Reference

Glossary

The terms of the Tax Lease and of the Volcano model, defined once and for all.

Short, neutral definitions. For the full mechanism, the Tax Lease page; for the figures of each case, the video call.

Tax Lease: A scheme connecting a tax liability with the funding of research: the investor obtains a certain tax benefit and a stake. It is not public funding: it is funding between private parties, tax-incentivised by the State.
AIE · Economic Interest Grouping: A tax-transparent corporate vehicle (Ley 12/1991) that attributes economic and tax results directly to its partners, with no intermediate taxation.
Tax transparency: A regime under which the vehicle's tax results are attributed directly to the partners, who are taxed in their own hands.
Tax investor: Whoever contributes capital to the AIE and becomes a temporary partner: they recover through the deduction and the BIN attributed to them, in their own tax return. It is the figure of the Tax Lease and of the tax simulation. It requires Spanish tax residence; for those who do not yet have it, Volcano advises on the relocation process.
TRL · Technology Readiness Level: A nine-level scale (NASA/EU) measuring the maturity of a technology, from basic principles (TRL 1) to a system proven in real operations (TRL 9). It is the reference of public R&D programmes and of the Volcano pyramid.
CRL: Commercial Readiness Level: commercial maturity measured in its own right, in parallel with the TRL. Market risk outlives laboratory risk and needs its own thermometer: the nine levels, with what each one proves, are in the CRL ladder.
Smoke test (fake door): Validation technique that presents a product as if it existed (an ad, a page with a form) to measure real purchase intent before building it. It measures, it does not deceive: whoever leaves their email is told the truth afterwards. Deep dive: the CRL ladder.
PoC · Proof of concept: A small-scale demonstration that the technical principle works (TRL 3): it answers "can it be done?". It is not a product: it precedes the prototype, which shows that the system works.
MVP · Minimum viable product: The minimum version of the product tested with real users (TRL 6-7): it answers "should it be done?". It closes the triad: the PoC validates the principle, the prototype the system, the MVP the users' desire.
Valley of death: The stretch in which a project's accumulated cash is negative: it begins on the first working day and reaches its lowest point at the end of the R&D, when the product exists but revenue does not yet. Traditional funding thins out exactly where the need for cash explodes. On the path it is crossed by the flexible bridge: each phase with its instrument (Tax Lease from TRL 1 to 8, national funds, direct European funds).
The path: The thirteen phases leading from problem to profit, in four macro-phases (R&D and commercialisation) and with two cross-cutting markers (protected IP and funding). Each phase exists because it closes a question whose answer changes a decision. The full page.
The seven decisions: The seven questions that close phases F1 to F7 of the path: clearing the phase is the decision, and the discipline is to kill early and cheaply whatever does not deserve to continue. Not to be confused with the eight doors of capital, which are something else. On the path.
Premature scaling: Spending on growth before retention and unit economics can sustain it: the most common cause of death documented by industry research. On the path it lives on the border between traction and product-market fit.
Private investor: Whoever comes into the startup through a convertible note, with the stake fixed on day one. Does not take part in the AIE: their return is tied to the value of the intellectual property, not to the tax route.
BIN · Negative Tax Base: A tax loss that reduces the taxable base of the partners or of the entity in future years.
Gross tax liability: The amount of tax before deductions are applied.
Deductible base: The amount on which the R&D and technological innovation deduction is calculated: the technically qualifying costs of the project.
Tax deduction: An amount subtracted directly from the tax liability, with a greater effect than merely reducing the base.
I+D · Research and Development: Research and development in the sense of the Frascati Manual; in the Canary Islands, a 75.6% deduction.
iT · Technological innovation: A tax category distinct from I+D, with a lower degree of technical novelty and a lower deduction (45% in the Canary Islands).
IMV · Binding Reasoned Report: A Ministry report certifying the project's classification (I+D or iT) and its deductible base, binding on the Tax Agency. Once TRL 8 is passed, the activity no longer qualifies as R&D but as technological innovation (iT), with its own deduction.
Memoria técnica (technical report): The declaration of the R&D activities to be carried out: it is what the ENAC-accredited certifier examines and what the motivated report qualifies. Together with the business plan, which calls and investors ask for, it forms the dossier with which the project presents itself to funding with the concept formulated (TRL 2).
ENAC: National Accreditation Body: guarantees the independence of the certifier that examines the project.
ZEC · Canary Islands Special Zone: A regime allowing eligible companies to pay 4% corporate income tax, against the general 25%.
REF · Economic and Tax Regime of the Canary Islands: The archipelago's set of tax measures; among others, it raises R&D and technological innovation deductions far above the ordinary regime: up to 75.6% for I+D (an 80% increase, art. 94.1.a Ley 20/1991) and 45% for technological innovation (a specific rate, 13th additional provision, Ley 19/1994).
LIS: Ley 27/2014 on Corporate Income Tax; its articles 35, 39 and 43 govern deductions, deadlines and attribution in AIEs.
AEAT: The Spanish State Tax Administration Agency: the Spanish tax authority.
Venture builder: An organisation that builds companies in series and shares in the value they create.
Frascati Manual: The OECD standard that defines what research and development is.
Adjacent possible: The set of what becomes reachable in one step from what is known: where innovation lives.
Register of contributions: A record of who has contributed to each unit of knowledge; the basis of the royalties.

Understanding innovation

The terms of the essay

59 new entries, with the essay's definition and the chapter that treats each term. The existing entries do not change.

Absorptive capacity: The capacity of an organisation to recognise the value of external knowledge, assimilate it and apply it; it grows with the breadth of the internal knowledge base (Cohen and Levinthal). In depth: chapter 03.
Additionality: In the measurement of impact, the difference between what the project has produced and what would have happened anyway; the impact is the difference, not the observed total. In depth: chapter 14.
Angel investor (business angel): A natural person who invests their own capital in early-stage companies, before institutional venture capital, often contributing experience and relationships as well; the evidence on their results is in chapter 10. In depth: chapter 10.
Appropriability (regime of): How far an innovation can be defended against imitation, through the combined effect of legal instruments and the nature of the knowledge (codified or tacit). In depth: chapter 11.
Architectural innovation: Changes the relations between components while leaving the components familiar; the most insidious for incumbents, who classify it as incremental (Henderson and Clark). In depth: chapter 04.
Beachhead: The niche on which to concentrate resources in order to cross the chasm: acute pain, dense word of mouth, a complete whole product; the bridge to the large market. In depth: chapter 05.
Chasm: The discontinuity between the first adopters and the majority of the market, with incompatible purchasing criteria; most technology products die there (Moore). In depth: chapter 05.
Claims: The part of the patent that delimits the exclusivity: protection covers what falls within them, not what the description recounts. In depth: chapter 12.
Complementary assets: Everything that is needed, beyond the technology, to take it to market (production, channels, brand, support); if specialised and controlled by third parties, they shift the capture of value towards them (Teece). In depth: chapter 11.
Concept: The idea converted into a verified mechanism, at least theoretically: physical and economic limits checked, risks named. Distinct from the idea, which is only a hypothesis. In depth: chapter 03 · chapter 17.
Convertible note: The instrument through which the private investor enters: it converts into a shareholding, with the share fixed at the moment of entry, at defined events. In depth: the convertible note · chapter 09 · chapter 10.
Creative destruction: The process by which innovation replaces existing economic structures while creating new ones; for Schumpeter, the engine of capitalism. In depth: chapter 01.
Design thinking: A design method centred on the user (empathy, definition, ideation, prototyping, testing); effective on ill defined desirability problems, it does not replace technical and economic validation. In depth: chapter 03.
Disruptive innovation: In Christensen's technical sense: entry from below or from non-consumers with a product that is initially inferior on the traditional dimensions, and that improves until it displaces the incumbents. It is not a synonym for radical. In depth: chapter 04.
Dominant design: The product architecture around which a sector converges as a de facto standard; its emergence shifts competition from variety to efficiency. In depth: chapter 05.
Exploration / Exploitation: The trade-off between the search for new possibilities (uncertain, distant outcomes) and the exploitation of existing certainties (close, appropriable outcomes); systems that learn drift towards the second (March). In depth: chapter 16.
Freedom to operate: The analysis of the freedom to implement a solution without infringing other people's rights in force; distinct from patentability, it must be carried out before industrial investments. In depth: chapter 12.
General purpose technology (GPT): A pervasive technology, continuously improving, capable of generating complementary innovations in many sectors (steam, electricity, computing, artificial intelligence). In depth: chapter 04.
Goodhart's law: When a measure becomes a target, it ceases to be a good measure: whoever is assessed on it optimises it directly, disconnecting it from the phenomenon. In depth: chapter 15.
Industrial secrecy: The protection of information that has value because it is secret and is guarded with reasonable measures; potentially unlimited duration, no disclosure, no defence against independent invention. In depth: chapter 12.
Innovation: A new or significantly improved product or process, made available to users or brought into use (Oslo Manual); distinct from invention, which is the creation of the new alone. In depth: chapter 01.
Innovation accounting: The accounting of the early phases: metrics tied to the hypotheses being validated and capable of changing decisions, as opposed to vanity metrics (Ries). In depth: chapter 15.
Inventive step: A requirement of patentability: the invention must not be obvious to a person skilled in the art in the light of the state of the art. In depth: chapter 12.
IRL (Investment Readiness Level): Scale of investment maturity: the progression of validated business hypotheses, from the formulated model to the metrics that demonstrate repeatability (Blank). In depth: chapter 06.
Jobs-to-be-done: The correct unit of analysis of demand: the job the customer is trying to get done, for which they "hire" products and services (Christensen). In depth: chapter 02.
Law of the minimum: The principle of Sprengel and Liebig: growth is determined by the scarcest factor, not by the sum of those available; applied to teams, the project performs according to the competency that is missing. In depth: chapter 16.
Lead time: The temporal advantage over imitation; in the empirical surveys, one of the most effective protection mechanisms in most sectors. In depth: chapter 11.
Lead user: A user who experiences today the needs that the market will meet tomorrow, and who often builds embryonic solutions themselves; a documented source of innovations (von Hippel). In depth: chapter 03.
Licensing: The model that separates ownership and use of the technology: the owner grants the use to those who hold the complementary assets, capturing value as a fraction of theirs. In depth: chapter 11.
Lock-in: The locking of a system onto a solution, even a sub-optimal one, through path dependence: the coordination costs of migrating exceed the individual benefit. In depth: chapter 05.
Macro-phase (Volcano method): Each of the four major stages of the path: discovery (F1–F2), R&D (F3–F7), market (F8–F11) and scale (F12–F13). Two domains run across them: the technical one (TRL thermometer, which dominates the R&D) and the commercial one (CRL thermometer, which works from F1 and dominates from F8). Deep dive: chapter 17.
Market pull / Technology push: The two directions of travel of innovation processes: from the need towards the technology, or from the technology towards a use; the starting point determines the dominant risk. In depth: chapter 02.
Milestone: The evidence declared in advance that unlocks the next phase or tranche; from the investor's side, the point at which the option is exercised or abandoned. In depth: chapter 07 · chapter 09 · chapter 10.
Minimum sellable version: The first version that can charge: neither complete nor perfect, but with the minimum technical and legal requirements to handle a transaction (payments, invoicing, user accounts). It answers "are they willing to pay for it now?"; in the path, the threshold of phase F8. In depth: chapter 06.
MMP (Minimum Marketable Product): The version that competes in the broad market: polished user experience, no blocking defects, ready for marketing at scale. It answers "are we ready to sell it to everyone?"; in the path, F9-F10. In depth: chapter 06.
MRL (Manufacturing Readiness Level): Scale of manufacturing maturity: processes, yields, supply chain, industrial costs; an axis autonomous from the TRL. In depth: chapter 06.
Network effects: When the value of the product for each user grows with the number of users; they produce winner-take-most dynamics and make critical mass decisive. In depth: chapter 05.
Organisational ambidexterity: The capacity to pursue together the exploitation of the existing business and the exploration of the new, in structurally separate units integrated at the top (O'Reilly and Tushman). In depth: chapter 16.
Patent: A territorial and temporary right of exclusivity (a maximum of twenty years) granted in return for full disclosure of the invention; it protects what the claims delimit. In depth: chapter 12.
PCT (Patent Cooperation Treaty): The international filing route: a single application that buys time (30-31 months from the priority date) before choosing the territories; it does not grant a "worldwide patent". In depth: chapter 12.
Pivot: The structured change of one component of the model that preserves the accumulated learning; the rational outcome of a refuted hypothesis, distinct from obstinacy and abandonment. In depth: chapter 07.
Power law: The shape of the distribution of returns on investment in innovation: a few exceptional outcomes generate most of the aggregate return; the average does not describe the typical case. In depth: chapter 10.
Priority (right of): The mechanism by which the first filing fixes the date that counts for novelty throughout the world, with twelve months in which to extend to other territories with backdating. In depth: chapter 12.
Product-market fit: The condition in which retention and unit economics hold at small scale: cohorts that persist, a positive unit margin, organic growth; phase F9 of the path. In depth: chapter 05 · chapter 17.
Psychological safety: The shared belief that the team is safe for interpersonal risks: reporting errors, disagreeing, proposing unripe ideas; the main predictor of team effectiveness (Edmondson). In depth: chapter 13.
Real option: The right without the obligation to take a future action (continue, reopen, expand); phased financing and the stock of concepts are applications of it, and its value grows with uncertainty. In depth: chapter 08 · chapter 10.
Retention (by cohort): The share of users from one period still active in the following periods; the hardest metric of perceived value to fake. In depth: chapter 15.
S-curve: The typical course of the performance of a technology with respect to development effort: slow, then rapid, then saturated; technological transitions are crossings of curves. In depth: chapter 05.
Slack: The margin of time, attention and resources not saturated by operational work; the capacity for exploration and response lives there. In depth: chapter 13.
Spillover: The value of knowledge that overflows beyond whoever pays for it; the reason for private underinvestment in research and for public intervention (Arrow). In depth: chapter 09.
Spinout: The company founded by employees who leave taking with them knowledge and unrecognised ideas; the mechanism by which unrecognised value comes back as competition (Klepper). In depth: chapter 13.
Stage-gate: The phased process with decision gates: criteria fixed beforehand, evidence examined by someone other than the proposer, stopping as an honoured outcome (Cooper). In depth: chapter 07.
Stock of concepts (Volcano method): The inventory of documented projects and concepts, with their TRL and status, accumulated from previous cycles: an asset of reusable options, not an archive. In depth: chapter 08.
Sustaining innovation: Innovation that improves the product along the trajectory valued by the main customers; ground on which incumbents tend to win. In depth: chapter 04.
Theory of change: The explicit causal chain from activities to results to impact, with the assumptions at every link; the foundation of serious impact measurement. In depth: chapter 14.
Unit economics: The profit and loss account of the single customer or unit: contribution margin, acquisition cost, payback time; it has to hold at small scale before multiplying. In depth: chapter 07 · chapter 15.
Utility model: An industrial property right for inventions involving a smaller inventive step: relaxed requirements, a fast procedure, a shorter duration (in Spain ten years). In depth: chapter 12.
Vanity metrics: The metrics that grow anyway and change no decision (cumulative figures, views, followers); the test: which decision would change if the number were different? In depth: chapter 15.
Whole product: The product complete with everything needed for real use (integrations, services, training, complements); what the early majority demands and the early adopters forgive it for not having. In depth: chapter 05.

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