is a framework that outlines how a business generates income by selling products or services, licensing intellectual property, offering subscriptions, or employing other monetization strategies. It defines the sources of revenue and the pricing mechanisms that drive the business's financial success.
Revenue streams refer to the various sources of income a business generates from selling products or services, licensing, advertising, or other monetization strategies. Each revenue stream represents a specific way in which a business earns money, contributing to its overall financial stability and growth.
Revenue-based financing (RBF) is a funding method where a business secures capital from investors or lenders in exchange for a percentage of its future revenues. Unlike traditional loans, there is no fixed repayment schedule or interest rate. Instead, repayments are tied directly to the company’s revenue, making it a flexible option for startups with fluctuating income.
A revolving loan is a flexible line of credit that allows businesses to borrow, repay, and borrow again up to a specified credit limit. It provides ongoing access to funds, making it ideal for managing cash flow, covering short-term expenses, or addressing unexpected financial needs. Unlike a term loan, which has fixed repayment schedules, a revolving loan offers flexibility in repayment as long as the borrower stays within the credit limit.
A round refers to a specific stage of financing in which a company raises capital from investors. It is a crucial step in the growth and development of a company, allowing it to secure funds to support its operations, expand its business, or invest in new opportunities.
The run rate is a method used to project a company’s future revenue based on its current performance over a short period, typically extrapolated to an annual figure. It helps startups estimate potential earnings by assuming that recent revenue levels will continue consistently.
The runway refers to the length of time a startup can continue operating using its existing cash reserves before it becomes necessary to secure additional funding.
A SAFE, or Simple Agreement for Future Equity, is a financing contract that grants investors rights to future equity in a startup in exchange for an upfront investment. Unlike traditional convertible notes, SAFEs don’t accrue interest or have a maturity date. They’re often used in early-stage fundraising for their simplicity and flexibility.
The SH01 Form is a document filed with Companies House to officially record the issuance of new shares in a startup. Submitting this form is the final step in closing a funding round, providing a public record of the new shares issued and ensuring compliance with regulatory requirements.
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SOM (Serviceable Obtainable Market) is the realistic portion of the Serviceable Addressable Market (SAM) that a company can capture, based on its resources, competition, and market reach. It represents the actual market share a business expects to obtain within a specific timeframe, considering real-world constraints like budget, distribution channels, and operational capacity.
SOM is often used in startup funding and market analysis to set realistic revenue goals and investor expectations.
A sales funnel is a visual representation of the customer journey, illustrating the stages a potential customer goes through from initial awareness of a product or service to making a purchase. It typically includes stages such as awareness, interest, decision, and action.
A sales pipeline is a visual representation of the stages a sales team follows to convert potential leads into paying customers. It tracks the progress of prospects through the sales process, helping businesses forecast revenue, prioritize efforts, and identify areas for improvement.
Sales revenue is the total income a business earns from selling its products or services during a specific period. It is a key component of a company’s financial performance and is often referred to as "top-line" revenue because it appears at the top of the income statement.
Scalability refers to a business model's ability to increase revenue without a corresponding rise in operational costs. A scalable business can handle growth efficiently, often by leveraging technology, streamlined processes, or economies of scale.
Seasonal pricing is a strategy where prices are adjusted based on seasonal demand—higher when demand peaks, lower during off-peak periods. It’s commonly used in retail, travel, hospitality, and consumer services, but can also apply to subscription models, e-commerce, and event-based startups.
Why it matters for startups
If your product or service experiences demand shifts during specific times of the year, seasonal pricing helps maximize revenue during high-demand periods and drive sales during slow months. It’s a smart way to balance supply and demand while boosting cash flow throughout the year.
Seed funding refers to the initial capital that is provided to a startup in exchange for equity. It is the first round of funding that a startup receives to help get their business off the ground. Seed funding is typically provided by angel investors, venture capitalists, or even friends and family of the founders.
Seed capital is the initial funding that a startup raises to develop its business idea, build a prototype, or launch its first product. It typically comes from founders, friends and family, angel investors, or seed-stage venture capital firms. Seed capital is used to cover early operational expenses before a company generates revenue or raises larger funding rounds.
For startups, securing seed capital is a crucial step in validating their business model and attracting future investors.
A Serial Entrepreneur is an individual who repeatedly starts, scales, and exits multiple businesses rather than focusing on just one company. Unlike traditional entrepreneurs who may run a single venture long-term, serial entrepreneurs thrive on building, innovating, and launching new startups, often moving on after securing funding, achieving growth, or selling the business.
Series A funding refers to the initial round of financing that a startup receives after seed funding. This funding round is crucial for startups as it allows them to scale their operations and further develop their product or service.
Share dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders. This often happens during funding rounds, stock option exercises, or convertible securities conversions. While dilution decreases the proportional ownership of existing shares, it can also increase the company’s overall value if the new shares raise significant capital.
A share repurchase, also known as a stock buyback, is a corporate action where a company buys back its own shares from the market. This reduces the number of outstanding shares, increasing the ownership percentage of remaining shareholders and potentially boosting the stock’s value. Share repurchases are often used as a way to return capital to shareholders or signal confidence in the company’s financial health.
Shareholder value refers to the financial worth delivered to a company’s shareholders through increased stock prices, dividends, and overall company performance. It is a measure of a company’s ability to generate returns for its investors, either through capital appreciation or direct payouts.
A Shareholders Agreement (SHA) is a legally binding contract that defines the relationship between a company, its shareholders, and its investors. It outlines the terms and conditions agreed upon in the term sheet, ensuring that all parties are aligned on their rights, obligations, and responsibilities.
A Shareholders Resolution is a formal document signed by a startup’s shareholders to approve significant business decisions, typically requiring a 75% majority. This resolution is commonly used for key actions like issuing new shares, approving mergers, or making changes to the company’s structure, ensuring that shareholders are informed and aligned on these impactful decisions.
Skim pricing (or price skimming) is a strategy where a product is launched at a high price to target early adopters who are willing to pay more. Over time, the price is gradually lowered to reach broader market segments.
Why it matters for startups
Skim pricing helps startups maximize early revenue, recover development costs, and position their product as premium or innovative. It’s especially useful when entering the market with something new or unique—but timing and execution are key.
Skimming pricing is a strategy where you launch with a high price to target early adopters who are willing to pay a premium. Over time, you gradually lower the price to reach broader segments of the market.
Why it matters for startups
This strategy works well for innovative or tech products with a unique edge. It helps maximize early margins, validate value, and position your brand as premium—before scaling to mass market. Investors often see skimming as a smart monetization strategy if your product is ahead of the curve.
Software as a Service (SaaS) is a software delivery model where applications are accessed through the internet. Instead of installing and maintaining software on individual computers or servers, users can access the software through a web browser.
Startup valuation refers to the process of determining the worth or value of a startup. It is typically based on the startup's potential for growth and future success. Understanding the valuation of a startup is crucial for investors, founders, and stakeholders as it helps in making informed decisions regarding investments, partnerships, and overall business strategies.
A startup attorney is a legal professional who specializes in advising early-stage businesses on key legal matters, including company formation, contracts, intellectual property, fundraising, and regulatory compliance. They help startups navigate legal risks, structure agreements, and ensure long-term protection and scalability.
Stock options are a form of compensation that gives employees, founders, or investors the right to purchase a company’s shares at a predetermined price, known as the exercise or strike price, within a specified time frame. These options become valuable if the company’s stock price increases, allowing the holder to buy shares at a lower price and potentially sell them at a profit.
A strategic alliance is a formal agreement between two or more businesses to collaborate and achieve mutually beneficial goals while remaining independent entities. These partnerships can involve sharing resources, expertise, or market access to enhance competitiveness, expand market reach, or drive innovation.
A strategic partnership is a mutually beneficial arrangement between two or more businesses that collaborate to achieve shared objectives while maintaining their independence. These partnerships often focus on leveraging each other’s strengths, resources, or market access to drive growth, innovation, and competitive advantage.
Strategic planning is the process of defining a company’s direction and making decisions on allocating resources to achieve its long-term goals. It involves setting objectives, analyzing internal and external environments, and crafting strategies to guide the organization toward success.
Subscription pricing is a model where users pay a recurring fee—monthly, quarterly, or yearly—to access your product or service. It’s especially common in SaaS, media, and membership-based businesses.
Why it matters for startups
Subscription pricing creates predictable, recurring revenue, making it easier to plan growth and show traction to investors. It also helps build long-term relationships with customers—but requires consistent value delivery to avoid churn.
Sweat equity is the ownership stake that founders or employees receive in exchange for their labor and contributions, rather than a financial investment. It represents the value of their hard work and dedication in building the company.
A sweat equity agreement is a legal contract that outlines the terms under which an individual or group receives ownership or equity in a company in exchange for their time, effort, or expertise instead of monetary investment. It is commonly used in startups to reward founders, early employees, or advisors who contribute significantly to building the business.
Sweat equity shares are equity shares issued by a company to individuals in exchange for their labor, expertise, or other non-monetary contributions, rather than a direct financial investment. These shares are typically granted to founders, employees, or advisors who play a significant role in building the business and are rewarded for their efforts with ownership in the company.
A syndicate is a group of investors who pool their capital and resources to invest collectively in a startup or venture. Syndicates allow smaller investors to participate in larger deals and provide startups with access to multiple investors through a single funding structure.
TAM (Total Addressable Market) and SAM (Serviceable Addressable Market) are key market sizing concepts used by startups and investors to estimate business potential.
Tag-along rights are provisions that protect minority shareholders by allowing them to sell their shares under the same terms as a major shareholder if that shareholder decides to sell. This ensures that smaller shareholders can exit on equal terms in a sale event.
A target audience is a specific group of people identified as the ideal customers for a business’s product or service. This group is defined by characteristics such as demographics, behavior, interests, needs, and location. Understanding the target audience helps businesses tailor their marketing strategies, messaging, and offerings to resonate with potential customers effectively.
A target market is a specific group of potential customers that a business identifies as the most likely to purchase its products or services. It is defined by shared characteristics such as demographics, behaviors, needs, geographic location, and purchasing power.
Target pricing is a pricing strategy in which a business sets a price for its product or service based on the perceived value to customers and market demand. The target price is established before the product is developed or produced, ensuring that costs are managed to meet the desired profit margin.
A tear sheet is a one-page financial summary that provides key information about an investment opportunity, company, or fund. It is commonly used by investors, venture capitalists, and financial analysts to quickly assess a company’s performance, key metrics, and growth potential. Tear sheets typically include data such as financials, valuation, market opportunity, investment highlights, and risk factors.
Technical Due Diligence is a crucial process for evaluating the technology, software, infrastructure, and intellectual property of a startup. It aims to assess the viability, scalability, and potential risks associated with these aspects. By conducting thorough technical due diligence, investors and stakeholders can make informed decisions regarding their investments and partnerships.
A tender offer is a public proposal made by an individual, company, or investor to purchase some or all of the shares of a company at a specified price, usually at a premium over the current market price. The offer is typically made directly to shareholders rather than through the company’s board of directors.
The term "Term Cap" refers to the maximum valuation at which a convertible note or other security can convert into equity in a future financing round. It is an important concept in investment agreements and plays a significant role in determining the potential returns for investors.
A Cap Table, short for Capitalization Table, is a crucial document that provides an overview of the ownership stakes and capital structure of a startup. It presents a detailed breakdown of the different classes of shares, options, warrants, and other securities held by various stakeholders.
A term loan is a loan with a fixed duration and a set repayment schedule, typically used by businesses to finance specific expenses, such as equipment, expansion, or other significant investments. The loan amount is repaid in regular installments, usually with interest.
A term sheet is a non-binding agreement that outlines the fundamental terms and conditions governing an investment. It serves as a preliminary document that sets the foundation for further negotiation and the creation of a more detailed and binding contract.
Total Addressable Market (TAM) is the total revenue opportunity available for a product or service if it were to capture 100% of its market. It represents the maximum potential market size for a business and serves as a key metric for understanding the scale and growth potential of an industry or niche.
For startups, TAM is critical for evaluating market opportunities, attracting investors, and developing business strategies to capture a significant share of the market.
Total Addressable Market (TAM) refers to the total revenue opportunity available for a product or service if it were to achieve 100% market share within its specific industry or category. TAM provides an estimate of the market size and potential growth opportunities, helping businesses assess the viability and scalability of their offerings.
Total Available Market (TAM), sometimes referred to as Total Addressable Market, is the total revenue opportunity available for a product or service if it were to achieve 100% market penetration in its specific industry or category. It represents the maximum market demand for a product or service, assuming no competition or limitations.
Total revenue is the total amount of money a business earns from selling its products or services during a specific period. It is calculated by multiplying the quantity of goods or services sold by their selling price. Total revenue is a fundamental financial metric that provides insights into a company’s sales performance and market demand.
Traction refers to the evidence of market validation and customer adoption. It encompasses various indicators such as revenue growth, user acquisition, and positive feedback from customers. Traction is a crucial metric for assessing the success and potential of a product or business.
A tranche refers to a portion of an investment or loan that is released in stages or increments, based on the achievement of certain milestones or conditions. This method of dividing an investment or loan into tranches allows for more flexibility and risk management.
Translation is the process of converting text from one language to another while preserving its original meaning. It’s often the first step for startups expanding into new markets—making product interfaces, websites, and communication accessible to global users.
Turnaround Time refers to the duration it takes for an investor or fund to evaluate a startup and make a decision on whether to invest or provide funding. It is an essential metric in the startup ecosystem as it directly impacts the speed at which a startup can secure funding and proceed with its growth plans.
Unit economics refers to the financial metrics and calculations that analyze the profitability of a single unit of a product or service. It evaluates how much revenue and cost are associated with one unit, helping businesses understand their per-unit profit margin and scalability.
Unit pricing is the pricing strategy that determines the cost of a single unit of a product or service. It provides clarity to customers about the price they are paying per unit, allowing for better comparisons across similar products or services. For businesses, unit pricing helps align pricing strategies with production costs, perceived value, and market competition.
Unit sales refer to the total number of individual products or services sold by a business during a specific period. It is a key performance metric that provides insights into the company’s market demand, operational success, and revenue generation.
Upside refers to the potential for a venture capital investment to generate significant returns or profits. It represents the positive outcome or the favorable result that investors anticipate when investing in a particular venture.
