The Venture Capital Dictionary simplifies complex startup and investment terms, empowering entrepreneurs and investors to navigate financing, growth, and operational strategies confidently, accelerating innovation, and fostering informed decision-making.
Accelerator: An institution that provides cohort-based programs through mentorship, space, connections, and educational components, usually culminating in a pitch event to accelerate growth.
Advisory Board: A group of external advisors to a private equity group, portfolio company, or start-up company that provides non-binding strategic advice to the management. The advice varies from overall strategy to portfolio valuation to complex industry-specific issues.
Amortization: An accounting procedure that gradually reduces the book value of an intangible asset through periodic charges to income.
Angel Financing: A seed and pre-seed round of investment into a start-up company from angel investors not previously affiliated with the founder. Typically, the first money is invested in a company after the founder’s own money and the founder’s friends and family.
Angel Investor (Business Angel): A wealthy individual providing capital and, in some cases, a network, industry expertise, and strategic advice to a start-up in an early development stage of the company.
Anti-Dilution Provisions: Anti-Dilution Provisions are contractual measures that allow investors to keep a constant share of a start-up’s equity in light of subsequent equity issues. These may give investors pre-emptive rights to purchase or receive new start-up stock.
Articles of Incorporation (Articles of Association): These documents define and record the company’s purpose and its members’ duties and responsibilities. They need to be filed with the Registrar of Companies.
Assets: This word refers to all resources that a corporation owns. Current assets can be any currency, including traded inventory, investments, and checks. Fixed assets (capital assets) consist of material goods and equipment of a company, such as the land, the company buildings, and technological machinery. Intangible assets mainly include intellectual property protection, copyrights, patents, etc.
Business to Business (B-to-B): Your company sells to other companies.
Business to Consumer (B-to-C): Your company sells directly to the consumer.
Balance Sheet: A condensed financial statement showing the nature and amount of a company’s assets, liabilities, and capital on a given date. 3
Bankruptcy: An inability to pay debts.
Benchmark: A performance goal against which a company’s or employees’ success is measured. Investors often use benchmarks to help determine whether a company should receive additional funding or whether management should receive extra stock.
Black Swan: An unpredictable event typically with extreme consequences.
Blind Pool: A pool of capital accumulated (usually in a limited partnership) for investment without specifying investment opportunities and used at the general partner’s discretion.
Board: A group of people elected by the company’s shareholders (often to the terms of the negotiated Shareholders Agreement) that makes decisions on major company issues, including hiring/firing the Chief Executive Officer.
Bonds: A specific type of debt instrument.
Business Plan: a document that entrepreneurs use by management and relied upon by investors to detail their business concept and their company’s overall strategic and financial objectives.
Buyback: A buyback, also known as a repurchase, is the purchase by a company of its shares that reduces the number of its outstanding shares.
Call Option: The right to buy a security at a given price (or range) within a specific period.
Valuation Cap: The maximum company valuation at which a convertible instrument will convert into a company’s equity securities.
Capital: Monetary assets are currently available for use. Entrepreneurs raise capital to start a company and continue raising capital to grow the company.
Capital Under Management: The capital available to a VC or PE Fund’s management team for investments.
Capitalization Table: A table depicting the number of shares or unit ownership held by each investor in a company, typically including founders’ equity, investor equity, and advisor/employee Stock Option Pools.
Carried Interest: The portion (usually 20%) of any gains realized by the fund to which the fund managers are entitled. Carried interest payments are customary in the venture capital and private equity industry to create a significant economic incentive for venture capital and private equity fund managers to achieve capital gains.
Cliff: A moment in time when a company’s stock becomes vested. This usually applies to vesting schedules of shares or stock options. Cliffs prevent a person from leaving the company within a limited period (usually 1 year), i.e., before a cliff. Closing An investment event occurs after the required legal documents are implemented between the investor and a company and after the capital is transferred in exchange for company ownership or debt obligation.
Co-investment: An investment by an independent investor alongside a venture capital fund in a financing round or the syndication of a venture capital financing round.
Collateral: Property or other assets a borrower uses to secure a loan. If payments are not made, the lender can seize the collateral to cover its loss.
Committed Capital: The total amount of capital pledged to a venture capital or private equity fund.
Conversion Ratio: The number of company shares into which a convertible security may be converted. The conversion ratio is usually expressed as the par value of the convertible security divided by the conversion price.
Convertibles: Convertibles are corporate securities, usually preferred shares or convertible bonds, that can be exchanged for a set number of another form, usually a common share, at a pre-stated price.
Convertible Bond: A corporate security purchased by an investor that can be converted into another (equity) security of the company, such as shares of common or preferred stock at an agreed conversion ratio.
Convertible Loan: An agreement between an investor and company to borrow money with the intent that the loan and the interest accrued will be converted into the company’s equity at a later valuation.
Convertible Preferred Stock: A preferred stock converted into common stock or another class of preferred stock, voluntarily or mandatory, at an agreed conversion ratio.
Corporate Venture Capital: A subsidiary of a large corporation that makes venture capital five investments. Covenant: A protective clause in an agreement.
Crowdfunding: Raising capital for a venture or a start-up via smaller amounts from many investors (“the crowd”). The capital can be provided without expecting financial return or in exchange for a specific good or service.
Deal Lead: The investor or investment organization taking primary responsibility for organizing an investment round in a start-up. The deal lead typically negotiates the terms of the investment and serves as the primary liaison between the company and the other investors.
Deal Structure: The framework of a deal between investors and a start-up is typically outlined in a term sheet and defined in detail in Purchase Agreements and related documentation.
Debt Financing: A process in which a firm raises money from creditors and promises to repay the principal and interest on the debt.
Deck (aka Pitch Deck): A presentation (usually to investors) that covers the main aspects of a business concisely and compellingly.
Dilution: A reduction in the percentage ownership of a given shareholder in a company caused by the issuance of new shares.
Discounted Convertible Loan: A loan that converts into the equity security purchased in a future investment round but at a discounted price, representing a risk premium for early investment.
Diversification: The process of spreading investments among various types of securities and multiple companies in different fields.
Double Bottom Line: Impact Investing aims to measure a company by its positive societal impact and financial returns.
Down-round: A situation when the valuation of a company at the time of an investment round is lower than its valuation after a previous investment round.
Drip Fee: When investors fund a start-up in portions of the agreed investment amount over time or upon reaching specific benchmarks instead of one lump-sum investment.
Dry Powder: Money held in reserve by a venture fund or angel investor to be able to make investments into start-ups.
Due diligence: An investor’s analysis of a potential investment’s facts and figures. Due diligence is usually performed by the investor’s consultants (e.g., lawyers, auditors, etc.).
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): A measure of cash flow calculated as: = Revenue – Expenses (excluding tax, interest, depreciation, and amortization).
Economies of Scale: The economic principle that, as the volume of production increases, the cost of producing each unit decreases.
Employee Stock Option Plan (ESOP): A plan established by a company whereby a certain number of shares is reserved for the purchase and issuance to key employees. Such shares usually vest over a certain period to incentivize employees to build long-term value for the company.
Equity: The totality of non-debt securities (usually common or preferred shares of stock) issued by the company or Ownership in the capital of a Company, usually expressed as a difference between the value of the assets and the value of the liabilities of a company.
Equity Financing: Company’s issuance of equity securities (typically shares of common or preferred stock) to raise capital. Capital raised in exchange for the company’s equity securities does not need to be paid back (unlike debt).
Executive Summary: A short overview of the startup’s business plan focusing on obtaining investor interest for potential investment.
Exit: The sale or exchange of a significant amount of company ownership for cash (or for another company’s debt and/or equity).
Expansion Stage: A period of a company’s development when a company may already have been successful in commercializing products and services but may not generate desired turnover/profit or cover desired geographical regions.
Expenses: The cost a business incurs during operations to generate revenue. The expenses are usually divided into cash expenses (e.g., salaries, payments to suppliers, etc.) and non-cash expenses (e.g., depreciation, amortization, etc.) according to the accounting standards.
First-round Financing: First-round financing is the first investment in a company by external investors.
Flat Round: An investment round in which a start-up’s pre-money valuation is the same as its post-money valuation from the previous round.
Flip: Moving a start-up to another jurisdiction (country).
Founders’ Agreement: A formal written agreement among the founders of a start-up that documents the founders’ accord on ownership, roles and responsibilities, company governance/decision-making, and operations. Issues such as founder contributions, vesting, and exit/departure are also typically included in these Agreements.
Friends & Family Round: An investment round in a start-up that often follows the founder’s investment, from people who invest primarily because of their relationship with the founder rather than their business knowledge.
Golden Handcuffs: An agreement between a start-up and an employee to relinquish unvested shares of stock when terminating an employment contract early (e.g., before the cliff).
Golden Parachute: An agreement that provides a large payout upon the occurrence of certain conditions, e.g., a share purchase by an outside entity.
Hockey Stick: The shape of the curve of the company’s revenue growth (e.g., 100% year-on-year) venture capital investors expect.
Holding Company: A company that owns the securities of another company, usually with voting control.
Hurdle Rate (preferred return): The internal rate of return that a fund must achieve before its general partners (managers) may receive a portion of the fund’s proceeds.
Illiquid Investment: An investment that cannot be readily sold or converted into cash.
Income Statement: A financial statement that shows a company’s financial performance over a specific period. It delineates the Revenue, Expenses, and Net Income.
Information Rights: A provision, usually in an Investment Agreement or Shareholders’ Agreement, which requires start-ups to provide board updates and financial information to investors on a periodic (such as quarterly or yearly) basis.
Initial Public Offering (IPO): The first stock sale by a private company to the public. Institutional Investors Organizations that professionally invest, including insurance companies, pension funds, investment companies, mutual funds, endowment funds, etc.
Internal Rate of Return: A typical performance measure of venture capital and private equity funds. IRR is technically a discount rate: the rate at which the present value of a series of investments equals the present value of the returns on those investments.
Investment Round: A set of one or more investments made into a start-up by one or more investors on essentially similar terms simultaneously.
Intellectual Property: A category of property that includes intangible creations of the human intellect, such as artistic works like music and literature, as well as discoveries, inventions, words, phrases, symbols, and designs.
J-curve: A graph of the early-stage investment portfolio’s typical value progression is presented. Values often drop soon after the initial investment during the startup and early stage period but rebound significantly after companies reach profitability in later years.
Key Employees: The most important employees of a start-up crucial for its success. Key employees are typically retained as the owners of the startup.
Lead Investor: The primary investor of a syndicated round of financing. This investor is typically the largest investor of the syndicated round and usually structures and leads the negotiation of terms related to the investment’s documentation.
Leverage: Use something — technology, partnerships, etc. — to your advantage.
Leveraged buyout (LBO): A process in which a company is purchased with significant debt while the target company’s assets or revenue is used as “leverage” to pay back the debt.
Liquidation: The process of selling a company’s shares or dissolving it by selling off all of its assets (making them liquid).
Liquidation Preference: An investor’s agreed right to receive a specific amount of investment value for its share of stock before others in case of a liquidity event.
Liquidation Waterfall: The sequence in which all parties, including investors, employees, creditors, and others, receive payments in case of a company’s liquidation through acquisition or bankruptcy.
Liquidity Event: An agreed event (usually a company’s bankruptcy, a sale of 9 shares of a company, or the dissolving of a company by selling off all of its assets) that allows an investor to realize a gain or loss on an investment based on the agreed liquidation waterfall. The liquidation preference is usually applied upon the occurrence of the liquidity event.
Lock-up Period: When certain stockholders have agreed to waive their right to sell their company shares.
Management Buy-in: A business purchase by an outside team of managers usually involves co-investment from a private equity fund and a plan to manage the purchased business actively.
Management Buy-out: A business purchase by operating management from a public or private company.
Management Fee: Compensation typically paid annually from an investment fund to the fund’s general partner or investment advisor to cover administration costs and expenses related to investor relations and compensate them for their services and expertise.
Management Team: The individuals who oversee and manage the operations and activities of a startup company or venture capital/private equity fund.
Market Capitalization: The total value of all outstanding shares of a company listed on the public equity market is computed as the number of shares multiplied by the current share price share on the public equity market. (See also: Valuation.)
Minimum Viable Product: A product’s basic version must be tested in the market to achieve proof of concept. The term is usually applied to software that is still in development.
Non-disclosure agreement: An agreement between two parties to protect sensitive or confidential information, such as trade secrets, from being shared with outside parties.
Net Income: The resulting earnings of a company after deducting all costs and expenses, including operations, general and administrative, selling, depreciation, interest expense, and taxes.
No Shop, No Solicitation Clauses: A clause in the agreement obliges the company to negotiate exclusively with the investor and not solicit an investment proposal from other investors for a set period after the term sheet is signed. The key provision is the length of time set for the exclusivity period.
Non-Solicitation Agreement: An agreement under which an employee or principal agrees not to solicit their existing employer’s or company’s employees, clients, or customers after departing the company for their benefit or that of a competitor.
Non-Compete Agreement: An agreement under which an employee or principal agrees not to solicit their existing employer’s or company’s employees, clients, or customers after departing the company for their benefit or that of a competitor.
Non-Disclosure Agreement: An NDA is a formal legal agreement between two or more parties undertaken by the parties to keep information shared or provided by one party to another confidential. NDAs are utilized where parties become privy to confidential and/or sensitive information that the disclosing party desires not to be made available to third parties or the general public. Such agreements may also include the confidentiality of the relationship between the parties.
Operating Budget: A set of estimates of income and expenses from a company’s operations typically prepared annually.
Option (option agreement): A security granting the holder the right to purchase (or sell) a specified number of a Company’s securities at a designated price at some point in the future. The term is generally used in connection with employee stock option plans. However, “stand-alone options” may be issued outside of any plan.
Pari Passu: On equal terms, without preference.
Pipeline: The continuing flow of upcoming business or underwriting deal opportunities.
Pitch Deck: A presentation (usually to investors) that covers the main aspects of a business concisely and compellingly.
Pivot: A change of direction of a start-up, typically by going after a different market segment or using a product for an entirely new purpose.
Portfolio/ Portfolio Companies: A collection of companies invested by an angel, venture capital, or private equity fund. Companies with an angel, venture capital fund, or private equity firm have invested.
Post-money Cap Table: A table depicting the ownership of the founders, employees, and investors in absolute quantities of shares and percentages, 11 of which represent the total ownership after an investment by new investors.
Post-money Valuation: The valuation of a startup company immediately following its most recent round of investment is calculated by taking the total number of shares outstanding after the investment and multiplying it by the share price of this latest investment round.
Pre-emptive Right: A shareholder’s right to acquire several shares in a future offering at prices per share paid by new investors.
Preferred Dividend: A dividend ordinarily accruing on preferred shares payable where declared and superior in right of payment to ordinary dividends.
Private Company: A company whose shares are not publicly traded on the stock market.
Private Equity: Any equity security of a company that is not listed and cannot be traded on a public stock exchange. Private equity is far less liquid than publicly traded stock.
Private Placement/ Private Placement Memorandum: The sale of a security directly to a limited number of investors in a private transaction. A document that outlines the terms of securities to be offered in a private placement.
Pro Rata ‘In Proportion’: The term is usually used when describing an investor’s right to increase company ownership in subsequent investment rounds proportionally.
Proof of Concept: A demonstration of the feasibility of a concept or idea that a startup is based on. Representations and Warranties A list of material statements or facts which are included in the investment agreement and which are confirmed by the entrepreneur.
Retained Earnings: Retained earnings are the corporate profits that are neither paid out in cash dividends to stockholders nor used to increase capital stock but are reinvested in the company.
Return on Investment (ROI): A ratio of the profit or loss resulting from an investment, usually expressed as an annual percentage return.
Reverse Vesting: A process when founders of a company agree that they will give 12 back part of their stock holdings if they leave the company before a specified date.
Scalability: The ability of a startup to grow and operate at a larger scale
Secondary Sale: The sale of a portfolio company by a venture capital fund or private equity fund to other investors.
Securities: Any equity and debt instruments and rights in and to them.
Seed Capital Funds: These are used to purchase equity in a startup company at a seed stage.
Seed Round: The first formal investment round beyond friends and family with investment, usually from business angels and venture capital funds. The term comes from planting a seed for the first time.
Seed Stage: The stage of a startup where entrepreneurs typically validate their product or service to the marketplace, develop their MVP, commence initial market testing and development, and begin developing their business model / go-to-market strategy.
Series A Round: The first significant investment round is usually provided by the private equity or venture capital funds after the founders have used their seed capital to provide a “proof of concept,” demonstrating that their business concept is viable and eventually profitable.
Series B, C, D… Rounds: Investment rounds from venture capital funds after the Series A round.
Shares (Common Stock): A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represents a company’s capital.
Preferred stock: A preferred stock is a class of ownership in a company with a higher claim on the company’s assets and earnings than common stock. Preferred shares generally have a dividend that must be paid before dividends to common shareholders.
Share Premium: Share premium is the amount by which the amount received by a company for a stock issue exceeds its face value.
Dividend: The income received by the shareholder from the ownership of shares.
Shareholders Agreement: An agreement signed by a company’s shareholders in which they usually agree on the company’s corporate governance, share transfer, voting, and other vital issues.
Simple Agreement for Future Equity (SAFE): An agreement of funding for early-stage companies solving several issues with traditional convertible bond financing. Y Combinator developed SAFE in the U.S.
Soft Landing: A face-saving acquisition of an unsuccessful startup, usually for little or no compensation.
Spray and Pray: A term used to describe an investment strategy whereby a venture capital fund invests in many companies, hoping one of them will become a unicorn.
Stock Option Pool: Shares of stock reserved for employees of a company. The option pool is a way of attracting talented employees to a startup company.
Stock Options: The right to purchase or sell a stock at a specified price within a stated period. It is a widely used form of employee incentive and compensation for startup companies. The employee of a startup company is usually given the option to purchase its shares at or below the market price for a specified period of years.
Sweat Equity: Sweat equity is the equity received in a startup company by its founders due to their contributions in the form of hard work, labor, and toil.
Syndication: The process whereby a group of business angels or venture capital funds will each put in a portion of the money needed to finance a startup.
Tag Along/Drag Along: Provisions in a Shareholders’ Agreement permit investors under certain defined circumstances to sell their shares if the founder sells its shares (tag) or force the founder to sell its shares if the investor sells its shares(drag).
Term sheet: A document outlining the significant aspects of an investment into a startup company.
Trademark: An identifying word, phrase, design, or symbol that permits third parties to distinguish and differentiate the goods of differing parties. Trademarks are registered with the appropriate governmental offices.
Unicorn: A startup company with a valuation above $1 Billion.
Up-Round: A situation when the valuation of a company at the time of a 14 investment round is higher than its valuation after the previous round.
Valley of Death: The period between the initial funding of a startup and the moment when a startup starts to generate revenue.
Valuation: The total value of all outstanding shares of a startup company computed as the number of shares multiplied by the share price in the current investment round or The process of establishing the value of a startup company.
Venture Capital: Investment capital made available to high growth, scalable startups, typically beginning at the early stage through to maturity of a company, from a venture capital fund.
Venture Capital Financing: A private equity investment provided to early-stage, high-growth startup companies in the latter stages of development with the potential for exceptional financial returns.
Venture Capital Fund: An investment vehicle managed by professional investment managers using pooled capital from various investors that seeks private equity stakes in startup companies with strong growth potential.
Vesting: A startup company releases its shares to employees, management, founders, advisors, board members, and other company stakeholders over time. The purpose of vesting is to grant people stock over a fixed period to incentivize them to stay with the startup company.
Vesting Schedule: A timetable and methodology under which a startup releases shares to employees, management, founders, advisors, board members, and other company stakeholders.