Founders, investors and even Shark Tank India sharks use a lot of short words and abbreviations. If you have ever nodded along while hearing “ARR”, “CAC” or “post-money”, this guide is for you. Each term below has a simple meaning, an example and, where it helps, a formula in plain text.

The short version

Deals: merger, acquisition, amalgamation
Revenue numbers: ARR, MRR, GMV, net revenue, gross margin, ACV, AOV
Customer numbers: LTV and CAC
Funding and legal terms: NDA, pre-money, post-money, term sheet, ROFR, anti-dilution, liquidation preference, preference shares
Investor returns: IRR, DPI, TVPI

Part 1: Company deals

1. Merger

Two companies agree to join and become one. Their owners usually get shares in the new company.

Example: Vodafone India and Idea Cellular merged in 2018 to form Vodafone Idea.

2. Acquisition

One company buys another, either its shares or its assets. The buyer takes control.

Example: Walmart bought a majority stake of about 77% in Flipkart in 2018, in a deal reported at around $16 billion.

3. Amalgamation

This is the legal word, used in Indian company law, for combining companies into one. In an amalgamation, the assets and debts of one or more companies move into another.

Example: HDFC Ltd was amalgamated into HDFC Bank in July 2023.

Part 2: Revenue and sales numbers

4. ARR (Annual Recurring Revenue)

The yearly money a company expects from subscriptions and contracts that repeat. One-time sales are not counted.

Formula: ARR = monthly recurring revenue × 12

Example: 200 customers paying ₹5,000 a month gives ₹10 lakh a month, so ARR is ₹1.2 crore.

5. MRR (Monthly Recurring Revenue)

The same idea, but per month. It is the number software and subscription startups watch most closely.

Formula: MRR = number of paying customers × average monthly price

6. GMV (Gross Merchandise Value)

The total value of goods sold through a platform, before returns, discounts and the platform’s cut. It is not the company’s own income.

Example: If shoppers buy ₹100 crore of goods on a marketplace and it keeps 10% as commission, GMV is ₹100 crore but the marketplace’s revenue is about ₹10 crore.

7. Net revenue

What a company actually keeps from sales after taking out returns, discounts and similar deductions.

Formula: Net revenue = gross sales − returns − discounts

8. Gross margin

How much is left from each sale after paying the direct cost of making or delivering the product. It shows if a business model can work before other costs like marketing and salaries.

Formula: Gross margin % = (revenue − cost of goods sold) ÷ revenue × 100

Example: A soap sells for ₹100 and costs ₹40 to make and ship. Gross margin is 60%.

9. ACV (Annual Contract Value)

The average yearly value of a customer contract. It is common in business software, where one customer signs for several years.

Formula: ACV = total contract value ÷ number of years

10. AOV (Average Order Value)

The average amount a customer spends per order. Online stores try to raise it with bundles and free-delivery limits.

Formula: AOV = total revenue ÷ number of orders

Part 3: Customer numbers

11. LTV (Lifetime Value)

The total profit a business expects from one customer over the time they keep buying.

Formula (simple): LTV = average order value × orders per year × years as a customer × gross margin

12. CAC (Customer Acquisition Cost)

How much it costs to win one new customer, including ads and sales effort.

Formula: CAC = total sales and marketing spend ÷ number of new customers

Why they go together: Investors often compare LTV with CAC. If it costs ₹500 to win a customer who brings in ₹3,000 of profit over time, the business looks healthy. If it costs more to win a customer than the customer ever brings in, growth loses money.

Part 4: Funding and legal terms

13. NDA (Non-Disclosure Agreement)

A contract that says certain information must stay secret. Founders sign NDAs with partners, employees and sometimes investors, though many investors refuse to sign one at the first meeting.

14. Pre-money valuation

What a company is valued at before new money comes in.

15. Post-money valuation

The value after the new money is added.

Formula: Post-money = pre-money + investment. And an investor’s share = investment ÷ post-money.

Example from Shark Tank India: A founder who asks for ₹1 crore for 1% is saying the company is worth ₹100 crore. If a shark offers ₹4 crore for 9%, the company is valued at about ₹44 crore. Our Season 5 recap has more such examples.

16. Term sheet

A short, usually non-binding document that lists the main terms of an investment: the amount, the valuation, the investor’s rights and conditions. The final legal agreements follow after it is signed.

17. ROFR (Right of First Refusal)

If a shareholder wants to sell shares, the company or existing investors get the first chance to buy them on the same terms.

18. Anti-dilution

A clause that protects an investor if the company later raises money at a lower valuation. It adjusts the investor’s shares so they are not hurt as much by the lower price. It can be hard on founders because it takes away some of their ownership.

19. Liquidation preference

Decides who gets paid first, and how much, if the company is sold or shut down. A 1x preference means the investor gets their money back before ordinary shareholders get anything.

20. Preference shares

A type of shares that come with special rights, such as getting paid back first or a fixed return. Ordinary (equity) shares do not have these extra rights.

Part 5: How investors measure returns

21. IRR (Internal Rate of Return)

The yearly growth rate of an investment, taking into account when money went in and when it came out. A higher IRR in a shorter time looks better.

Example: ₹1 crore that becomes ₹2 crore after 4 years is an IRR of about 19% a year.

22. DPI (Distributions to Paid-In capital)

How much cash a fund has actually returned to its investors, compared with what they put in.

Formula: DPI = money returned to investors ÷ money invested by investors

23. TVPI (Total Value to Paid-In capital)

The cash returned plus the estimated value of investments still held, compared with money put in.

Formula: TVPI = (money returned + value of remaining holdings) ÷ money invested

The difference between the last two: DPI counts only money already received, while TVPI also counts value that is still on paper.

Questions to think about

Which of these numbers would you check first before investing in or working for a startup?
Is a very high valuation good for a founder in the long run, or can it create pressure later?
Do you think startup terms should be explained more simply when companies talk to the public?

Buzz Around Business

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