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The Ultimate VC Glossary: 125+ Venture Capital Terms You Should Know

There are a lot of terms and acronyms used in the venture capital industry, and it can be tough to keep up with them all. Some (not all) of this jargon is not as confusing as it seems.

 

In this venture capital glossary, we’ll define some of the most important terms and provide some examples of how they’re used. If you want to learn more about any of these terms, we have linked more material on each.

 

We hope that VC world becomes more understandable to you after reading this.

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409A Valuation

A 409a valuation is an estimate of the fair market value of a company’s common stock.  This valuation is established by an independent third party.

 

Read more: What is a 409a valuation?

 

ARPU

ARPU is a metric used by companies to measure the average revenue generated by each of their customers. This figure is calculated by dividing total revenue by the number of active customers in a given period of time.

 

Read more: ARPU: What It Is, How To Calculate It, and Nine Ways Can Increase Their Average Revenue Per User

 

AOV

The average order value (AOV) is a metric used by companies to measure the average value of each order that is placed on their website. This figure is calculated by dividing total revenue by the number of orders placed in a given period of time.

 

Read more: AOV (Average Order Value): What It Is, How to Calculate It, And Nine Ways To Increase Your AOV

 

ARRG (Annual Recurring Revenue to Growth) Ratio

The ARRG (Annual Recurring Revenue to Growth) Ratio is a metric used by companies to measure the rate of growth of their annual recurring revenue. This figure is calculated by dividing the annual recurring revenue by the ARR growth rate over a period of time (usually a year).

 

Accelerator

An accelerator is a business incubator that provides funding, mentorship, and other resources to early-stage companies. These organizations are typically focused on helping startups grow their businesses and achieve profitability.

 

Read more: Your Guide to Startup Accelerators: What They Are, Five Reasons to Join One, Plus A List of Accelerator Investors

 

Accredited Investor

An accredited investor is a person or entity who has been granted special status by the Securities and Exchange Commission (SEC) due to their wealth or experience in the investment field. These investors are allowed to invest in high-risk securities that are not available to the general public.

 

Read more: Accredited Investors: What It Means To Be Accredited, Requirements And Privileges, Plus Common Questions Answered

 

Allocation

Allocation is another term for the amount of capital an investor can contribute to a given financing round.

 

Anchor Investor

An anchor investor is the first check to commit to a given funding round. For startups, an anchor investor is the first fund that commits; for funds, it is the first limited partner to commit. This investor’s participation gives other investors confidence that the startup is worth investing in, and can help persuade them to contribute to the round as well.

 

ARR (Annual Recurring Revenue)

The ARR (annual recurring revenue) metric is used by companies to measure the amount of revenue that is generated on an annual basis from their customers. This figure is calculated by dividing the total revenue by the number of active customers in a given period of time.

 

Read more: ARR Guide: Your Top Resource for Definitions, Formulas, Examples, and FAQs on Annual Recurring Revenue

 

Angel Investor

An angel investor is an individual or organization that provides funding and other resources to early-stage startups. These investors are typically motivated by the potential for high returns, and are willing to take on greater risk in order to achieve them.

 

Read more: Angel Investors: What They Do, Who They Are, and How to Find Them For Startup Salvation

 

Anti-Dilution Clause

An anti-dilution clause is a contractual provision that helps protect a company’s shareholders from the dilutive effects of future rounds of financing. This clause ensures that the percentage of ownership held by each shareholder remains unchanged, even if the company raises more money at a lower valuation than the last round.

 

Read more: What are anti-dilution provisions?

 

Blended Preferences

Blended preferences occur when an investor has a mix of preferred and common shares in the company. The preference means that the holder gets their money back first and also gets dividends or other distributions before the common shareholders.

 

Bootstrapping

This is when a company is self-funding its growth. This means that the startup is not reliant on outside investors to finance its operations, but is instead using its own revenue to finance its expansion. Bootstrapping can be a risky strategy, but it can also help a company avoid giving away too much equity to early investors.

 

Read more: Bootstrapping 101: Discover Why Some Companies Choose To Fund Their Business Without Outside Capital

 

Bridge Loan 

A bridge loan is a short-term loan that is used to finance the gap between two rounds of financing. This loan is typically used to keep a company’s operations running until it can secure more permanent funding. Bridge loans are typically either flat or down rounds.

 

Read more: Everything you need to know about bridge rounds

 

Burn Rate

The burn rate is a metric used by startups to measure the rate of expenditure on their operations. This figure is calculated by dividing the total amount of money that has been spent by the company in a given period of time by the average monthly burn rate.

 

Read more: Burn Rate Guide: What Is Burn, Comparing Different Types of Burn, and Six Ways Startups Can Reduce Their Burn Rate

 

Capital Call

A capital call is a request by a fund for its limited partners to contribute more money to the fund. This call is made whenever the fund invests into new companies and needs to deploy capital. Limited partners are usually contractually obligated to commit this capital under the limited partner agreement.

 

Read more: How do capital calls work?

 

Cap Table

A cap table is a document that lists all of the shareholders in a company and their respective ownership stakes. This document is used by venture capitalists to track the ownership of a company and to determine the amount of capital that has been invested into it.

 

Read more: Cap Table Crash Course: Everything You Need to Know Including 4 Ways to Maintain It

 

Carried Interest

A carried interest is a share of the profits that is earned by a venture capitalist as compensation for their services. This profit share is usually in addition to the capital that has been invested by the venture capitalist. Carried interest is generally only awarded to those investors who have achieved exceptional returns on their investments.

 

Read more: Everything you need to know about carried interest

 

Cash-on-Cash Return

Cash-on-cash return (COCR) is the annual cash flow that an investor receives from their investment, divided by the amount of money invested.

In venture capital, cash-on-cash is usually calculated at the end of a fund lifecycle. It is used as a lagging indicator to show how well the fund deployed capital, and it is used as marketing material to help the general partners pitch limited partners to raise their next fund.

 

Read more: Cash-on-Cash Return and What It Means for Venture Capital Investors

 

Churn Rate

Churn rate is the percentage of customers that leave over a given period.

 

Read more: How to Calculate Churn Rate: Formula, Definition, and Examples

 

 

Clawback

A clawback is a provision that allows limited partners to reclaim any carried interest paid during the life of the fund in order to normalize the final carry amount. This provision protects LPs from paying carried interest on one investment then incurring losses on the rest of their portfolio.

 

Read more: What is a clawback provision

 

Come Along Rights

Come along rights are a contractual provision that gives investors the right to join in on any future investment rounds.

 

Common Stock

Common stock is a type of equity that represents ownership in a company. This type of stock typically has voting rights and entitles the holder to receive dividends from the company. Common stockholders are below preferred stockholders in the equity, and they are only paid after all preferred shareholders are compensated.

 

Read more: What is common stock?

 

Control Rights

Control rights are the rights that shareholders have to participate in the management of a company. These rights allow shareholders to vote on important company decisions, such as the election of directors or the sale of the company. Control rights also give shareholders the ability to veto certain actions that may be taken by the company’s management.

 

Convertible Note

Convertible notes are a type of debt that can be converted into equity in a company. This type of debt usually has a lower interest rate than regular debt and allows the holder to purchase shares in the company at a discount.

 

Read more: What are convertible notes?

 

Corporate Venture Capital

Corporate venture capital funds use corporate funds to invest into startups. These funds come off of the corporate balance sheet, and investment decisions are based on corporate strategy more than pure financial returns.

 

Read more: Making Sense of Corporate Venture Capital: How Fortune 500 Companies Get Access to Innovation

 

Covenant

A covenant is a contractual provision that limits the amount of debt that a company can incur. This provision helps to protect the interests of lenders by ensuring that the company does not take on too much debt. Debt covenants are usually found in loan agreements and can include things such as the maximum amount of debt, the interest rate, and the maturity date.

 

Read more: What is a debt covenant?

 

Cumulative Dividend

Cumulative dividends are a type of dividend that is paid to shareholders who have held their shares for a certain period of time. This dividend accumulates over time and is paid out in addition to the regular dividend payments. Cumulative dividends are usually only paid to those shareholders who are in good standing with the company.

 

Cutback Rights

Cutback rights are a contractual provision that gives investors the right to sell their shares back to the company at a predetermined price. This provision allows investors to sell their shares back to the company in order to protect their investment in case of a down round.

 

Demand Registration Rights

Demand registration rights are a contractual provision that gives investors the right to demand that their shares be registered with the SEC. This provision allows investors to sell their shares publicly if they choose to do so.

 

Dilution

Dilution in venture capital is the process of issuing new shares in a company which reduces the value of each existing share. This occurs when a company raises capital by issuing new shares, and can be caused by either a new investor coming into the company or by the conversion of debt to equity. Dilution can also occur when a company issues stock options to its employees.

 

Read more: What is equity dilution?

 

Down Round

A down round is a funding round in which a company raises less money than it did in its previous round. This can be due to a number of factors, such as a decrease in the company’s valuation or a decline in the market conditions. Down rounds are often seen as a sign of weakness and can be difficult for companies to overcome.

 

Drag-Along Rights

Drag-along rights are a contractual provision that gives investors the right to sell their shares back to the company at a predetermined price. This provision allows investors to sell their shares back to the company in order to protect their investment in case of a down round.

 

Due Diligence

Due diligence in venture capital is a process through which a company evaluates a potential investment. This process includes a review of the company’s financials, as well as its business and operating plans. Due diligence is used to assess the risks and potential returns associated with investing in a company.

 

Read more: Venture capital due diligence 101

 

Exit Velocity

Exit velocity is the rate at which a company is able to exit from its investments. This term is used primarily in venture capital and is used to measure the liquidity of a company’s investments.

 

Elevator Pitch

An elevator pitch is a brief, persuasive speech that is given to potential investors in order to attract funding. This speech should be no more than a few minutes long and should highlight the company’s business plan and investment potential.

 

Employee Stock Ownership Program (ESOP)

An employee stock ownership program (ESOP) is a company-sponsored retirement plan that allows employees to own shares in the company. This plan allows employees to participate in the company’s success and helps to create a sense of ownership in the company. ESOPs are often used as a way to reward employees and promote loyalty.

 

Read more: What is an ESOP?

 

Exercise Price (Strike Price)

An exercise price, also known as a strike price, is the price at which a stock option can be exercised. This is the price that must be paid in order to purchase the shares underlying the option. The exercise price is set when the option is first created and can be increased or decreased over time.

 

Exit Event (Liquidity Event)

An exit event, also known as a liquidity event, is the point at which a company is able to sell its assets or go public. This event allows a company to receive cash in order to pay off its debts and distribute profits to its shareholders. An exit event can be triggered by a number of factors, such as a sale of the company or an initial public offering (IPO).

 

Read more: What Is a Liquidity Event, and Why do They Matter to Investors?

 

Fair Market Value

A fair market value is the price at which a security can be exchanged between two parties, both of whom are acting rationally and know all the relevant information about the security. In venture capital, this price is usually based on the previous round of funding. If a company has not had a previous funding round, sometimes investors need to perform a 409a valuation to assign a fair market value.

 

Read more: What is the Fair Market Value (FMV) of Your Startup?

 

Fiduciary

A fiduciary is a person who is responsible for managing the money and property of another person. In venture capital, fiduciaries are responsible for protecting the interests of their investors. This includes making sure that the company is being run efficiently and that its investments are being managed properly. Fiduciaries are also responsible for ensuring that the company is complying with all applicable laws and regulations.

 

First Refusal Rights

First refusal rights are a contractual provision that gives investors the right to sell their shares back to the company at a predetermined price. This provision allows investors to sell their shares back to the company in order to protect their investment in case of a down round.

 

Friends and Family Round

A friends and family round is a type of financing round in which the company solicits investments from its friends and family members. This round is typically used to raise a small amount of money and is often used as a way to test the waters before seeking outside funding.

 

Full Ratchet

A full ratchet is a contractual provision that allows investors to increase their ownership in the company if the company issues new shares at a lower price than the original investment. This provision ensures that investors maintain their proportional ownership in the company no matter how the company’s stock performs.

 

Fully Diluted

Fully diluted in venture capital means that all outstanding options and warrants have been exercised, and all convertible debt has been converted into equity.

 

Fund of Funds

A fund of funds is a type of investment fund that invests in other investment funds. This type of fund allows investors to gain access to a variety of investment opportunities without having to invest in each individual fund. Fund of funds are often used as a way to reduce risk and exposure to individual investments.

 

Read more: Fund of Funds in Venture Capital: 3 Valuable Benefits and What You Need to Know

 

Grandfather Rights

Grandfather rights are a contractual provision that gives investors the right to maintain their ownership in the company if new investors are brought in at a lower price. This provision ensures that investors do not lose their proportional ownership in the company no matter how the company’s stock performs.

 

GP (General Partner)

A general partner in venture capital is a person that leads up and invests on behalf of a venture capital fund. They are responsible for finding new investment opportunities and monitoring the performance of the companies in which the fund has invested. GPs are typically paid a management fee and a percentage of the profits generated by the fund.

 

Read more: What is a General Partner? Breaking Down the Most Coveted Position in Investing

 

General Solicitation

General solicitation within venture capital is the act of publicly advertising an investment opportunity to a wide audience. This type of solicitation is often used to attract new investors and can be done through a variety of methods, such as online advertising, print media, or even word-of-mouth.

 

Read more: What is general solicitation?

 

Gross Margin

Gross margin is a financial metric that measures the profitability of a company’s products and services. It is calculated by subtracting the cost of goods sold from the total revenue and dividing the result by the total revenue. Gross margin can be used to assess a company’s overall profitability and to compare the profitability of different products and services.

 

Read more: The Elusive Gross Margin: How Is It Calculated and What It Reveals​

 

Growth Equity

Growth equity is a type of investment in which the investor focuses on the growth potential of the company rather than its profitability. This type of investment is often used to help companies expand their operations and grow their business. Growth equity investors invest in companies that are farther along in the lifecycle compared to traditional venture capital funds.

 

Read more: Growth Equity 101: What it Is, Criteria for Growth Equity Investments, Plus How These Investors Add Value

 

K-1

A Schedule K-1 (often referred to simply as a “K-1”) is a tax document that helps investors in venture funds calculate their tax obligation for the year. Venture funds are responsible for sending K-1s to all of their investors every year.

 

Key Man Clause

A key man clause is a contractual provision that allows investors to exit their investment if the company loses its key employee. This provision protects investors in the event that the company’s most important employee leaves, and helps ensure that they do not lose any money as a result of the departure.

 

Incubator

A startup incubator is a business or organization that provides mentorship and support to early-stage startups. Incubators typically offer office space, mentorship, and access to funding and resources.

 

Read more: What Is An Incubator, How Does It Work, and How Can Your Startup Join One?

 

Information Rights

Information rights are the rights of investors to receive regular updates on the progress of the company and its investments. This type of information helps investors stay informed about the health of their investment and makes it easier to track their return on investment.

 

Initial Public Offering (IPO)

An initial public offering (IPO) is the process by which a company sells its shares to the public for the first time. IPOs are often used to raise money for the company and to increase its visibility and credibility.

 

Inside Round

An inside round is a type of investment in which the investor is already familiar with the company and its management team. This type of investment is often used to help companies expand their operations and grow their business. Inside rounds are typically less risky for investors and provide a higher return on investment.

 

Investment Syndicate

An investment syndicate is a group of investors that team up to invest in a company. This type of investment is often used to help companies expand their operations and grow their business. Syndicates are typically less risky for investors and provide a higher return on investment.

 

Read more: What is an investment syndicate?

 

JOBS Act

The JOBS act is a piece of legislation that was passed in 2012 with the goal of making it easier for startups to raise money. The act made it legal for startups to solicit investments from the general public, and it also simplified the process for registering with the SEC.

 

Letter of Intent (LOI)

A letter of intent is a document that outlines the terms of an agreement between two or more parties. It is typically used to negotiate and finalize a deal, and can be used to outline everything from the financial details to the specific provisions of the agreement.

 

Read more: Letters of Intent: The Foundation For Agreement

 

 

Limited Partner (LP)

A limited partner is an investor in a venture fund who does not have any management rights or influence in the company. This type of investor typically has a smaller stake in the company and a lower risk profile.

 

Read more: What Is a Limited Partnership?

 

Lead Investor

A lead investor is an investor who has a significant stake in the company and a high risk profile. This type of investor typically provides the majority of the capital for the round and has a large influence on the company’s operations.

 

Liquidation

Liquidation is the process of selling off all of a company’s assets. This process typically occurs either when a company has a positive liquidation event (IPO or M&A) or when a company becomes insolvent and can no longer afford to operate.

 

Liquidation Preference

Liquidation preference is a term used in venture capital to describe the order in which investors are repaid their investment in the event of a liquidation. Typically, investors will have a liquidation preference that gives them first priority when it comes to receiving their money back. This is a protective measure used by investors to ensure they do not lose money as a result of the liquidation.

 

Read more: What is a liquidity event?

 

Lock-Up Period

A lock-up period is a time period during which company insiders are not allowed to sell their shares. This is a measure used by companies to prevent insiders from cashing out their shares immediately after the company goes public.

 

Read more: What is a Lockup Period?

 

LPA

A limited partner agreement is a contract between a limited partner and a venture capital firm. The agreement outlines the financial details of the investment and specifies the rights and responsibilities of both parties.

 

Read more: What is a Limited Partner Agreement? Your Guide to Understanding an LPA

 

Management Fee

A management fee is a fee that is paid to the company’s management team for their services. This fee is typically a percentage of the assets under management, and this fee is paid annually across the lifetime of the fund. The standard management fee is 2% per year.

 

Memorandum of Understanding (MOU)

A memorandum of understanding is a document that outlines the terms of an agreement between two or more parties. It is typically used to negotiate and finalize a deal, and can be used to outline everything from the financial details to the specific provisions of the agreement.

 

MRR (Monthly Recurring Revenue)

This measures the amount of monthly revenue that is coming in through subscriptionsMRR is arguably the most important metric for software-as-a-service companies.

 

Read more: MRR: Everything You Need to Know About the Most Important Metric for SaaS Companies

 

‘No Shop’ Clause

A no-shop clause is a term used in venture capital to describe a provision in an agreement that prohibits the company from seeking offers from other investors. This clause is designed to protect the interests of the lead investor and ensures that they are the only party with which the company can negotiate.

 

Net Revenue

Net revenue is the total amount of revenue that a company generates after deducting all of the costs associated with generating that revenue. This figure represents the amount of money that a company has available to pay its expenses and reinvest in its business.

 

Read more: What is net revenue?

 

Non-Disclosure Agreement (NDA)

A non-disclosure agreement is a legal contract between two or more parties that prohibits them from sharing any confidential information about the deal or the parties involved. This agreement is typically used in negotiations to protect the interests of the parties involved.

 

Read more: What is an NDA?

 

OA (Operating Agreement)

An operating agreement is a contract between the limited partners and the venture capital firm that outlines the financial details of the investment. It also specifies the rights and responsibilities of both parties.

 

Option Pool

An option pool is a set of shares that are set aside for the purpose of granting options to employees and advisors. This pool is typically created when a company is founded, and the shares are then granted to employees and advisors as options over a period of time.

 

Over-Allotment Option

An over-allotment option is an option that the lead investor has the right to purchase additional shares from the company in the event that there is excess demand from investors. This option gives the lead investor the opportunity to increase their ownership in the company and ensures that they maintain a controlling stake.

 

Pari Passu

Pari passu is a term used in venture capital to describe a provision in a term sheet that requires investors to participate in subsequent financing rounds on a pro-rata basis.

 

Read more: What is Pari Passu, and Why Does it Matter to Investors?

 

Participating Preferred Stock

Participating preferred stock is a type of preferred stock that gives the holders the right to receive dividends and to participate in the company’s profits. This type of stock typically has a higher dividend rate than regular preferred stock, and the holders have first priority when it comes to receiving their money back in the event of a liquidation.

 

Party Round

Party round occur in early financing rounds when companies raise large amounts of money from a large number of different investors instead of raising from a smaller group of investors.

 

Pay to Play

Pay to play is a term used in venture capital to describe a provision in a term sheet that requires investors to participate in subsequent financing rounds on a pro-rata basis.

 

Piggyback Registration Rights

Piggyback registration rights are a type of registration right that allows investors to register their shares with the SEC on the same Form S-3 used by the company. This option is typically granted to investors who participate in a company’s Series A round of financing.

 

Portfolio Company

A portfolio company is a company that has received money from investors in order to grow and expand its business. Venture capitalists invest in these companies with the hope of achieving a return on their investment through an eventual exit event, such as an initial public offering (IPO) or a sale of the company.

 

Read more: What is a portfolio company?

 

Post-Money Valuation

Post-money valuation is the value of a company after it has raised money from investors. This figure includes the amount of money that has been raised, as well as the value of the company’s existing equity.

 

Read more: What is a Post-Money Valuation, and Why Does it Matter to Companies and Investors?

 

Preemptive Rights

Preemptive rights are a type of right that allows investors to maintain their ownership percentage in a company by purchasing shares in subsequent rounds of financing on a pro-rata basis. This option ensures that the investors have an opportunity to maintain their ownership stake in the company and prevents them from losing out on future opportunities.

 

Read more: What are Preemptive Rights? Understanding the Favorable Treatment Used by Investors

 

Preferred Stock

Preferred stock is a type of stock that gives the holders certain rights, such as the right to receive dividends and to participate in the company’s profits. This type of stock typically has a higher dividend rate than regular stock, and the holders have first priority when it comes to receiving their money back in the event of a liquidation.

 

Read more: What is Preferred Stock, and Why Does it Matter to Investors?

 

Pre-Money Valuation

Pre-money valuation is the value of a company before it has raised money from investors. This figure includes the amount of money that is being raised, as well as the value of the company’s existing equity.

 

Read more: What is a pre-money valuation, and why does it matter to investors?

 

Pre-Seed Funding

Pre-seed funding is typically the first round of financing for startups. This often comes from angel investors, accelerators, incubators, startup studios, or early-stage VCs.

Read more: Pre-Seed Funding: Everything You Need to Know

 

 

Find pre-seed investors: Find targeted lists of hundreds of pre-seed investors through the Confluence.VC investor database

 

Price Anti-Dilution Protection

Price anti-dilution protection is a term used in venture capital to describe a provision in a term sheet that protects investors from having their ownership percentage diluted in future rounds of financing. This provision ensures that the investors maintain their ownership stake in the company and prevents them from losing out on future opportunities.

 

Protective Provisions

Protective provisions are a set of clauses in a term sheet that protect the interests of the investors. These provisions ensure that the investors maintain their ownership stake in the company and prevent them from losing out on future opportunities.

 

 

Find pre-seed investors: Find targeted lists of hundreds of pre-seed investors through the Confluence.VC investor database

 

Private Placement

A private placement is a type of investment that is made by a large number of investors in a company that is not open to the general public. This type of investment is typically made through a private placement memorandum, which is a document that contains information about the company and the terms of the investment.

 

Pro-Rata Rights

Pro-rata rights are a type of right that allows investors to maintain their ownership percentage in a company by purchasing shares in subsequent rounds of financing on a pro-rata basis. This option ensures that the investors have an opportunity to maintain their ownership stake in the company and prevents them from losing out on future opportunities.

 

Read more: What are Pro Rata Rights, and Why do All Investors Care About Them?

 

Qualified IPO

A Qualified IPO is an initial public offering that is registered with the Securities and Exchange Commission (SEC) and meets all of the requirements specified in the JOBS Act. This type of IPO is open to all investors, regardless of their income or net worth.

 

Ratchet

A ratchet is a clause in a term sheet that allows the investors to maintain their ownership percentage in a company by purchasing shares in subsequent rounds of financing.

 

Redemption Rights (Redeemable)

Redemption rights describe a provision that allows the investor to sell their shares back to the company at a predetermined price. This provision gives the investors the option to cash out their investment and provides them with some protection in case the company does not perform well.

 

Read more: What Are Redemption Rights, and How are They Used by Venture Capital Funds?

 

Registration Rights

Registration rights are a type of right that allows investors to register their shares with the Securities and Exchange Commission (SEC) so that they can sell them to the general public. This provision gives the investors the ability to liquidate their investment and provides them with some protection in case the company does not perform well.

 

Read more: What are Registration Rights, and Why Should companies Care?

 

Repurchase Option

A repurchase option is a clause in a term sheet that gives the company the right to buy back the shares of the investors at a predetermined price. This provision gives the company the ability to regain control of its shares and prevents the investors from selling them to the general public.

 

Restricted Stock (RSU)

A restricted stock is a type of security that is given to employees of a company as part of their compensation. This type of stock typically cannot be sold or traded for a certain period of time, and the holder is required to forfeit the stock if they leave the company.

 

Return on Investment (ROI)

ROI is a metric that is used to measure the profitability of an investment. It is calculated by dividing the amount of money that has been made by the amount of money that has been invested.

 

Revenue Multiple

Revenue multiple is a metric that is used to measure the attractiveness of an investment. It is calculated by dividing the company’s revenue by the amount of money that has been invested. This metric gives investors a sense of how much money they can expect to make from their investment.

 

Revenue Run Rate

Revenue run rate is an indicator of financial performance that takes a company’s performance over a certain period (week, month, quarter) and converts it to an annual number for simple math. An example would be a company generating $10,000 in revenue over the quarter would have a $40,000 revenue run rate for the year.

 

Read more: What is Revenue Run Rate? Breaking Down the Best Proxy for Annual Revenue

 

Reverse Dilution

Reverse dilution is a type of dilution that occurs when the company issues new shares of stock. This dilution decreases the ownership stake of the existing shareholders and gives the new shareholders a larger stake in the company.

 

Right of First Refusal (ROFR)

A right of first refusal is a clause in a term sheet that gives the company the right to buy back the shares of the investors at a predetermined price. This provision gives the company the ability to regain control of its shares and prevents the investors from selling them to the general public.

 

Road Show

A road show is a series of presentations that a company makes to potential investors in order to attract funding for their business. The presentations are typically made by the company’s CEO or CFO and provide an overview of the business and its financials.

 

Rule 506(b)

Rule 506(b) is a provision in the United States Code that allows companies to raise money from accredited investors without registering with the SEC. This provision provides companies with some flexibility when raising money and makes it easier for them to get funding from accredited investors.

 

Read more: Rule 506(b) vs. 506(c)

 

SAFE Note

A SAFE note is a type of security that is used to raise money from investors. It is similar to a convertible note, but it has fewer restrictions and is easier to understand.

 

Read more: SAFE Note Guide: Breaking Down the Common Questions

 

Super Pro Rata

Super pro rata is a term that refers to the right of a shareholder to maintain their ownership stake in the company even if the company issues new shares of stock. This term is typically used in the context of a rights offering, where the shareholders are given the opportunity to purchase new shares of stock at a discounted price.

 

Side Letter

A side letter is a supplemental agreement that is entered into between the company and the investors. This agreement typically contains more detailed information about the terms of the investment than what is found in the term sheet.

 

Seed Round

A seed round is the initial round of funding that a company receives from investors. This round is typically used to finance the development of the company’s product and to hire the initial employees.

 

Read more: Seed Funding 101: Your Guide to Increasing Your Odds of Investment

 

Senior Liquidation Preference

A senior liquidation preference is a clause in a term sheet that gives the investors seniority over the other shareholders in the event of a liquidation. This provision ensures that the investors will get their money back before any other shareholders receive anything.

 

Series A

Series A funding is the first major round of funding for a startup. It typically follows a seed round, in which the company raises smaller amounts of money from family, friends, and angel investors. It’s succeeded by a Series B funding round.

 

Read more: Series A Funding Guide

 

Find Series A investors: Use the Confluence.VC investor database to find Series A investors

 

Separation Agreement

A separation agreement is a contract that is signed by the company and the investors when they split up. This agreement outlines the terms of the separation and ensures that both parties are protected legally.

 

Shareholder Agreement

A shareholder agreement is a contract that is signed by the company and the shareholders when they split up. This agreement outlines the terms of the separation and ensures that both parties are protected legally.

 

Shareholder Limit

A shareholder limit is a provision in a term sheet that sets a limit on the number of shareholders the company can have. This provision protects the investors from having too many shareholders and diluting their ownership stake.

 

Shareholder of Record

A shareholder of record is a shareholder who is registered with the company’s secretary and is listed on the company’s share register. This person has the rights and obligations associated with being a shareholder and is typically the person who receives dividends and voting rights.

 

Shares Outstanding

Shares outstanding refers to the number of shares that a company has issued and are currently owned by investors. This term is typically used when discussing a liquidation event, such as a sale or an IPO, where the shareholders would receive money based on their ownership stake.

 

Stacked Preference

A stacked preference is a provision in a term sheet that gives the investors priority over the other shareholders in the event of a liquidation. This provision ensures that the investors will get their money back before any other shareholders receive anything.

 

Stock Option

A stock option is a contract that gives the holder the right to purchase shares of stock at a predetermined price. This contract is typically used by employees of a company who are granted stock options as part of their compensation package.

 

Stock Plan (Employee Incentive Plan)

An employee incentive plan is a program that rewards employees for meeting specific goals or objectives. This plan can take many different forms, such as cash bonuses, stock options, or vacation days.

 

S-3 Registration Rights

S-3 registration rights are a provision in a term sheet that gives the company the right to register their shares with the SEC. This right allows the company to sell their shares to the public and raise money from investors.

 

Tag-Along Rights

Tag-along rights are a provision in a term sheet that gives the shareholders the right to sell their shares to the company at the same price as the investors. This provision ensures that the shareholders will receive the same price as the investors in the event of a sale or an IPO.

 

Term Sheet

A term sheet is a document that is used to negotiate the terms of an investment. This document lays out the key provisions of the investment, such as the amount of money being invested, the valuation of the company, and the rights of the shareholders.

 

Transfer Restrictions

Transfer restrictions are a provision in a term sheet that restricts the transfer of shares to other parties. This provision protects the investors from having their shares sold to someone who is not part of the investment agreement.

 

Unicorn

A unicorn is a company that has reached a billion-dollar valuation or higher.

 

Vesting

Vesting is a process that gradually gives employees ownership of their stock options over a period of time. This process ensures that the employees are committed to the company and are not just cashing in their stock options and leaving.

 

Warrant

A warrant is a type of security that gives the holder the right to purchase shares of stock at a predetermined price. This contract is typically used by investors who are looking to invest in a company.

 

Warrant Coverage

Warrant coverage is a provision in a term sheet that gives investors the right to purchase more shares of stock at a predetermined price. This provision ensures that the investors will have the opportunity to increase their ownership stake in the company.

 

Write-Off

A write-off happens when a portfolio company goes out of business and the fund has to mark the value of the investment as zero.

 

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