Glossary
Plain-English definitions of the terms that come up when you’re validating a startup idea or buying a business — with a real example, not just a dictionary entry.
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What is earnout?
An earnout is a contractual agreement in an acquisition where a portion of the purchase price is contingent on the acquired business achieving specific financial or operational milestones after the sale.
What is EBITDA?
EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is a critical financial metric used to assess a company's operational profitability and cash flow potential.
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What is letter of intent?
A Letter of Intent (LOI) is a preliminary, non-binding document outlining the proposed key terms and conditions for the acquisition of a business.
What is LOI?
An LOI, or Letter of Intent, is a preliminary, non-binding agreement outlining the key terms of a proposed business acquisition between a buyer and a seller.
What is LTV?
LTV, or Customer Lifetime Value, is the predicted total revenue that a business can expect to earn from a single customer over their entire relationship.
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What is personal guarantee?
A personal guarantee is a legally binding promise by an individual to repay business debt with personal assets if the business cannot fulfill its obligations.
What is PMF?
PMF, or Product-Market Fit, is the degree to which a product satisfies a strong market demand, indicating a viable and scalable business opportunity.
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What is SAM and SOM?
SAM (Serviceable Available Market) represents the portion of the total market that a business can realistically serve with its current offerings, while SOM (Serviceable Obtainable Market) is the share of SAM a business can realistically capture.
What is SDE?
SDE, or Seller's Discretionary Earnings, represents the total financial benefit a single active owner-operator receives from a business before income taxes and non-recurring expenses.
What is seller financing?
Seller financing is a debt arrangement where the seller of a business acts as the lender, agreeing to be paid for a portion of the purchase price over time rather than entirely upfront.
What is stock purchase agreement?
A Stock Purchase Agreement (SPA) is a legal contract outlining the terms and conditions when an acquirer buys the shares, and thus the entire entity, of a target company from its shareholders.
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What is TAM?
TAM, or Total Addressable Market, is the total annual revenue opportunity a business could capture if it achieved 100% market share in its specific market, with no competitors, geography limits, or pricing constraints.
What is TAM SAM SOM?
TAM, SAM, and SOM are the three tiers of market sizing — Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market — used by startup founders to validate a business idea and by acquirers to pressure-test a target company’s realistic revenue ceiling before writing a check.