Startup & Fundraising Glossary

An independent appraisal of a private company's common stock fair market value, required by IRS Section 409A. Used to set the exercise price of employee stock options.

A fixed-term program (typically 3-6 months) that provides startups with mentorship, education, and often a small investment in exchange for equity. Examples include Y Combinator and Techstars.

An individual or entity that meets SEC financial thresholds (e.g., $1M+ net worth or $200K+ annual income) and is permitted to invest in unregistered securities like startup equity.

A high-net-worth individual who invests personal funds in early-stage startups, typically in exchange for convertible debt or equity. Angels often invest before institutional venture capital.

A provision that protects investors from equity dilution if the company issues shares at a lower price in a future round. Common types are full ratchet and weighted average.

A group of individuals elected to represent shareholders and oversee company strategy. Board seats are often negotiated during funding rounds between founders and investors.

Building and growing a company using personal savings and revenue rather than external funding. Bootstrapped founders retain full ownership but accept slower growth.

A short-term financing round designed to keep a company running until it can close a larger funding round. Often structured as convertible notes or SAFEs.

The rate at which a startup spends cash each month, net of any revenue. A company with $100K monthly expenses and $20K revenue has a net burn rate of $80K/month.

Short for capitalization table. A spreadsheet that tracks all equity ownership in a company — founders, investors, employees with options, and any other shareholders.

The share of profits (typically 20%) that venture capital fund managers receive from successful investments. Also known as "carry," it is the primary compensation for VCs.

A waiting period (usually 12 months) before any equity vests. If an employee or co-founder leaves before the cliff, they forfeit all unvested shares.

The basic class of equity in a company, typically held by founders and employees. Common stock has fewer rights and lower liquidation priority than preferred stock held by investors.

A short-term loan that converts into equity during a future funding round, usually at a discount. It delays valuation negotiations and is popular for seed-stage fundraising.

Investment made by large corporations into external startups, often for strategic alignment rather than purely financial returns. Examples include Google Ventures and Intel Capital.

The reduction in existing shareholders' ownership percentage when a company issues new shares. Happens during every fundraising round, option pool expansion, or share issuance.

A funding round where the company's valuation is lower than in the previous round. It signals financial distress and triggers anti-dilution protections for earlier investors.

A clause that allows majority shareholders to force minority shareholders to join in the sale of a company. Ensures a small group of holdouts cannot block an acquisition.

The investigation process investors conduct before committing capital. Covers financials, legal structure, IP ownership, team background, and market opportunity.

Ownership interest in a company represented by shares. Equity gives holders a proportional claim on the company's assets and profits.

The fixed price at which a stock option holder can purchase shares. Also called the strike price, it is typically set at fair market value on the grant date.

The event where founders and investors realize financial returns from their equity. Common exit types are acquisition (M&A), IPO, or secondary sale.

The price at which a company's shares would trade between a willing buyer and seller, each with reasonable knowledge of the facts. Established through 409A valuations for private companies.

A legal document between co-founders that defines equity splits, roles, vesting schedules, IP assignment, decision-making, and departure terms. Should be signed before significant work begins.

The total number of shares if all convertible instruments (options, warrants, SAFEs, convertible notes) were converted to common stock. Used to calculate true ownership percentages.

The managing partner of a venture capital fund who makes investment decisions, sits on boards, and manages the fund. GPs invest their own capital alongside limited partners.

Initial Public Offering. The process of listing a private company's shares on a public stock exchange for the first time, allowing the general public to buy and sell shares.

The investor who sets the terms (valuation, structure) for a funding round and typically contributes the largest check. Other investors in the round follow the lead's terms.

An investor who commits capital to a venture capital fund but has no management role. LPs are typically institutional investors, pension funds, endowments, or wealthy individuals.

A term that determines the payout order when a company is sold or liquidated. Preferred shareholders with a 1x liquidation preference get their investment back before common shareholders receive anything.

A time window (typically 90-180 days) after an IPO during which insiders — founders, employees, and early investors — cannot sell their shares.

A clause in a SAFE or convertible note that guarantees the investor will receive terms at least as favorable as those given to any future investor before conversion.

Capital that doesn't require giving up equity. Includes grants, revenue-based financing, and government programs. Preserves founder ownership.

A block of shares reserved for future employee stock options, typically 10-20% of the company. Usually created or expanded during a funding round and dilutes existing shareholders.

A type of preferred stock that gets both its liquidation preference AND a pro-rata share of remaining proceeds. More investor-favorable than non-participating preferred.

The company's valuation immediately after a funding round. Calculated as pre-money valuation plus the amount invested. A $8M pre-money + $2M investment = $10M post-money.

The company's valuation immediately before a funding round. Determines how much equity the investor receives. Higher pre-money means less dilution for existing shareholders.

The earliest stage of startup funding, typically $50K-$500K, used to develop an idea into a prototype or MVP. Often raised from angels, friends, family, or accelerators.

A class of stock held by investors that comes with special rights — liquidation preference, anti-dilution protection, board seats, and sometimes dividends — that common stock does not have.

The right for an existing investor to participate in future funding rounds to maintain their ownership percentage. Prevents involuntary dilution for early investors.

The amount of time a startup can operate before running out of cash. Calculated by dividing current cash reserves by monthly burn rate. 12-18 months of runway is considered healthy.

Simple Agreement for Future Equity. A Y Combinator-created instrument that converts to equity in a future priced round. Simpler and cheaper than convertible notes, with no interest or maturity date.

The first significant round of institutional funding, typically $500K-$3M, used to find product-market fit. Usually follows pre-seed and precedes Series A.

Sequential rounds of venture capital funding. Series A ($5-15M) funds scaling, Series B ($15-50M) accelerates growth, and Series C+ ($50M+) expands to new markets or prepares for IPO.

The right (not obligation) to buy company shares at a fixed price (the exercise/strike price) within a set time period. The primary equity compensation tool for startup employees.

The price at which a stock option can be exercised to purchase shares. Set at fair market value on the grant date so the option holder profits only if the company's value increases.

Equity earned through labor and effort rather than cash investment. Common for co-founders and early employees who accept below-market salaries in exchange for ownership.

A clause that allows minority shareholders to join a transaction when majority shareholders sell their stake. Protects minority holders from being left behind in a partial sale.

A non-binding document outlining the key terms of a proposed investment — valuation, amount, liquidation preference, board seats, and protective provisions. Precedes the final legal agreements.

A privately held startup valued at $1 billion or more. The term was coined in 2013 when such valuations were rare. Notable examples include Stripe, SpaceX, and Canva.

The estimated worth of a company at a given point in time. In startups, valuation is negotiated between founders and investors during each funding round.

A form of private equity financing provided by firms or funds to startups with high growth potential. VCs invest in exchange for equity and typically seek 10x+ returns.

The timeline over which equity is earned. The standard startup schedule is 4 years with a 1-year cliff — 25% vests at the 1-year mark, then the remainder vests monthly.

A financial instrument that gives the holder the right to purchase shares at a specific price before an expiration date. Similar to options but typically issued to investors or lenders, not employees.

A calculation that models how proceeds from a sale or liquidation would be distributed among all shareholders, accounting for liquidation preferences, participation rights, and conversion scenarios.