Glossary Terms

The anti-dilution protection prevents a VC investor from an economic loss of value of their investment arising from new shares offering.

VC investments are often made during the early or expansion stage of a startup to secure early access to a profitable business. During these phases, one cannot yet predict whether a company will succeed or fail. To have a certain security in the event of declining business valuations, Venture Capital investors often use the anti-dilution protection.

When investing in a startup, VC firms usually include an anti-dilution clause in the contract. This is partly because additional rounds of funding may be necessary to keep a startup from failing. The anti-dilution clause is supposed to prevent the initial investors from being at a financial disadvantage compared to investors who join at a later stage, when the startup is less promising and therefore less valuable.

B2B is the acronym for business-to-business and describes a business model that focuses on the relationship between two or more companies.

In the Telefónica Germany world, the B2B unit is responsible for all products and services (connectivity, Wi-Fi, private networks, IoT products etc.) that are sold to enterprise customers of all sizes – from small and medium enterprises to large enterprises and multinational companies.

While B2C follows the widely known concept of creating solutions for end customers and thus advertising to them, B2B businesses, create solutions, products, and services for other companies. Therefore, they are confronted with entirely different business fields and target audiences, calling for special approaches to communication.

B2C is short for the term Business-to-Consumer and applies to companies and markets that have end customers as their target group.

In the Telefónica Germany world, the B2C unit is responsible for all products and services for the main brand o2 to the consumers.

The common acronym B2P stands for Business-to-Person and describes a relatively new concept of business relations in which people themselves are at the centre of a communication strategy.

In the Telefónica Germany’s world, B2P business unit focuses on Telefónica’s self-defined business partners, thus branded reseller, carrier, or other Telco players.

Bootstrapped businesses are those that have been founded without any external funding. The company is fully financed by the founders themselves. Some startups have no choice but to finance themselves, for others it is a conscious decision to do without external capital. 

Startups that did not raise a funding round and are completely financed by founders’ capital are known as bootstrapped startups. At the very early stage most businesses remain bootstrapped and they are particularly sought by VCs.

The cash burn rate indicates the point at which a company will run out of money if the (negative) cash flow remains the same and there is no external addition of capital. The cash runway, on the other hand, measures how long the money will last at this cash burn rate.

The cash burn rate is an important indicator for startups pitching for investment. A higher cash burn rate indicates a stable business situation and may well be a factor that investors consider. 

Burn Rate Formula

There is a relatively simple formula to calculate both the burn rate and the cash runway:

Burn Rate = (Starting Balance – Ending Balance) / # Months

Cash Runway = Current Cash Balance / Burn Rate

A capitalization table, or cap table, shows a company’s equity capitalization. The capitalization table provides an essential reference for financial decisions involving equity ownership, market value and market capitalization. 

Cap Table for Startups

Startups may use cap table to keep track of equity ownership. A basic cap table lists each type of equity capital, the individual investors and the share prices. More complex tables can also contain information on public offerings and alike. 

A capitalization table is a simple but private document that is not published. When a new financing round is carried out to get new funding, the cap table should be updated.

The term “cash runway” refers to the amount of time (typically in months) a business has before it becomes insolvent, assuming it does not receive any external funding. To calculate the cash runway, one uses the burn rate that calculates the speed at which a company spends its capital. The total cash a company has, divided by the current burn rate, equals the cash runway.

The churn rate refers to the number of customers a company has lost over a period of time in relation to the number of customers the company still has. If the churn rate is too high, then it means that the company is losing significantly more customers than it is bringing in.

A convertible (loan) note is a type of short-term debt which can be converted into equity at a later point. Typically, this happens in conjunction with a future financing round.

Convertible loans are popular with startups, as they can raise cash from investors without going through the process of an investment round.

The investor grants a loan to a startup and receives the option or promise of equity in the company instead of the amount lend. In this case, the main advantage of issuing convertible note is the simplicity, less costs from legal perspective, and that the note does not force the investor or issuer to determine the company’s value immediately.

Unlike regular accelerators, corporate accelerators are funded by a business corporation and focus on finding solutions that are specific to the own corporation to support and develop corporate innovation.

Startups profit from corporate accelerator programs because they get the chance to refine their ideas and products and ultimately increase their revenue, by signing a commercial agreement with the corporate. The corporation benefits from getting first-hand access to innovative ideas that are an ideal fit for its existing businesses

Corporate innovation is the implementation of innovation opportunities into established business models.

Corporations usually focus on their core product and try to improve it gradually. However, they often miss the chance of developing and introducing innovations.

Startups, on the other hand, excel at re-imagining outdated business models and are therefore offering innovative ideas more often. On that account, startups can help established corporations to find new solutions. To compete, corporate innovation is necessary for both, established corporations and startups.

Corporate Venture Capital refers to the direct investment of corporate funds into external startups. Large companies use CVC to invest in small and innovative startups by acquiring equity or using joint venture agreements. 

The main goal of Corporate Venture Capital is to either gain an advantage over competitors or to gain access to companies that could become competitors in the future. 

There are several ways for CVCs to invest in interesting startups: early-stage financing, seed capital funding, expansion financing, initial public offering, as well as mergers and acquisitions.

Demo Days are events that are organised by incubators, accelerators or even Venture Capital firms.

At Wayra, we only look for relevant innovation: We scout startups after a request from a Telefónica business unit. Selective startups can pitch their solutions in a defined time to a jury of investors or Telefónica business units, or both.

Wayra Demo Days are an excellent chance for young businesses to connect and showcase their ideas for establishing a customer-supplier relationship between themselves and Telefónica.

The drag-along clause is a usual legal provision agreed upon between different groups of shareholders.

In corporate law, a drag-along is a concept entitling the majority shareholders of a company to sell their stake, while forcing minority shareholders to join in the deal.

In business, drag-along rights serve to protect a majority shareholder against minority shareholders delaying the sale of the company. Still, drag-along rights protect minority shareholders in a way, too, since in most cases, they can sell their shares on the same terms and conditions as the majority shareholder.

Due Diligence refers to a review, audit or investigation intended to mitigate potential risks arising from an investment or business decision. The strategy is applicable to various contexts such as a background check on a potential employee or the comparison of profit margins of competitors.

Edge computing allows data to be collected and processed within a device rather than via a cloud. This provides improved response times and bandwidth availability. Edge computing is becoming more relevant as the IoT progresses.

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Cloud computing has become an understandable concept: Data is being generated by devices and then sent to a cloud for storage, analysis, processing etc. The data can then be accessed from various points or sent back to the device after processing.

Edge computing, on the other hand, means that the analysis and processing of the data takes place within the device collecting the data itself.

Equity is a term that is used when talking about corporate finance and represents the book value of a company. It can be found on a company’s balance sheet and is an important variable for analyzing the company's financial health. However, from an acquisition perspective, equity is the value of a company minus its liabilities.

In the field of finance and investment, “exit” is a commonly used expression for the sale of shares or equity previously purchased.

In the field of finance, due diligence (frequently referred to as “accounting” due diligence) comprises the examination of financial records prior to entering a proposed transaction with a third party. Financial due diligence usually involves the understanding of a company from various financial matrices.

The money for the launch of a startup can originate from various sources. Personal savings and loans represent the largest part of startup capital. Friends and family, sometimes called “angel investors”, banks, accelerators, crowd funding and venture capital represent only some of the other common funding sources.

In the Series C funding round, a startup is looking to keep the growth rate high by hiring employees in product development, sales, and marketing. The Series C is often the round where startups move into profitability or are looking for an exit.

5G is the fifth generation of wireless technology that marks a big jump from the fourth generation. Tech companies and startups are developing new and innovative business solutions based on 5G.

Innovative minds have come up with numerous usages in which 5G plays an integral role. The digitalization of industry profits from 5G flexibility, remote and real-time control, performance, predictability and many more. From remote consultation in healthcare to automated communication of vehicles in the automotive sector and prediction of power shortages in the energy sector – 5G has many use cases.

End customers are familiar with 5G mainly through new smartphone generations. Many smartphone producers are focusing on bringing devices to the market that are 5G-ready. Simultaneously, telecommunications companies are busy with their 5G network expansion.

5G is faster, more flexible and more reliable than 4G. Gigabytes of data that used to take minutes to download can be downloaded in seconds thanks to 5G. Many solutions that are being worked on in theory do not work in practice with 4G, partly because of the factor latency. With 5G, real-time-actions can be executed remotely.

Startup incubators are institutions that support startups during their founding process. By providing mentorship, IT-infrastructure etc., innovators receive the necessary means for refining business ideas that are based on innovation.

While incubators and accelerators are both ways of supporting startups that involve mentoring and providing networks, the two have a few differences: Startup incubators rarely include financial funding and usually support startups that are at the beginning of their business ideas, while accelerators work with startups having MVPs already.

Industrial 5G is a specialized form of fifth generation wireless technology. Due to its enormously quick transfer of data it will come in handy for industries working with AI, robotics, augmented reality and virtual reality. It is designed for industrial environments and differs from consumer-focused applications.

Investment committees play a crucial role in the investment decision making process of companies, e.g., when it comes to retirement plans. As a rule, committee members are required to establish a formal process to govern and oversee the investment strategy and performance in accordance with their fiduciary responsibilities.

The members of the investment committee have a duty to prepare an IPS to articulate and set an investment philosophy and strategy in accordance with the agreed due diligence procedures. Generally speaking, IPS is a document that lists the investment goal, strategy, and objectives.

The term “investment round”, also referred to as “capital round”, “financing round” or “money round”, describes one of the stages that a capital company (mostly a startup or scale up) undergoes to raise capital. An investment round is usually opened when funds are needed for further development.

LTE-M is a network technology that stands alongside NB-IoT, 4G and 5G and it is the ideal technology solution for specific use cases. It has a relatively high latency and can handle the transmission of moderate amounts of data, has a fairly long battery life cycle and a comparably good coverage in buildings.

Like LTE-M, the Narrowband Internet of Things (NB-IoT) is also a network technology. The main difference between the two is that LTE-M has a higher latency and transmission of larger amounts of data, while NB-IoT has a better coverage inside of buildings and a longer battery life cycle.

In computing, the term latency refers to the delay between the instruction of a data transmission and the actual start of the data transfer, i.e. clicking a button on a device and the device reacting. New wireless technologies (5G) have improved latency compared to older generations (4G and lower).

A liquidation preference is a contractual arrangement which determines the payout procedure, e.g., in the event of a corporate liquidation or an exit case. Generally, the investors or preferential shareholders get their money back first.

In venture capital contracts, a liquidation preference clause is widely used to protect the company’s investors and preferential shareholders when a company is sold.

The acronym MRR stands for “monthly recurring revenue” and refers to the expected monthly revenue stream of a company.

Recurring revenue is the relatively stable part of a company’s turnover which is expected to persist in the future. Particularly for quickly developing startups, it is important to understand the general business profitability and cash flow.

Market capitalization refers to the total value of a company's outstanding stock and is calculated by multiplying the number of outstanding shares by the current market price of a share.

Narrowband IoT is a radio technology that works extremely well for the occasional bidirectional transmission of small amounts of data. It is partly used in water meters, parking spaces and streetlights. NB-IoT is considered one of the most promising innovations in M2M-communication for the Internet of Things.

Characteristics and Benefits of Narrowband IoT

NB-IoT is ideal for transmitting data with a low bandwidth. It is low in material costs for the modem, has a low energy consumption and long battery life cycle. Narrowband IoT provides broad coverage over long distances and can be used inside of buildings as well as subterranean.

There are two possible ways that communication service providers can take when transitioning from 4G to 5G: 5G standalone (SA) and 5G non-standalone (NSA).

The transition from 4G to 5G can either happen by using the infrastructure that already exists for 4G – which is referred to as 5G non-standalone – or by using the infrastructure for 5G that is currently being built – which is referred to as 5G standalone.

The advantage of going for NSA is that one can start using 5G much sooner which is a reason for many providers to choose this route, with the plan to switch to 5G standalone in the future. However, for some 5G use cases, only the SA option is feasible as it will have extremely low latency.

With this type of liquidation preference, the investor has two options: They can either exercise the liquidation preference or convert their preference shares into common shares of equal value.

A pilot project/ proof of concept (PoC) is an opportunity for a corporation to test a new business solution, and big a chance for the startup that has developed the solution. It can build the foundation for landing a commercial agreement with the corporation. The idea is that a company tests an innovation for a limited period and in a smaller scale to see if a larger investment might be lucrative. It should be as risk-free as possible for both parties.

If startups are getting paid for the pilot project, it can be defined as paid pilot project. At Wayra Germany, we only work with paid pilot projects, which offers startups the possibility to test their solution in a joint PoC with a business unit from Telefónica.

Besides getting up to €25.000 equity free budget for four months, startups additionally get mentoring, coaching, office space, partnership perks and access to an international startup ecosystem.

A pay-to-play clause means that investors are required to participate in subsequent funding rounds at the request of company. Their engagement is expected to be long-term.

This basic agreement is in most cases executed on a pro-rata basis. Investors usually invest to protect themself from dilution arising from new capital raise.

Post-money valuation refers to the estimated market value of a company after a round of financing. The calculated market value of a company before a round of financing is called pre-money valuation. The difference between pre-money and post-money valuation is the amount of new equity that has been raised.

Pre-emptive rights comprise a contract clause, also known as the anti-dilution protection, according to which early investors can buy additional shares for a stable price in the future, even if the price of a share has increased for new investors.

They help these investors to cut their losses if new shares are priced lower than the original shares were. In the European Union and Great Britain, pre-emptive rights are required by law for buyers of common stock. Having a pre-emptive right does not oblige a shareholder to buy additional shares.

The term “pre-money valuation” refers to the market value that an investor assigns to a company before it has received any or new external funding. The pre-money valuation is generally the basis for share price calculation. The market value which the same company holds after the funding is called post-money valuation.

To keep things simple, here is an example of the difference between pre-money valuation and post-money valuation: Presuming a company is worth €1 million (pre-money valuation) and an investor is looking to put in €250,000, the post-money valuation then equals €1.25 million. The equation is simple: pre-money valuation + new equity = post-money valuation.

Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies.

The customer retention rate is a means of calculating how many customers turn into regulars. It is an important KPI that shows how good a company is at establishing positive, strong customer loyalty. It is a proxy for customer satisfaction and product quality.

The retention rate is the opposite of the churn rate which refers to the percentage of customers a company has lost over a certain period. Together they always sum up to 100 percent. Subscription-based business models heavily depend on having a good retention rate. If the rate declines, countermeasures need to be initiated.

To calculate the customer retention rate, one uses the formula ((E-N)/S) x 100.

E refers to the number of customers at the end of a period, N refers to the number of customers acquired during that period and S refers to the number of customers a company had at the start of the period.

Investors, VC firms, innovation labs etc. have portfolios of the businesses and startups they are already investing in or have invested in in the past. They give other investors and startups, those looking for funding, an overview and an idea of what a certain investor focuses on when investing. Experienced startups will only contact investors who focus on similar technology, sectors, regions etc.

A scale up is a startup that has passed the initial stage and is now in the phase of growth. This means it has a product market fit and thus also a proof of concept. There is already some revenue but for the scale up to continue to grow, it still needs external capital. However, there are a few startups in this stage that are so successful that they don’t rely on any external funding.

Seed funding is a form of early-stage funding in which investors give money to comparably young businesses. Generally, it is the first major round where startups raise money from institutional investors.

Before this, startups sustain themselves on pre-seed funding, which often means family and friends as angel investors as well as business angels. Seed funding is used to prove product-market fit and to establish the startup on the market.  

After the seed round, creativity in naming conventions is gone and all following rounds are named alphabetically starting with Series A. The Series A round is where the startup really picks up speed in growth. Funding is used for extensive employee hiring and product development.

Series B funding is usually where a startup looks to expand outside of their current markets. This can for example be from DACH to Europe or from Europe to US. Startups at this stage already have millions in revenues and a significant customer base.

Generally, an exit strategy is a plan executed by an investor or owner to liquidate or dispose of a financial position, e.g., an unprofitable startup.

However, an exit strategy can also be executed when the business is performing well. In this case, an investor may pursue an exit strategy through an initial public offering (IPO). IPO gives previous investors an exit route to sell their stake.

Startup funding, also referred to as startup capital, describes the provision of the financial means required to launch a new business. The money can be invested in anything that supports the startup in making the leap from idea to factual business.

Founding a startup and navigating the business world can be overwhelming, challenging and stressful.

Most information is not readily available to founders. Instead, they need to find ways to educate themselves on legal aspects, funding possibilities, business networks, etc. Startup mentor programs support them by connecting them with business mentors – people who are already successful and have mastered what the founders are yet to learn.

A startup mentor is experienced in business and shares their knowledge and expertise with a mentee. While a mentor is an expert in a particular business area due to years of experience in this industry, a coach has typically received special training to help clients reach their full individual potential. Mentors usually offer mentoring in addition to their actual position in a company, whereas coaches provide coaching as their full-time profession.

The cash runway gives investors insights into a company’s profitability and solvency. A runway that is gradually shrinking from month to month indicates that a company spends more money than it generates.

Investors funding a startup often monitor a startup’s runway after an investment to estimate when the next financing round will have to take place. Generally, a startup should have 15-18 months of runway after an investment round.

Per definition, a strategic investor is an individual or a company that primarily invests for strategic rather than financial reasons. Although financial aspects are a factor that strategic investors keep in mind, making money is not their sole focus as is the case with financial investors.

Corporate and governmental investment vehicles are typically of strategic nature. Corporates use it to keep their competitive advantage or to enter adjacent markets. Governments invest to nurture underdeveloped markets, geographically and technologically.

There are two types of investors that have different intentions for investing: While the financial investor pursuits a return on their capital and is therefore motivated by their interest in multiplying their investment, the strategic investor has a different approach: The goal of this investment is to gain a strategic advantage.

This strategic advantage may be a say in the development of a business, access to a new and innovative technology, the improvement of one’s own business model or something else entirely.

Tag-along rights are designed to protect the minority shareholders. A tag-along clause empowers the minority shareholders to purchase and/ or sell their stake in the company at the same price and terms. Tag-along rights are also referred to as “co-sale rights”.

When a startup first starts raising money, convertible bonds are a regular choice. These are later converted into regular shares. To make the acquisition of convertible bonds attractive to investors, there are specifications like a valuation cap and a discount. Without either, the convertible bonds would convert into stocks at the same price as they do for new investors.

A valuation cap entitles early investors to equity priced below the market cap. The valuation cap sets a maximum price at which the convertible bonds will convert into equity. It is not a valuation of the startup's current value. It only becomes relevant if the pre-money valuation (minus discount) of the financing round is higher than the valuation cap. Note: The discount is not applied to the valuation cap.

The venture client model refers to the establishment of (pilot) customer relationships between startups (ventures) and corporate entities (clients). Instead of equities, the corporate acquires the startup's product.

At Wayra, we are looking for startups and their solutions for certain problems of our mother company, establishing a customer-supplier relationship between ourselves and the startup.

The advantage is that we only look for relevant innovation: We scout startups after a request from a business unit, and therefore provide real value for both sides: the startups and the corporate.

B2B is the acronym for business-to-business and describes a business model that focuses on the relationship between two or more companies.

In the Telefónica Germany world, the B2B unit is responsible for all products and services (connectivity, Wi-Fi, private networks, IoT products etc.) that are sold to enterprise customers of all sizes – from small and medium enterprises to large enterprises and multinational companies.

While B2C follows the widely known concept of creating solutions for end customers and thus advertising to them, B2B businesses, create solutions, products, and services for other companies. Therefore, they are confronted with entirely different business fields and target audiences, calling for special approaches to communication.

B2C is short for the term Business-to-Consumer and applies to companies and markets that have end customers as their target group.

In the Telefónica Germany world, the B2C unit is responsible for all products and services for the main brand o2 to the consumers.

The common acronym B2P stands for Business-to-Person and describes a relatively new concept of business relations in which people themselves are at the centre of a communication strategy.

In the Telefónica Germany’s world, B2P business unit focuses on Telefónica’s self-defined business partners, thus branded reseller, carrier, or other Telco players.

Unlike regular accelerators, corporate accelerators are funded by a business corporation and focus on finding solutions that are specific to the own corporation to support and develop corporate innovation.

Startups profit from corporate accelerator programs because they get the chance to refine their ideas and products and ultimately increase their revenue, by signing a commercial agreement with the corporate. The corporation benefits from getting first-hand access to innovative ideas that are an ideal fit for its existing businesses

Corporate innovation is the implementation of innovation opportunities into established business models.

Corporations usually focus on their core product and try to improve it gradually. However, they often miss the chance of developing and introducing innovations.

Startups, on the other hand, excel at re-imagining outdated business models and are therefore offering innovative ideas more often. On that account, startups can help established corporations to find new solutions. To compete, corporate innovation is necessary for both, established corporations and startups.

Demo Days are events that are organised by incubators, accelerators or even Venture Capital firms.

At Wayra, we only look for relevant innovation: We scout startups after a request from a Telefónica business unit. Selective startups can pitch their solutions in a defined time to a jury of investors or Telefónica business units, or both.

Wayra Demo Days are an excellent chance for young businesses to connect and showcase their ideas for establishing a customer-supplier relationship between themselves and Telefónica.

Startup incubators are institutions that support startups during their founding process. By providing mentorship, IT-infrastructure etc., innovators receive the necessary means for refining business ideas that are based on innovation.

While incubators and accelerators are both ways of supporting startups that involve mentoring and providing networks, the two have a few differences: Startup incubators rarely include financial funding and usually support startups that are at the beginning of their business ideas, while accelerators work with startups having MVPs already.

A pilot project/ proof of concept (PoC) is an opportunity for a corporation to test a new business solution, and big a chance for the startup that has developed the solution. It can build the foundation for landing a commercial agreement with the corporation. The idea is that a company tests an innovation for a limited period and in a smaller scale to see if a larger investment might be lucrative. It should be as risk-free as possible for both parties.

If startups are getting paid for the pilot project, it can be defined as paid pilot project. At Wayra Germany, we only work with paid pilot projects, which offers startups the possibility to test their solution in a joint PoC with a business unit from Telefónica.

Besides getting up to €25.000 equity free budget for four months, startups additionally get mentoring, coaching, office space, partnership perks and access to an international startup ecosystem.

A scale up is a startup that has passed the initial stage and is now in the phase of growth. This means it has a product market fit and thus also a proof of concept. There is already some revenue but for the scale up to continue to grow, it still needs external capital. However, there are a few startups in this stage that are so successful that they don’t rely on any external funding.

Founding a startup and navigating the business world can be overwhelming, challenging and stressful.

Most information is not readily available to founders. Instead, they need to find ways to educate themselves on legal aspects, funding possibilities, business networks, etc. Startup mentor programs support them by connecting them with business mentors – people who are already successful and have mastered what the founders are yet to learn.

A startup mentor is experienced in business and shares their knowledge and expertise with a mentee. While a mentor is an expert in a particular business area due to years of experience in this industry, a coach has typically received special training to help clients reach their full individual potential. Mentors usually offer mentoring in addition to their actual position in a company, whereas coaches provide coaching as their full-time profession.

The venture client model refers to the establishment of (pilot) customer relationships between startups (ventures) and corporate entities (clients). Instead of equities, the corporate acquires the startup's product.

At Wayra, we are looking for startups and their solutions for certain problems of our mother company, establishing a customer-supplier relationship between ourselves and the startup.

The advantage is that we only look for relevant innovation: We scout startups after a request from a business unit, and therefore provide real value for both sides: the startups and the corporate.

The anti-dilution protection prevents a VC investor from an economic loss of value of their investment arising from new shares offering.

VC investments are often made during the early or expansion stage of a startup to secure early access to a profitable business. During these phases, one cannot yet predict whether a company will succeed or fail. To have a certain security in the event of declining business valuations, Venture Capital investors often use the anti-dilution protection.

When investing in a startup, VC firms usually include an anti-dilution clause in the contract. This is partly because additional rounds of funding may be necessary to keep a startup from failing. The anti-dilution clause is supposed to prevent the initial investors from being at a financial disadvantage compared to investors who join at a later stage, when the startup is less promising and therefore less valuable.

Bootstrapped businesses are those that have been founded without any external funding. The company is fully financed by the founders themselves. Some startups have no choice but to finance themselves, for others it is a conscious decision to do without external capital. 

Startups that did not raise a funding round and are completely financed by founders’ capital are known as bootstrapped startups. At the very early stage most businesses remain bootstrapped and they are particularly sought by VCs.

The cash burn rate indicates the point at which a company will run out of money if the (negative) cash flow remains the same and there is no external addition of capital. The cash runway, on the other hand, measures how long the money will last at this cash burn rate.

The cash burn rate is an important indicator for startups pitching for investment. A higher cash burn rate indicates a stable business situation and may well be a factor that investors consider. 

Burn Rate Formula

There is a relatively simple formula to calculate both the burn rate and the cash runway:

Burn Rate = (Starting Balance – Ending Balance) / # Months

Cash Runway = Current Cash Balance / Burn Rate

A capitalization table, or cap table, shows a company’s equity capitalization. The capitalization table provides an essential reference for financial decisions involving equity ownership, market value and market capitalization. 

Cap Table for Startups

Startups may use cap table to keep track of equity ownership. A basic cap table lists each type of equity capital, the individual investors and the share prices. More complex tables can also contain information on public offerings and alike. 

A capitalization table is a simple but private document that is not published. When a new financing round is carried out to get new funding, the cap table should be updated.

The term “cash runway” refers to the amount of time (typically in months) a business has before it becomes insolvent, assuming it does not receive any external funding. To calculate the cash runway, one uses the burn rate that calculates the speed at which a company spends its capital. The total cash a company has, divided by the current burn rate, equals the cash runway.

The churn rate refers to the number of customers a company has lost over a period of time in relation to the number of customers the company still has. If the churn rate is too high, then it means that the company is losing significantly more customers than it is bringing in.

A convertible (loan) note is a type of short-term debt which can be converted into equity at a later point. Typically, this happens in conjunction with a future financing round.

Convertible loans are popular with startups, as they can raise cash from investors without going through the process of an investment round.

The investor grants a loan to a startup and receives the option or promise of equity in the company instead of the amount lend. In this case, the main advantage of issuing convertible note is the simplicity, less costs from legal perspective, and that the note does not force the investor or issuer to determine the company’s value immediately.

Corporate Venture Capital refers to the direct investment of corporate funds into external startups. Large companies use CVC to invest in small and innovative startups by acquiring equity or using joint venture agreements. 

The main goal of Corporate Venture Capital is to either gain an advantage over competitors or to gain access to companies that could become competitors in the future. 

There are several ways for CVCs to invest in interesting startups: early-stage financing, seed capital funding, expansion financing, initial public offering, as well as mergers and acquisitions.

Demo Days are events that are organised by incubators, accelerators or even Venture Capital firms.

At Wayra, we only look for relevant innovation: We scout startups after a request from a Telefónica business unit. Selective startups can pitch their solutions in a defined time to a jury of investors or Telefónica business units, or both.

Wayra Demo Days are an excellent chance for young businesses to connect and showcase their ideas for establishing a customer-supplier relationship between themselves and Telefónica.

The drag-along clause is a usual legal provision agreed upon between different groups of shareholders.

In corporate law, a drag-along is a concept entitling the majority shareholders of a company to sell their stake, while forcing minority shareholders to join in the deal.

In business, drag-along rights serve to protect a majority shareholder against minority shareholders delaying the sale of the company. Still, drag-along rights protect minority shareholders in a way, too, since in most cases, they can sell their shares on the same terms and conditions as the majority shareholder.

Due Diligence refers to a review, audit or investigation intended to mitigate potential risks arising from an investment or business decision. The strategy is applicable to various contexts such as a background check on a potential employee or the comparison of profit margins of competitors.

Equity is a term that is used when talking about corporate finance and represents the book value of a company. It can be found on a company’s balance sheet and is an important variable for analyzing the company's financial health. However, from an acquisition perspective, equity is the value of a company minus its liabilities.

In the field of finance and investment, “exit” is a commonly used expression for the sale of shares or equity previously purchased.

In the field of finance, due diligence (frequently referred to as “accounting” due diligence) comprises the examination of financial records prior to entering a proposed transaction with a third party. Financial due diligence usually involves the understanding of a company from various financial matrices.

The money for the launch of a startup can originate from various sources. Personal savings and loans represent the largest part of startup capital. Friends and family, sometimes called “angel investors”, banks, accelerators, crowd funding and venture capital represent only some of the other common funding sources.

Investment committees play a crucial role in the investment decision making process of companies, e.g., when it comes to retirement plans. As a rule, committee members are required to establish a formal process to govern and oversee the investment strategy and performance in accordance with their fiduciary responsibilities.

The members of the investment committee have a duty to prepare an IPS to articulate and set an investment philosophy and strategy in accordance with the agreed due diligence procedures. Generally speaking, IPS is a document that lists the investment goal, strategy, and objectives.

The term “investment round”, also referred to as “capital round”, “financing round” or “money round”, describes one of the stages that a capital company (mostly a startup or scale up) undergoes to raise capital. An investment round is usually opened when funds are needed for further development.

A liquidation preference is a contractual arrangement which determines the payout procedure, e.g., in the event of a corporate liquidation or an exit case. Generally, the investors or preferential shareholders get their money back first.

In venture capital contracts, a liquidation preference clause is widely used to protect the company’s investors and preferential shareholders when a company is sold.

The acronym MRR stands for “monthly recurring revenue” and refers to the expected monthly revenue stream of a company.

Recurring revenue is the relatively stable part of a company’s turnover which is expected to persist in the future. Particularly for quickly developing startups, it is important to understand the general business profitability and cash flow.

Market capitalization refers to the total value of a company's outstanding stock and is calculated by multiplying the number of outstanding shares by the current market price of a share.

With this type of liquidation preference, the investor has two options: They can either exercise the liquidation preference or convert their preference shares into common shares of equal value.

A pay-to-play clause means that investors are required to participate in subsequent funding rounds at the request of company. Their engagement is expected to be long-term.

This basic agreement is in most cases executed on a pro-rata basis. Investors usually invest to protect themself from dilution arising from new capital raise.

Post-money valuation refers to the estimated market value of a company after a round of financing. The calculated market value of a company before a round of financing is called pre-money valuation. The difference between pre-money and post-money valuation is the amount of new equity that has been raised.

Pre-emptive rights comprise a contract clause, also known as the anti-dilution protection, according to which early investors can buy additional shares for a stable price in the future, even if the price of a share has increased for new investors.

They help these investors to cut their losses if new shares are priced lower than the original shares were. In the European Union and Great Britain, pre-emptive rights are required by law for buyers of common stock. Having a pre-emptive right does not oblige a shareholder to buy additional shares.

The term “pre-money valuation” refers to the market value that an investor assigns to a company before it has received any or new external funding. The pre-money valuation is generally the basis for share price calculation. The market value which the same company holds after the funding is called post-money valuation.

To keep things simple, here is an example of the difference between pre-money valuation and post-money valuation: Presuming a company is worth €1 million (pre-money valuation) and an investor is looking to put in €250,000, the post-money valuation then equals €1.25 million. The equation is simple: pre-money valuation + new equity = post-money valuation.

Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies.

The customer retention rate is a means of calculating how many customers turn into regulars. It is an important KPI that shows how good a company is at establishing positive, strong customer loyalty. It is a proxy for customer satisfaction and product quality.

The retention rate is the opposite of the churn rate which refers to the percentage of customers a company has lost over a certain period. Together they always sum up to 100 percent. Subscription-based business models heavily depend on having a good retention rate. If the rate declines, countermeasures need to be initiated.

To calculate the customer retention rate, one uses the formula ((E-N)/S) x 100.

E refers to the number of customers at the end of a period, N refers to the number of customers acquired during that period and S refers to the number of customers a company had at the start of the period.

Seed funding is a form of early-stage funding in which investors give money to comparably young businesses. Generally, it is the first major round where startups raise money from institutional investors.

Before this, startups sustain themselves on pre-seed funding, which often means family and friends as angel investors as well as business angels. Seed funding is used to prove product-market fit and to establish the startup on the market.  

After the seed round, creativity in naming conventions is gone and all following rounds are named alphabetically starting with Series A. The Series A round is where the startup really picks up speed in growth. Funding is used for extensive employee hiring and product development.

Series B funding is usually where a startup looks to expand outside of their current markets. This can for example be from DACH to Europe or from Europe to US. Startups at this stage already have millions in revenues and a significant customer base.

In the Series C funding round, a startup is looking to keep the growth rate high by hiring employees in product development, sales, and marketing. The Series C is often the round where startups move into profitability or are looking for an exit.

Generally, an exit strategy is a plan executed by an investor or owner to liquidate or dispose of a financial position, e.g., an unprofitable startup.

However, an exit strategy can also be executed when the business is performing well. In this case, an investor may pursue an exit strategy through an initial public offering (IPO). IPO gives previous investors an exit route to sell their stake.

Startup funding, also referred to as startup capital, describes the provision of the financial means required to launch a new business. The money can be invested in anything that supports the startup in making the leap from idea to factual business.

Investors, VC firms, innovation labs etc. have portfolios of the businesses and startups they are already investing in or have invested in in the past. They give other investors and startups, those looking for funding, an overview and an idea of what a certain investor focuses on when investing. Experienced startups will only contact investors who focus on similar technology, sectors, regions etc.

The cash runway gives investors insights into a company’s profitability and solvency. A runway that is gradually shrinking from month to month indicates that a company spends more money than it generates.

Investors funding a startup often monitor a startup’s runway after an investment to estimate when the next financing round will have to take place. Generally, a startup should have 15-18 months of runway after an investment round.

Per definition, a strategic investor is an individual or a company that primarily invests for strategic rather than financial reasons. Although financial aspects are a factor that strategic investors keep in mind, making money is not their sole focus as is the case with financial investors.

Corporate and governmental investment vehicles are typically of strategic nature. Corporates use it to keep their competitive advantage or to enter adjacent markets. Governments invest to nurture underdeveloped markets, geographically and technologically.

There are two types of investors that have different intentions for investing: While the financial investor pursuits a return on their capital and is therefore motivated by their interest in multiplying their investment, the strategic investor has a different approach: The goal of this investment is to gain a strategic advantage.

This strategic advantage may be a say in the development of a business, access to a new and innovative technology, the improvement of one’s own business model or something else entirely.

Tag-along rights are designed to protect the minority shareholders. A tag-along clause empowers the minority shareholders to purchase and/ or sell their stake in the company at the same price and terms. Tag-along rights are also referred to as “co-sale rights”.

When a startup first starts raising money, convertible bonds are a regular choice. These are later converted into regular shares. To make the acquisition of convertible bonds attractive to investors, there are specifications like a valuation cap and a discount. Without either, the convertible bonds would convert into stocks at the same price as they do for new investors.

A valuation cap entitles early investors to equity priced below the market cap. The valuation cap sets a maximum price at which the convertible bonds will convert into equity. It is not a valuation of the startup's current value. It only becomes relevant if the pre-money valuation (minus discount) of the financing round is higher than the valuation cap. Note: The discount is not applied to the valuation cap.

5G is the fifth generation of wireless technology that marks a big jump from the fourth generation. Tech companies and startups are developing new and innovative business solutions based on 5G.

Innovative minds have come up with numerous usages in which 5G plays an integral role. The digitalization of industry profits from 5G flexibility, remote and real-time control, performance, predictability and many more. From remote consultation in healthcare to automated communication of vehicles in the automotive sector and prediction of power shortages in the energy sector – 5G has many use cases.

End customers are familiar with 5G mainly through new smartphone generations. Many smartphone producers are focusing on bringing devices to the market that are 5G-ready. Simultaneously, telecommunications companies are busy with their 5G network expansion.

5G is faster, more flexible and more reliable than 4G. Gigabytes of data that used to take minutes to download can be downloaded in seconds thanks to 5G. Many solutions that are being worked on in theory do not work in practice with 4G, partly because of the factor latency. With 5G, real-time-actions can be executed remotely.

Edge computing allows data to be collected and processed within a device rather than via a cloud. This provides improved response times and bandwidth availability. Edge computing is becoming more relevant as the IoT progresses.

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Cloud computing has become an understandable concept: Data is being generated by devices and then sent to a cloud for storage, analysis, processing etc. The data can then be accessed from various points or sent back to the device after processing.

Edge computing, on the other hand, means that the analysis and processing of the data takes place within the device collecting the data itself.

Industrial 5G is a specialized form of fifth generation wireless technology. Due to its enormously quick transfer of data it will come in handy for industries working with AI, robotics, augmented reality and virtual reality. It is designed for industrial environments and differs from consumer-focused applications.

LTE-M is a network technology that stands alongside NB-IoT, 4G and 5G and it is the ideal technology solution for specific use cases. It has a relatively high latency and can handle the transmission of moderate amounts of data, has a fairly long battery life cycle and a comparably good coverage in buildings.

Like LTE-M, the Narrowband Internet of Things (NB-IoT) is also a network technology. The main difference between the two is that LTE-M has a higher latency and transmission of larger amounts of data, while NB-IoT has a better coverage inside of buildings and a longer battery life cycle.

In computing, the term latency refers to the delay between the instruction of a data transmission and the actual start of the data transfer, i.e. clicking a button on a device and the device reacting. New wireless technologies (5G) have improved latency compared to older generations (4G and lower).

Narrowband IoT is a radio technology that works extremely well for the occasional bidirectional transmission of small amounts of data. It is partly used in water meters, parking spaces and streetlights. NB-IoT is considered one of the most promising innovations in M2M-communication for the Internet of Things.

Characteristics and Benefits of Narrowband IoT

NB-IoT is ideal for transmitting data with a low bandwidth. It is low in material costs for the modem, has a low energy consumption and long battery life cycle. Narrowband IoT provides broad coverage over long distances and can be used inside of buildings as well as subterranean.

There are two possible ways that communication service providers can take when transitioning from 4G to 5G: 5G standalone (SA) and 5G non-standalone (NSA).

The transition from 4G to 5G can either happen by using the infrastructure that already exists for 4G – which is referred to as 5G non-standalone – or by using the infrastructure for 5G that is currently being built – which is referred to as 5G standalone.

The advantage of going for NSA is that one can start using 5G much sooner which is a reason for many providers to choose this route, with the plan to switch to 5G standalone in the future. However, for some 5G use cases, only the SA option is feasible as it will have extremely low latency.