Startup fundraising glossary
The terms you'll meet in pitches, term sheets and investor emails, explained simply. Definitions are general education, not legal advice: exact meanings vary by jurisdiction and deal structure.
A
Accelerator
A program (Y Combinator, Techstars and others) that gives a small investment, mentorship and demo-day exposure in exchange for equity, usually over three months.
Angel Investor
An individual investing their own money in early startups, usually smaller checks than VCs, often with faster decisions and more personal involvement.
Angel Syndicate
A group of angels who pool money and invest together, led by one angel. One negotiation, many wallets.
Anti-Dilution Provision
A clause protecting earlier investors if a later round is priced lower. They get extra shares to compensate. Full ratchet is the harsh version; weighted average is standard.
ARR
Annual Recurring Revenue: the yearly value of your subscription revenue, calculated as current monthly recurring revenue × 12. The metric growth-stage investors care most about.
B
Bootstrapping
Building and growing the company with its own revenue rather than outside investment. Slower, but you keep every share and every decision.
Burn Rate
How much money the company loses per month. If you have $500K in the bank and burn $50K a month, you have 10 months of runway.
C
CAC
Customer Acquisition Cost: what it costs you, on average, to win one customer. Compare it to LTV. If a customer costs $500 to win and pays you $200, you have a problem.
Cap Table
The spreadsheet showing everyone who owns shares of the company: founders, investors, employees with options, and exactly what percentage each holds.
Churn
The percentage of customers (or revenue) you lose each period. High churn means you are filling a leaky bucket: growth becomes impossible no matter how much you raise.
Convertible Note
A loan to a startup that converts into equity at the next priced round, usually with a discount. The SAFE’s older cousin, with an interest rate and a maturity date.
Corporate VC
The venture arm of a large company (Google Ventures, Salesforce Ventures). Strategic money: useful partnerships, but sometimes conflicted motives.
D
Data Room
The folder of documents investors review during due diligence: incorporation papers, financials, contracts, cap table. A tidy one speeds your round up.
Dilution
How much less of the company you own after new shares are issued, to investors or the option pool. Raise 20% and set aside 10% for a pool, and you own 70% of what you started with.
Model your own dilutionDown Round
A round priced lower than the previous one. Painful: heavy dilution, demoralized team, and anti-dilution clauses that compensate earlier investors out of your share.
Drag-Along
A clause letting majority shareholders force everyone else to sell in an acquisition. Standard, but check the threshold that triggers it.
Due Diligence
The investigation investors run before wiring money: your financials, legal setup, customers and team. The data room exists for this.
E
Equity
Ownership of the company, expressed in shares or percentages. What you sell when you raise, and what you grant employees instead of full salaries.
Equity Crowdfunding
Raising small amounts from many public investors through platforms like SeedInvest or Wefunder, in exchange for equity.
Exit
The event where shareholders finally convert ownership into cash: an acquisition, or an IPO. The liquidation preference decides who gets paid first.
See the Exit Waterfall CalculatorF
Full Ratchet
The harshest anti-dilution formula: if the next round is priced lower, earlier investors get re-priced to that lower price completely, regardless of how small the round is. A red flag in term sheets.
G
Grant
Money you do not repay and do not sell equity for, from governments, foundations or competitions. Slow to win, but the cheapest capital that exists.
Growth Equity
Investment in later-stage companies with proven revenue, funding expansion rather than product building. Less dilution risk, more process.
I
Incubator
Like an accelerator but usually without investment: workspace, mentorship and network over a longer period, sometimes for a fee rather than equity.
Information Rights
Clauses giving investors access to your financials and updates on a schedule. Standard and reasonable, just watch who gets monthly versus quarterly access.
IPO
Initial Public Offering: listing shares on a public stock exchange. The rarest exit. Most successful startups are acquired instead.
K
KPI
Key Performance Indicator: the single metric that best shows your business is working. Know yours cold before every investor meeting.
L
Liquidation Preference
Who gets paid first, and how much, when the company sells. 1x non-participating is standard; 2x or participating preferences quietly take money from your side of the table.
See the Exit Waterfall CalculatorLTV
Lifetime Value: total profit one customer generates before leaving. Investors commonly look for LTV around 3x CAC, though the right ratio varies by business model.
M
Micro-VC
Small venture funds ($10M to $100M) writing seed checks. Often the most accessible institutional investors for first-time founders.
MRR
Monthly Recurring Revenue: the revenue your subscription business reliably books each month. Multiply by 12 for ARR.
N
No-Shop
A term sheet clause promising you will not talk to other investors for 30 to 60 days while the deal is finalized. Standard, but it is exclusive time, so negotiate the shortest window you can.
O
Option Pool
Shares reserved for future employee equity grants. Investors typically require it before they invest, sized as a percentage of post-money.
Model it in the Dilution CalculatorOption Pool Shuffle
Requiring the option pool be created pre-money, so the pool dilutes founders and earlier holders but not the new investor. The same round, priced better for them.
See what it costs youP
Participating Preferred
A liquidation preference where investors get their money back first and then also share in the remaining proceeds. Double dipping: push for non-participating.
Post-Money SAFE
A SAFE where the cap applies to the company’s valuation including all SAFEs converted in the round. Easier math, but founders should model total conversion carefully. Multiple post-money SAFEs can stack up to surprising dilution.
Post-Money Valuation
Pre-money valuation plus the amount raised. What the company is "worth" after the round, and the denominator investors use to calculate their ownership.
Pre-Money Valuation
What the company is worth before new money lands. A $4M pre-money with a $1M raise is a $5M post-money, and the investor buys 20%.
See the Pre-Money vs Post-Money CalculatorPre-Seed
The earliest outside funding, commonly $100K to $1M but it varies widely by market and sector, usually on SAFEs, often from angels, micro-VCs or accelerators.
Private Equity
Firms buying established, profitable companies, often entirely. A different world from venture capital; relevant to founders as a later exit path.
Pro-Rata Rights
An investor’s right to invest in your next round to keep their ownership percentage the same. Reasonable to grant, just know it shrinks the shares available for new investors.
Product-Market Fit
The point where customers are pulling your product out of your hands: usage grows without you pushing. Most pre-seed money is a bet that you will find it.
Protective Provisions
Votes investors hold over big decisions: selling the company, issuing shares, changing the cap table. Standard; watch how many decisions require investor approval.
R
Revenue-Based Financing
Capital repaid as a percentage of monthly revenue until a fixed multiple (often 1.3x to 3x) is returned. No equity sold, but payments shrink your cash flow in the early years.
Runway
Months until the money runs out at your current burn rate. Bank balance ÷ monthly burn. Investors will ask, so know your number.
S
SAFE
Simple Agreement for Future Equity: money now, shares later at your next priced round, set by a cap and/or discount. The most common early-stage instrument.
See the SAFE CalculatorSeed Round
The first significant institutional round, commonly $1M to $4M though this varies by market, often still on SAFEs or a light priced round, funding product-market fit.
Series A/B/C
The priced rounds that follow the seed: A scales a proven model, B expands it, C and beyond accelerate. Each is more diligence, more process, less founder-friendly pricing power.
T
Term Sheet
The short document setting out an investment’s main terms. Mostly non-binding, but it sets the agenda for everything that follows, so negotiate it like it is final.
Read the free Fund or Fold eBookTraction
Evidence the business works: revenue, growth, retention, engagement. The single biggest driver of what you can raise, and at what valuation.
V
Valuation
What the company is worth, or more precisely, what price an investor pays for a percentage of it. Early on it is negotiated, not calculated.
Learn how investors value startupsValuation Cap
The maximum valuation at which a SAFE or note converts. The effective price your early investors pay, so negotiate it like the price it really is.
Venture Capital
Professional funds investing other people’s money into high-growth startups, needing every portfolio company to have 100x potential. Great fit for some companies, a mismatch for most.
Venture Debt
Loans for venture-backed companies, used to extend runway between rounds without dilution, but with repayment obligations that can be dangerous in a downturn.
Vesting
Shares or options earned over time, usually over four years with a one-year cliff. Investors require it for founders too, because it protects the company if a founder leaves early.
Go from knowing the words to knowing the deal
The free Fund or Fold eBook explains how rounds, investors and term sheets really work. Or model your own numbers with the dilution calculator.