Startup Funding Terms Explained

Understanding VC terminology protects you during negotiations.

Valuation Terms

Pre-Money Valuation

Company value before new investment

• Example: $8M pre-money + $2M investment = $10M post-money
• You give up 20% ($2M / $10M)

Post-Money Valuation

Company value after investment

• Pre-money + new investment = post-money

Dilution

Percentage of ownership given up

• Each round dilutes existing shareholders
• Typical: 15-25% per round

Deal Terms

Term Sheet

Non-binding offer outlining deal structure

• Valuation
• Investment amount
• Key terms

SAFE (Simple Agreement for Future Equity)

Convertible instrument for early-stage

• No interest or maturity date
• Converts at next priced round

Convertible Note

Debt that converts to equity

• Has interest rate and maturity
• May have valuation cap and discount

Investor Rights

Pro-Rata Rights

Right to maintain ownership percentage

• Investors can buy more shares in future rounds
• Protects against dilution

Liquidation Preference

Who gets paid first in exit

• 1x non-participating: Get investment back OR convert
• 1x participating: Get investment back AND convert

Anti-Dilution

Protection against down rounds

• Full ratchet: Most aggressive
• Weighted average: More common

Board Terms

Board Seat

Voting position on company board

• Founders typically keep control early
• VCs often get seats at Series A+

Protective Provisions

Investor veto rights on major decisions

• Sale of company
• New fundraising
• Change of control

Finding Investor-Friendly VCs

Look for investors known for founder-friendly terms:

• Seed-Stage Investors
• Industry-Focused VCs

Conclusion

Understanding terms helps you negotiate better deals. Find investors who match your needs on AngelBacked.