Startup Fundraising Glossary

An independent appraisal of a private company's fair market value, required by the IRS to set the exercise price of stock options — ensuring employees are not granted options at a discount that would constitute taxable income.

A person or entity that meets minimum financial thresholds set by the SEC — either $1M net worth (excluding primary residence) or $200K+ annual income — allowing them to invest in unregistered securities like startup equity.

Equity compensation granted to advisors — typically experienced operators, executives, or industry experts — in exchange for strategic guidance and introductions rather than cash payment.

A high-net-worth individual who invests personal capital in early-stage startups, typically at the pre-seed or seed stage, often providing mentorship and connections alongside funding.

A protective provision in investment agreements that adjusts an investor's conversion price if the company later raises money at a lower valuation, protecting the investor from losing value in a down round.

Building and scaling a company without external funding — using personal savings, early revenue, and reinvested profits to grow, retaining full ownership and control.

A short-term funding round designed to carry a startup through to its next major financing event — typically used when a company needs capital quickly and the full round is not yet ready to close.

The rate at which a startup spends its cash reserves, typically measured as net cash consumed per month.

A capitalization table is a detailed ledger that records every shareholder's equity ownership in a company, including shares, options, warrants, SAFEs, and convertible notes.

The share of a fund's investment profits — typically 20% — that general partners keep as compensation, paid only after returning investors' capital.

A short-term debt instrument that converts into equity upon a future qualifying financing event, typically carrying an interest rate and a maturity date.

A secure, organized repository of company documents that investors review during due diligence — financials, cap table, contracts, IP, and legal records.

A privately held startup company valued at $10 billion or more, a tier above unicorn status.

A funding round in which a company raises capital at a lower valuation than its previous round, diluting existing shareholders more heavily and often triggering anti-dilution protections.

A provision in shareholder agreements that allows a majority of shareholders to force minority shareholders to agree to a sale of the company on the same terms, preventing minority holdouts from blocking an acquisition.

Capital that investment funds have raised from their investors but not yet deployed — committed money sitting ready for new deals and follow-on investments.

The comprehensive investigation and analysis an investor conducts on a startup before finalizing an investment, covering financials, legal standing, technology, market position, and team background.

The reduction in an existing shareholder's ownership percentage that occurs when a company issues new shares to investors, employees, or other parties.

A planned approach for investors and founders to realize returns on their investment — typically through an acquisition, IPO, or secondary sale.

A private wealth management firm that invests on behalf of a single wealthy family (or a small group of families), often including direct startup investments alongside traditional assets.

A partner in a venture capital or private equity firm who manages the fund, makes investment decisions, and bears legal responsibility for the fund's obligations.

The investor who sets the terms of a funding round, contributes the largest check, conducts primary due diligence, and typically takes a board seat.

A mostly non-binding document expressing one party's serious intent to complete a transaction — commonly an acquisition — outlining price and key terms before final agreements are negotiated.

An investor who commits capital to a venture capital or private equity fund but plays no role in managing it — their liability is limited to the amount they invest.

A term in venture financing that determines the order and amount investors are paid before common shareholders receive any proceeds in an exit event such as a sale, merger, or dissolution.

The degree to which a product and its target market are prepared for a successful launch — the product works, customers understand the problem, and demand can be captured through available channels.

A sustainable competitive advantage that protects a company from competitors and makes its market position difficult to replicate, analogous to a castle's defensive moat.

The predictable, normalized monthly revenue a subscription-based business earns from all active subscribers, excluding one-time charges and variable fees.

Deep, specialized knowledge in a narrow domain that gives a startup or investor a competitive advantage not easily replicated by generalists.

A contract that allows one or both parties to enter into similar arrangements with others — the opposite of an exclusive deal, which locks each side to a single counterparty.

A block of company shares reserved for future issuance to employees, advisors, and consultants as equity compensation, typically established before or during a fundraising round.

The acquisition of an asset, company, or intellectual property in full with a single payment, transferring complete ownership immediately — with no ongoing installments, earn-outs, or financing.

A concise visual presentation, typically 10–15 slides, that entrepreneurs use to communicate their startup's story, opportunity, and investment thesis to potential investors.

The total value of a company immediately after new investment has been received, calculated as pre-money valuation plus the amount of new capital raised.

The estimated worth of a company immediately before it receives a new round of outside funding.

A contractual right that allows existing investors to participate in future funding rounds in proportion to their current ownership, enabling them to maintain their equity percentage as the company grows.

The stage at which a startup's product satisfies strong market demand, evidenced by organic growth, high retention, and customers who would be deeply disappointed without the product.

A financial disclosure filed by public companies every three months reporting revenue, expenses, net income, and key business metrics — used by investors to evaluate company performance and investment thesis.

A metric that measures how much revenue a company generates from each user, calculated by dividing total revenue by the number of users over a given period.

A funding model where investors provide capital in exchange for a percentage of future revenue until a fixed repayment cap is reached — a non-dilutive alternative to equity financing for revenue-generating startups.

A contractual right giving the company (and often investors) the option to purchase shares a shareholder wants to sell, on the same terms as the proposed third-party sale, before the sale can proceed.

The estimated number of months a startup can continue operating at its current burn rate before running out of cash.

A Simple Agreement for Future Equity (SAFE) is an investment contract that gives investors the right to receive equity in a future priced round, without accruing interest or having a maturity date.

The first significant round of institutional or organized funding a startup raises, typically used to build an initial product, validate market demand, and reach milestones necessary for a Series A.

A group of angel investors or venture capitalists who pool capital to co-invest in a startup deal, often led by one experienced investor who sources and structures the investment.

A contractual right allowing minority shareholders to join a sale of shares by a majority holder on the same terms — protecting them from being left behind in a change of control.

A non-binding agreement outlining the key financial and governance terms under which an investor will make an equity investment in a startup.

The total revenue opportunity available to a product or service if it achieved 100% market share in its target market, used to gauge the scale of a startup's opportunity.

Something a startup possesses that cannot be easily copied or bought by competitors — proprietary technology, exclusive relationships, unique data, or founder expertise that compounds over time.

A privately held startup company valued at $1 billion or more, a milestone that signals exceptional growth and market potential.

The direct revenues and costs associated with a single unit of a business model — typically one customer or one transaction — used to determine whether the business can be profitable at scale.

Expenses paid at the beginning of a project, investment, or business relationship before any returns are generated — as opposed to ongoing or recurring costs.

The maximum company valuation at which a SAFE or convertible note will convert into equity, protecting early investors by ensuring they receive a minimum ownership percentage regardless of how high the valuation is at the next priced round.

A form of private equity financing provided by professional investment firms to high-growth startups in exchange for equity ownership, typically involving larger amounts and more structured terms than angel investment.

The process by which an employee or founder gradually earns full ownership of their equity over a defined period of time, designed to incentivize long-term commitment to the company.

A security giving the holder the right, but not the obligation, to purchase company stock at a fixed price before an expiration date — like an option, but issued to investors and partners rather than employees.