Fundraising glossary
Plain-English definitions, with worked examples where numbers help.
Accredited investor: who qualifies under SEC rules
Who counts as an accredited investor under SEC rules: the $200k income and $1M net worth tests, licenses, entities, and why it matters when you raise.
Angel group: how organized angels invest together
An angel group is a network of individual investors who screen startups together and often invest side by side. How they work and how to pitch one.
Anti-dilution: protection for investors if your price falls
Anti-dilution protection adjusts an investor's conversion price if you later raise at a lower price. See broad-based vs full ratchet with a worked example.
ARR: annual recurring revenue, explained
ARR is the yearly value of your recurring subscription revenue. See how to calculate it, a worked example, what to exclude and why seed investors ask.
Board seat: a vote on your company's biggest decisions
A board seat gives an investor a vote on your company's board of directors. See how seed boards are usually built, a worked example and what to negotiate.
Bridge round: buying time to reach the next milestone
A bridge round is short-term funding that extends runway to a milestone or to the next priced round. See how it works, a worked example and the risks.
Burn rate: how fast you're spending cash
Burn rate is how fast your startup spends cash each month. See gross vs net burn, a worked example, and what investors look for at pre-seed and seed.
Cap table: the record of who owns your company
A cap table lists who owns what in your startup: shares, options, SAFEs and notes. See a worked example and why a clean cap table matters at pre-seed.
Cliff: the waiting period before equity starts vesting
A vesting cliff is the waiting period before any equity vests, often one year. See how a cliff works, a worked example and why it matters for founders.
Convertible note: how it works and how it differs from a SAFE
A convertible note is a short-term loan that converts into equity at your next priced round. See how interest, maturity, caps and discounts work.
Data room: the folder that makes diligence easy
A data room is the organized folder of documents investors review during diligence. See what to include at pre-seed and seed and a worked example.
Dilution: why your slice shrinks as the pie grows
Dilution is the drop in your ownership percentage when your startup issues new shares. See how it's calculated, a worked example, and how to plan for it.
Discount rate: how early investors get a lower price
The discount rate on a SAFE or convertible note lets early investors convert at a lower price than new investors. See how it works with a worked example.
Down round: raising at a lower price than last time
A down round is a financing priced below the company's previous round. See what happens to ownership, how anti-dilution works, and how founders respond.
Drag-along: making a sale happen when the majority agrees
Drag-along rights let a set majority force other shareholders to join a company sale. See how the thresholds work, a worked example and what founders watch.
Due diligence: how investors check before they commit
Due diligence is the checking investors do before they commit: team, market, product, finances and legal. See what to expect at seed and a worked example.
Family office: how family wealth backs startups
A family office manages the wealth of one family or several. How family offices invest in startups, how they differ from VCs, and how to approach one.
Form D: the SEC notice after you raise
Form D is the SEC notice startups file after selling securities under Rule 506(b) or 506(c). See the 15-day deadline, what it costs and a worked example.
Information rights: what investors are entitled to see
Information rights let investors receive regular financial reports from your company. See what's typical, a worked example and how to handle it at seed.
Lead investor: who sets the terms of your round
A lead investor sets a round's terms, often writes the largest check and brings others along. How leading works and how pre-seed founders find a lead.
Liquidation preference: who gets paid first in a sale
A liquidation preference decides who gets paid first when a startup is sold. See 1x non-participating vs participating, with numbers for two exits.
MFN clause: if a later investor gets a better deal, so do I
An MFN clause lets an early investor adopt better terms you give later investors. See how an MFN SAFE works, a worked example and when to use one.
Micro-VC: the small funds behind many early rounds
A micro-VC is a small venture fund that writes early checks, often at pre-seed and seed. Learn how micro-VCs work, how they size checks, and how to pitch one.
MRR: monthly recurring revenue, explained
MRR is the monthly value of your recurring subscription revenue. See how to calculate it, a month-by-month worked example, and what seed investors ask.
Option pool: equity reserved for the team you haven't hired yet
An option pool is equity set aside for future employees. See how pool size affects your price per share, a worked example, and what to negotiate at seed.
Participating preferred: paid first, then paid again
Participating preferred lets investors take their money back first and then share in what's left. See a worked exit example and why founders push back.
Post-money valuation, explained simply
Post-money valuation is your company's value right after new investment. See the formula, a worked example, and why post-money SAFEs simplify dilution.
Pre-money valuation, explained simply
Pre-money valuation is your company's value just before new investment. See how it relates to post-money, how ownership is calculated, and an example.
Pro rata rights: what early investors are asking for
Pro rata rights let an investor buy into your future rounds to keep their ownership percentage. See how they work, a worked example, and when to offer them.
Right of first refusal: first chance to buy shares being sold
A right of first refusal lets the company or investors buy shares before an existing holder sells them to an outsider. See how it works and why it matters.
Rule 506(b): the classic private placement
Rule 506(b) lets startups raise unlimited money privately from accredited investors without general solicitation. See the SEC rules and a worked example.
Rule 506(c): when you can advertise your round
Rule 506(c) lets startups publicly advertise a raise if every buyer is accredited and verified. See the SEC requirements, a worked example and the trade-offs.
Runway: how long your cash lasts
Runway is how many months your startup can operate before cash runs out. See the formula, a worked example, and how runway shapes when you raise.
SAFE: what it is and how it works
What a SAFE is, how it converts into shares at your next priced round, a worked example with a post-money cap, and what pre-seed founders should watch for.
Side letter: extra terms for one investor
A side letter gives one investor extra rights outside the main deal documents, such as pro rata or information rights. See an example and what to watch.
Syndicate: investors pooling money into one deal
A syndicate is a group of investors who back a deal together, often through one SPV led by a lead angel. See how it works, the costs and a worked example.
TAM, SAM and SOM: sizing your market honestly
TAM, SAM and SOM size your market from total demand to what you can win soon. See a bottom-up worked example and how seed investors read market slides.
Term sheet: the summary of your deal
A term sheet summarizes the key terms of an investment before final documents are drafted. What's in one, which parts bind, and what to check.
Valuation cap: what it means for your SAFE
A valuation cap sets the highest valuation at which a SAFE or convertible note converts. See how it works, a worked example, and how to pick a cap.
Vesting: earning your shares over time
Vesting means earning your equity over time. See how founder and employee vesting works, a worked example, and why investors expect it at pre-seed and seed.
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