Glossary

The vocabulary, decoded.

The fundraising lexicon is small but precise, and every term you don't know is a quiet point of leverage against you. Press ⌘K to jump straight to a term.

#A B C D E F G H I J K L M N O P Q R S T U V W Y Z

409A valuation: Independent fair-market-value report of common stock, used to set option strike prices. Refreshed annually or after material events. Defensible 409A protects employees from IRS penalties. Carta, Scalar, Aranca, etc. provide them; first one ~$1K–$3K.
83(b) election: US tax filing that elects to be taxed on restricted stock at grant rather than as it vests. Filed with the IRS within 30 days of receipt. Standard for founders and early-exercise option holders. Missing the 30-day window is unrecoverable.

Accelerator: Time-boxed program (usually 3 months) that invests a small standardized check, provides mentorship, and culminates in a demo day. YC, Techstars, and 500 Global are canonical. The capital matters less than the brand stamp, the cohort, and the forcing function on shipping.
Accredited investor: US SEC definition: an individual with $200K+ income (or $300K joint), $1M+ net worth excluding primary residence, or a holder of Series 7/65/82. Reg D 506(b) lets you take their money on self-certification; 506(c) requires you to verify.
Acqui-hire: Acquisition primarily for the team, not the product. Common when a startup is running out of runway with a strong engineering bench. Investors usually get their money back at best; founders get retention packages and a soft landing.
ACV — Annual Contract Value: Annualized revenue from a single customer contract. A 3-year, $300K contract has an ACV of $100K. Distinct from TCV (total contract value, $300K here) and ARR (the recurring portion, excluding one-time fees).
Advisor equity: Equity grants to advisors for ongoing help. Typical: 0.1%–1.0% over 2 years, monthly vesting, no cliff, often via FAST template. Don't pay strategic-relationship advisors out of equity if they're not putting in hours; reserve equity for working advisors.
Allocation: How much of a round a specific investor is allowed to take. Founders allocate to balance lead size, fund-fit, and saving room for follow-ons or strategic angels. "Sorry, no allocation left" is the polite no-thanks of a hot round.
Amended and restated certificate: Updated certificate of incorporation filed with Delaware when a priced round closes. It defines the new series of preferred stock, authorized shares, and protective provisions. Each priced round produces a fresh A&R.
Angel investor: Individual investing personal capital, usually $5K–$250K per check. Best angels add a specific superpower (customer intros, hiring, domain expertise). "Super angels" who write $250K–$1M checks and run small funds blur the line with seed VCs.
Anti-dilution: Protection that re-prices preferred stock if you raise a later round at a lower valuation (down round). Almost always broad-based weighted average — fair to founders. Full-ratchet anti-dilution is punitive; refuse if asked.
ARPU — Average Revenue Per User: Revenue ÷ active users in a period. Useful for consumer and PLG products where pricing is per-seat or per-user. Don't conflate with ACV (per-contract); ARPU is per-user, often dramatically smaller.
ARR — Annual Recurring Revenue: Annualized run-rate of recurring contractual revenue. $50K MRR = $600K ARR. Excludes one-time fees, professional services, and usage spikes you can't bank on. The single number most B2B seed/Series A investors anchor on.
ARR multiple: Valuation divided by ARR. At seed: 30–100×+ for venture-scale companies (story-driven). At Series A: 15–50×. At Series B+: 10–30×. Multiples compress as growth slows. Don't anchor on multiples too early — story does more work.
At-will employment: US default: either employee or employer can terminate at any time, with or without cause. Every offer letter for US employees should reaffirm at-will status. Not legal in most countries outside the US.
AUM — Assets Under Management: Total capital a fund or asset manager controls. VCs talk AUM when raising new funds; founders rarely care unless evaluating a fund's check-size capability or signaling clout. AUM growth is the GP's career goal.
Authorized shares: Maximum number of shares the certificate of incorporation allows the company to issue. You need to authorize enough to cover the new round and option pool. Increases require board + stockholder approval.

Backsolve method: 409A valuation technique that backs into common-stock fair value from a recent preferred round price. Common at seed/Series A. Less defensible if the last round was 18+ months ago or the market has moved sharply.
Beachhead market: Narrow initial customer segment you can dominate before expanding outward. "Project managers at Series-B SaaS companies" beats "businesses." A great deck names a beachhead and shows the expansion path from it.
Benchmark: Reference metric for your stage and category — typical Series A SaaS company: $1M+ ARR, 3× YoY growth, 110%+ NRR, 18+ months runway. Benchmarks are diagnostic, not prescriptive. Outliers in either direction need narrative.
Blue sky filing: State-level securities filing required when offering shares to residents of that state. Counsel handles it after closing; expect $1K–$3K in fees. Tied to a Form D filing with the SEC at the federal level.
Board observer: Investor right to attend board meetings without voting. Common ask from seed leads and pro-rata-only investors. Lower risk than a board seat but still shapes founder behavior — observers see the same materials.
Board seat: Voting member of the board of directors. Seed leads sometimes ask; Series A leads almost always take one. Typical seed-stage board: 2 founders + 1 lead investor + 1 independent. Adding a seat = giving up control.
Bookings: Dollar value of contracts signed in a period, regardless of when revenue is recognized. A 12-month $120K contract signed in March = $120K of March bookings, $10K/mo of recognized revenue. Investors anchor on bookings to gauge sales momentum.
Bottom-up forecast: Forecast built from concrete drivers (reps × quota × ramp × close rate) rather than top-down market share. Defensible because every line traces to a hireable headcount or pipeline assumption. The forecast investors actually trust.
Bridge round: Short-term financing between priced rounds, usually as SAFEs or notes from existing investors. Used to extend runway and hit a milestone before raising the next priced round. Strong signal when led by your existing lead; weak signal when led by you.
Broad-based weighted average: The fair flavor of anti-dilution: re-prices preferred only partially based on how dilutive the down round actually is, with a broad share-count base. Sleep-soundly accepted in standard term sheets; the alternative is full-ratchet, which you refuse.
Burn multiple: Net burn ÷ net new ARR over a period. Below 1.0× is excellent, 1–2× is healthy, above 3× signals inefficiency. Popularized by David Sacks; useful diagnostic once you have meaningful revenue (typically post-Series A).
Burn rate: Cash leaving the bank per month. Gross burn = total spend; net burn = spend minus collections. Net burn is what extends or shortens runway. Investors ask both and compare them to find the leakage.

CAC — Customer Acquisition Cost: Fully-loaded sales + marketing spend in a period divided by new customers closed. Blended CAC averages across channels; paid CAC isolates ads. Track separately — a great blended number can mask one terrible channel.
CAC payback: Months for a customer's gross profit to repay their CAC. Under 12 months is best-in-class; 12–24 is normal SaaS; 36+ requires a story. Below LTV/CAC ratio because it surfaces capital efficiency directly.
Cap table: Single source of truth for who owns what — founders, employees, investors, options, warrants, and convertibles. Maintain it religiously; a broken cap table at diligence delays closes by weeks. Carta, Pulley, AngelList, and spreadsheets all work if accurate.
Capital call: Demand from a fund's GP for LPs to wire committed capital. Funds call capital in tranches as they deploy — explains the "I'm in for the round but won't wire for 4 weeks" delay. Larger funds capital-call faster.
Carry (carried interest): Share of fund profits paid to GPs as compensation. Standard: 20% of profits above the hurdle, after returning LP principal. The "20" in "2 and 20" fund economics. Drives GP behavior — they want big exits more than steady ones.
Cash zero date: Calendar date the bank account hits $0 at current net burn. Investors ask for it directly. Quote it conservatively, ignore optimistic revenue plans, and aim for 18–24 months when raising.
Change of control: Event where a third party acquires majority ownership or board control — typically an M&A exit or sometimes a recap. Triggers double-trigger acceleration, change-of-control bonuses, and (under some SAFE/note terms) automatic conversion.
Cliff (vesting): Period before any equity vests. Standard: 12-month cliff on a 4-year schedule. If an employee leaves before the cliff, they forfeit all unvested shares. After the cliff, monthly vesting kicks in.
Closing conditions: Conditions precedent that must be satisfied before a financing closes: certified cap table, signed bring-down certificate, evidence of insurance, board/stockholder approvals, no material adverse change. Counsel maintains the closing checklist.
Co-sale right: If a founder sells shares, investors can sell pro-rata alongside them. Prevents founders from cashing out while investors hold. Standard in priced rounds; almost never an issue at seed since founders rarely have liquidity.
COGS — Cost of Goods Sold: Direct costs of delivering revenue: hosting, payment processing, customer support directly tied to usage. For SaaS, COGS is mostly hosting + paid support. Subtracted from revenue to get gross margin. Don't bury sales costs in COGS.
Cohort analysis: Group customers (or users) by sign-up period, then track each cohort's retention/revenue separately. Monthly cohorts are standard. Tells you whether the business is getting better or worse over time, even when topline ARR is growing.
Committed ARR (cARR): ARR from signed contracts that haven't started billing yet. Useful for sales-led businesses where contracts close ahead of go-live. Don't blend with live ARR in headline metrics — investors will notice.
Common stock: The basic equity class founders and employees hold. Junior to preferred in liquidation. Common-stock 409A valuation typically runs 20–40% below the preferred price-per-share due to the lack of preference and liquidity.
Compounding: Multiplicative growth: 10% monthly growth = 3.1× yearly, not 1.2×. Most growth-stage misses stem from forecasting linearly when the business is actually compounding (or vice versa). Always sanity-check models against compound math.
Confirmatory diligence: Final diligence phase after term sheet signature — legal, customer reference, financial, tech. Mostly box-checking but can blow up a deal if cap-table errors, IP gaps, or customer churn surface. Have your data room ready before term sheet.
Contribution margin: Revenue minus variable costs (cost of revenue, payment processing, hosting, support directly tied to usage). Different from gross margin: variable cost only. Tells you the marginal economics of one more customer.
Conversion (SAFE/note): Process by which a SAFE or convertible note becomes preferred stock at the next priced round. Conversion price = lower of (round price × discount) or (cap valuation ÷ pre-money cap shares). Counsel handles the mechanics; founders should understand the math.
Convertible note: Debt instrument that converts to equity at a future priced round. Has interest (typically 4–8%) and a maturity date — at which point you must convert, repay, or extend. Mostly replaced by SAFEs at seed; still common at later bridge rounds.
Crossover fund: Investor that participates in both private late-stage rounds and public markets — Coatue, T. Rowe, Tiger. They typically join at Series C+. Useful as IPO marker; not relevant for seed/Series A founders.

Data room: Controlled folder of diligence materials shared with investors. Each recipient gets a unique watermarked view, access is revocable, and downloads are off by default. Run the investor-facing room from day one of fundraising.
DAU — Daily Active Users: Unique users in a 24-hour window. Define "active" precisely (logged in? performed core action?) and don't change the definition. For consumer products, MAU and DAU/MAU ratio matter more than absolute count.
DAU/MAU ratio: Stickiness metric. 20%+ is decent consumer, 50%+ is great (Facebook, WhatsApp territory). B2B SaaS often runs 30–60% depending on usage cadence. Trend matters more than absolute number — a falling ratio is the warning sign.
Deal velocity: How fast investor conversations progress: first meeting → partner meeting → IC → term sheet. Hot rounds compress this to 2–3 weeks. Track every conversation's stage to spot stalls early.
Deferred revenue: Cash collected for services not yet delivered. Sits on the balance sheet as a liability until earned. Annual prepayments create large deferred revenue balances — investors read it as a sign of customer commitment and revenue durability.
Definitive agreements: The binding contracts that close a priced round: stock purchase agreement, amended certificate, voting agreement, investors' rights agreement, ROFR/co-sale. NVCA templates are standard. Term sheet is non-binding; definitives are the deal.
Delaware C-corp: Default US venture entity. Delaware corporate law is predictable and investor-friendly; C-corp (vs. LLC/S-corp) supports preferred stock, options, and QSBS. Incorporate as Delaware C-corp before you take any outside money.
Demand registration rights: Investor right to force the company to register their shares for public sale after IPO. Standard in series-stage agreements; mechanically irrelevant pre-IPO. Counsel negotiates form; founders rarely engage with substance.
Demo day: Accelerator culmination event where companies pitch to invited investors. YC Demo Day is the most famous. Hot rounds close during or within 48 hours of demo day; the rest fight for attention afterward. The week before demo day, polish the deck and prep questions.
Diligence (due diligence): Investor review of your business before wiring funds: legal, financial, commercial, technical, customer references. Light at pre-seed (hours), comprehensive at Series A+ (weeks). The data room is your weapon.
Discount (SAFE/note): Percentage off the next priced round's share price at which a SAFE/note converts. Typical: 15–20%. Stacks with the cap — investor takes whichever produces more shares. Discount rewards early commitment.
Double-trigger acceleration: Equity vests early only on TWO events: (1) change of control AND (2) termination without cause / good-reason resignation. Standard for executives; some founders insist on it. Protects against being fired post-acquisition.
Down round: Round priced below the last round's valuation. Triggers anti-dilution adjustments for preferred holders, dilutes common heavily, and signals trouble to the market. Bridge financing or a recap is often better than pricing a down round.
DPI — Distributions to Paid-In capital: Fund-level metric: cash returned to LPs ÷ cash invested. DPI > 1.0× means LPs got their money back. Funds raised in 2018–2020 are under DPI pressure right now, which shapes how their partners behave in your meetings.
Drag-along: Majority preferred can compel minority holders (including founders/common) to vote for an approved sale. Prevents holdouts from blocking an exit. Standard term; pay attention to the threshold (50% of preferred, sometimes plus board approval).

Early exercise: Buying option shares before they vest. Combined with an 83(b) election filed within 30 days, starts the QSBS clock and avoids ordinary-income tax on appreciation. Most useful at the lowest strike (first few employees).
Earnout: Acquisition payment contingent on hitting milestones post-close. Common when buyer and seller can't agree on valuation. Founders should assume earnouts are a coin flip — model exit value at 50% of earnout target.
EMI options: UK Enterprise Management Incentive scheme — the most tax-efficient employee option plan for UK companies under £30M assets. Equivalent role to US ISOs but with cleaner tax treatment for employees. UK founders should default to EMI.
Escrow: Third party holds funds or shares until contractual conditions are met. At closing: wires sometimes routed through escrow for simultaneous exchange. At M&A: 10–15% of purchase price held 12–24 months against rep & warranty breaches.
ESOP — Employee Stock Option Plan: The pool of shares reserved for option grants. Typically 10–15% post-Series A. Sometimes confusingly used to mean employee stock ownership plan (US-tax-favored entity); in startup contexts it means the option pool.
ESOP refresh / top-up: Increasing the option pool, usually at a new round. Most term sheets require the top-up come from the pre-money cap table — diluting founders, not new investors. Negotiate the size; 10% post-round is often defensible.
Exit: Liquidity event for investors: M&A, IPO, or (rarely) secondary tender. Median venture exit is M&A under $100M. The waterfall determines who gets what; venture economics tilt toward outlier outcomes, so most companies' exits return preferences first and not much else to common.
Exit waterfall: Distribution of acquisition proceeds across preferred (preference + conversion choice), common (founders/employees), options (in-the-money only), and SAFEs. Below the preference threshold, common gets nothing. Model this before celebrating headline exit numbers.
Expansion revenue: New ARR from existing customers — upsell, cross-sell, seat additions, usage growth. Powers NRR above 100%. Best-in-class SaaS gets 30–50% of new ARR from expansion by Series B+.

Fair market value (FMV): Price common stock would change hands between willing buyer and seller. Set by 409A valuation and used as the option strike price. Refreshed every 12 months, after a priced round, or on material events.
Family office: Capital pool managed for a single wealthy family. Some are excellent startup investors with deep domain expertise; others are slow, governance-heavy, and add no value. Treat each as a unique investor type, not a fund.
Final close: Final round of signatures and wires that closes your fundraise. After final close, you can't take new commitments under the same SPA without amending — usually painful. Don't drag closes; set a date.
First close: Initial wire of funds against signed docs once you have enough committed capital to make the round real. Subsequent investors join on the same terms via additional closes. Useful when your lead is ready and stragglers are still in diligence.
Follow-on: Existing investor's investment in your next round. Strong signal when your lead does pro-rata or more; concerning if your lead skips. Reserve allocation for known follow-ons before opening to new investors.
Form D: SEC filing required within 15 days of first sale in a Reg D exempt offering (SAFEs and priced rounds). Public filing — your competitors can see it. Counsel handles it.
Founder shares: Common stock issued to founders at incorporation. Usually subject to vesting (4 years, 1-year cliff) with the company holding the right to repurchase unvested shares at original cost if a founder leaves.
Founder-friendly: Investor signaling that they don't push hard on terms or block founder decisions. Verify by reference-checking other founders, not by what the GP says in your meeting. The friendliest investors in good times sometimes become the worst in bad ones.
Friends & family round: Earliest funding round, typically $25K–$250K from personal network. Not from professional investors. Usually as SAFEs. Be careful with non-accredited family — Reg D 506(b) has limits, and personal relationships are at stake if it fails.
Full-ratchet anti-dilution: Punitive anti-dilution: preferred re-prices to match the lowest subsequent price, regardless of how many shares were issued. Refuse it. Standard market is broad-based weighted average. Full-ratchet only appears in distressed situations.
Fully diluted: Share count including all outstanding shares + unexercised options + unissued option pool + warrants + converting SAFEs/notes. The denominator for honest ownership %. Always compute your dilution post-conversion of every SAFE on the cap table.
Fund of funds (FoF): Fund that invests in other VC funds. Major LP class for emerging managers. Doesn't directly affect founders, but explains why some early-stage funds behave conservatively — their LPs are FoFs with their own constraints.

GP — General Partner: Partner in a VC fund who deploys capital and makes investment decisions. "Managing partner" usually denotes seniority. The GP signing your term sheet is the one to keep close; associate champions can change firms.
Gross burn: Total cash spending per month before subtracting revenue. Useful when revenue is volatile or negligible. Net burn is what determines runway, but gross burn surfaces structural cost commitments.
Gross margin: (Revenue − cost of revenue) ÷ revenue. SaaS targets 75%+; marketplaces and AI infra often run lower due to compute/COGS. Below 50% gross margin makes most VC business models hard. Track product-level GM if you have multiple SKUs.
Growth equity: Capital for later-stage, capital-efficient companies — usually $10M+ ARR, growing 50%+, near or at profitability. Smaller dilution than venture, often includes secondary. Not relevant pre-Series B for most founders.
Growth rate: Period-over-period revenue change. Investors expect T2D3 trajectory: triple in years 1–2 of post-PMF growth, then double for three years. MoM matters at pre-revenue; QoQ at $1M+ ARR; YoY at $10M+.
GRR — Gross Revenue Retention: Recurring revenue retained from existing customers, excluding expansion. 100% means zero churn. Best-in-class B2B SaaS: 90%+. GRR < 80% is a leaky-bucket signal investors will probe hard.

Hockey stick: Forecast graph showing slow growth followed by inflection up and to the right. Every fundraising deck has one; smart investors discount yours by 50%. Show the leading indicators (pipeline, hiring plan) that justify the inflection.
Holdback: Portion of acquisition purchase price held back at close, released 12–24 months later if no claims arise. Typically 10–15%. Combines with rep & warranty insurance or escrow. Founders treat holdback as risky money in models.

ICP — Ideal Customer Profile: Tight specification of your best-fit customer: industry, size, role, trigger event, current alternative. The narrower the ICP at seed, the easier sales is. Investors expect ICP definition to sharpen between seed and Series A.
Information rights: Investor right to receive financial statements, board materials, and KPI updates. Standard at major-investor thresholds (often >$1M check). Pro-rata-only investors don't get info rights without negotiation.
Inside round: Round led by an existing investor rather than a new lead. Common in bridge situations or when the company is too early/too late for outside leads. Looks defensive; valuations often come in at or below last round.
Investment committee (IC): Group inside a VC firm that approves new investments. Partners present champion deals; IC votes. "Pending IC" means you're not in yet. Most IC meetings are weekly (often Monday). Plan term-sheet timing around the firm's IC cycle.
Investor update: Monthly or quarterly written update to investors covering metrics, asks, and progress. The single highest-leverage communication founders send between rounds. Monthly is the cadence most lead investors expect; sticking to it builds trust and unlocks help.
IPO — Initial Public Offering: First public sale of stock on an exchange. Requires $100M+ ARR, repeatable growth, durable margins, and clean financials. Direct listings and SPACs are alternatives. Default exit assumption for most VC math at fundraise.
IRR — Internal Rate of Return: Annualized return of a fund's investments. VCs target 25–30%+ net IRR over the fund's life. Sensitive to timing — IRR drops sharply if exits delay. Explains why investors push for sooner-better exits even at lower headline multiples.
ISO — Incentive Stock Option: US option type for employees with favorable tax treatment: no ordinary income at exercise (subject to AMT), capital gains on sale if held long enough. $100K/year vesting limit; rest spills to NSO. Reserve for full-time employees.

J-curve: Path of fund (or company) returns: down before up. New VC funds report negative IRR for the first 3–5 years due to management fees and write-downs before exits materialize. Mature funds have less J-curve; emerging funds have more.

KISS — Keep It Simple Security: 500 Global's convertible-security template. Two flavors: KISS Debt (notes-style with interest/maturity) and KISS Equity (SAFE-style). Less popular than YC SAFE but you'll see it from 500-influenced deals.
KPI — Key Performance Indicator: Metric you commit to track and report. Pick 4–6 max; investors will ask about each every update. Tying KPIs to specific people ("DRI") is a maturity signal at Series A+.

Lead investor: The investor who sets terms, takes the largest check, and (usually) takes a board seat. At seed, leads write $1M–$5M; at Series A, $5M–$15M. "Co-leads" share the work. Without a lead, the round drifts.
Liquidation preference: Preferred stockholders' right to get paid before common in an exit. Standard: 1× non-participating — they pick the greater of (their money back) or (their conversion-to-common payout). Stacked preferences or 2×+ multiples are red flags.
Logo churn: Percentage of customer accounts lost in a period, regardless of contract size. Different from revenue churn — losing a $1K customer is one logo, same as losing a $1M customer. Tracks the health of the customer base, not the dollars.
LOI — Letter of Intent: Non-binding outline of an M&A or major deal — price, structure, key conditions. In M&A, LOI usually includes a no-shop window during which you can't negotiate competing offers. Read no-shop terms carefully.
LP — Limited Partner: Investor in a VC fund. Pension funds, endowments, family offices, FoFs, individuals. LPs don't make investment decisions but their preferences shape what their GPs will fund. Their reporting cycles drive YE/quarter-end deal urgency.
LTV — Lifetime Value: Gross profit a customer generates over their full relationship. Calculation: ARPU × gross margin ÷ churn rate. LTV/CAC > 3× is a healthy threshold; over-engineered LTV models often hide bad unit economics.

M&A — Mergers & Acquisitions: Most common venture exit path. Sub-$50M acqui-hires are common; venture-meaningful M&A starts at $100M+. Strategic acquirers pay premiums for specific fit; financial acquirers for cash flow.
Magic number: Net new ARR ÷ S&M spend, annualized over a period. Above 1.0 is good (revenue grows faster than sales spend); above 1.5 is exceptional. Sub-0.5 means the sales engine isn't paying for itself.
Management fee: Annual fee VCs charge their LPs to operate the fund — typically 2% of fund size. Funds with high management fees and low DPI are LP-pressured, which trickles into how they behave with portfolio companies. Standard fund economics: 2/20.
MAU — Monthly Active Users: Unique users in a 30-day window. Standard consumer metric; less useful for B2B where seat-based ARR matters more. Always pair MAU with DAU/MAU ratio and engagement quality, not just absolute count.
MFN — Most Favored Nation: Clause letting an earlier SAFE/note holder adopt the better terms of a later SAFE/note. Standard in YC SAFE. If you issue a $5M cap SAFE after a $10M MFN-protected one, the $10M holder can elect to convert at $5M.
Micro-VC: Small fund ($25M–$100M) writing pre-seed and seed checks ($250K–$1.5M). Often run by 1–2 partners. Faster decisions than larger funds; smaller reserves for follow-on. Hustle Fund, Susa Ventures, Boldstart, Afore are examples.
MOIC — Multiple on Invested Capital: Total value of an investment ÷ amount invested. 10× MOIC over 8 years = good outcome. VCs target 3×+ on the whole fund, with portfolio outcomes ranging from 0× (most) to 50×+ (the winners).
MRR — Monthly Recurring Revenue: Monthly run-rate of recurring revenue. ARR ÷ 12. Useful when MoM changes are material (pre-$1M ARR). After Series A most boards track ARR; MRR matters internally for sales pacing.
MSA — Master Service Agreement: Standard customer contract template. Customers with strong procurement (Fortune 500, government) require their own MSA, which can add 30–90 days to deal close. Have counsel pre-review common enterprise MSAs before sales cycles.

NDA — Non-Disclosure Agreement: Mutual confidentiality contract. VCs almost never sign NDAs to hear your pitch — and won't, regardless of who asks. Save NDAs for partnership discussions, customer trials, and acquirer discussions.
Net burn: Gross burn minus revenue collected in the same period. The number that actually depletes the bank. Quote net burn in fundraising conversations; gross burn is for internal cost discipline.
Net new ARR: New ARR + expansion ARR − churned ARR − contraction ARR in a period. The cleanest measure of sales-engine output. A growing topline with shrinking net new ARR is a leading indicator of trouble.
Non-compete: Clause restricting an employee from joining competitors post-departure. Enforceability varies by jurisdiction — strict in much of Europe, increasingly unenforceable in California and now federally restricted in the US. Don't rely on non-competes alone for IP protection.
Non-participating preferred: Standard preferred-stock liquidation flavor: holder picks either (preference back) or (convert to common and share pro-rata) — not both. The fair default. Participating preferred ("double-dip") is what you want to avoid.
NPS — Net Promoter Score: % promoters (9–10) minus % detractors (0–6) in response to "How likely are you to recommend us?". Industry varies wildly: SaaS 30+ is good, 50+ is great. Investors are skeptical of NPS without context; cohort retention is harder evidence.
NRR — Net Revenue Retention: (Starting cohort ARR + expansion − churn − contraction) ÷ starting cohort ARR. Above 100% means existing customers grow even with no new logos. Best-in-class SaaS: 120%+. Below 100% means leaky-bucket growth.
NSO — Non-qualified Stock Option: Default US option type when ISO limits don't apply (contractors, advisors, ISO overflow above $100K/year vesting). Taxed as ordinary income on the spread at exercise. Less tax-favorable than ISOs but more flexible.

Observer (board): Investor entitled to attend and observe board meetings without voting. Receives the same materials as directors. Useful compromise when a seed lead asks for a seat but you want to keep the board small.
Operating partner: Senior person at a VC firm (often ex-operator) who works with portfolio companies on hiring, GTM, or technical scaling. Usually not a check-writer. Good operating partners are real value-add; gauge by reference-checking portfolio founders.
Option pool: Reserved shares for future employee grants. Typical sizes: 10% pre-seed, 10–12% pre-Series A, 12–15% pre-Series B. Top-ups before priced rounds dilute founders, so size accurately and negotiate the top-up math.
Option pool shuffle: Investor tactic: require pre-money option pool top-up that dilutes existing holders rather than coming out of the new round's investment. Standard but worth negotiating — sometimes a smaller pool, sometimes coming partly post-money.
Outside lead: New investor leading the round, vs. an inside round led by existing investors. Outside leads price the round, which is the cleanest signal of market value. Without one, valuation often defaults to a discounted last-round price.
Ownership target: % of the company a lead investor wants to own post-round. Series A leads typically target 15–20%; seed leads 8–15%. Their check size = ownership target × post-money valuation. Knowing this helps predict their valuation pushback.

Pari passu: Latin: "on equal footing." Two share classes (say, Series Seed and Series A preferred) are pari passu in liquidation if they're paid back together at the same time, pro-rata to their preferences.
Participating preferred: Investor gets their preference back AND shares pro-rata in remaining proceeds — "double-dip." Unfavorable to founders/common in exits. Standard market is non-participating. If asked for participating, push back hard or cap participation.
Party round: Round filled by many small checks with no lead. Faster to close, weaker governance, less help. Common at pre-seed with $10K–$50K angel checks. Strong rounds have a lead even if the check size is small.
Pay-to-play: Provision requiring preferred holders to participate in future rounds or have their preferred converted to common (losing preference). Common in distressed/down-round situations. Painful for non-participating early investors.
Piggyback rights: Investor right to include their shares in a registration the company files for someone else's sale. Activates post-IPO; mechanically irrelevant pre-IPO. Counsel handles the language.
PIIA — Proprietary Information & Inventions Agreement: Standard employee/contractor agreement assigning IP to the company. Every person who touches your codebase needs one signed before they start. Gaps here kill diligence and acquisitions.
PMF — Product-Market Fit: When customers pull product faster than you can build, retention is high, and word-of-mouth drives acquisition. Marc Andreessen's litmus: usage spikes, servers melt, sales close themselves. Most startups die before PMF; most fundraising aims to find or strengthen it.
Post-money valuation: Company value including the new round's money. Pre-money + round size = post-money. Standard SAFE caps (since 2018) are post-money — a $10M post-money SAFE cap and $1M check = exactly 10% ownership at conversion.
PPM — Private Placement Memorandum: Long-form disclosure document for fundraising under 506(c) (general solicitation) or in non-accredited contexts. VC priced rounds don't use PPMs; they're more common in real estate and 506(c) crowdfunding.
Pre-money valuation: Company value immediately before the new investment. Pre-money + round = post-money. Priced-round term sheets historically quote pre-money; modern SAFE-driven funding quotes post-money to make ownership math cleaner.
Preference stack: Total dollar amount of liquidation preferences across all preferred series. At exit, the stack is paid before common gets anything. A $30M preference stack means common is worthless below a $30M sale price. Track this as you raise.
Preferred stock: Share class issued to investors in priced rounds. Senior to common in liquidation, with rights (voting, anti-dilution, info, ROFR, registration) detailed in the certificate of incorporation. Each round usually creates a new series (Seed, A, B, etc.).
Priced round: Equity round that sets an explicit per-share price and creates a new preferred series. Distinct from convertibles (SAFEs, notes), which defer pricing. Series Seed, A, B, C are all priced rounds.
Primary capital: Money that goes onto the company's balance sheet. Distinct from secondary capital, which goes to existing shareholders. Founders raise primary to fund operations; secondary occasionally appears in later rounds for partial founder/early-employee liquidity.
Pro forma cap table: Cap table modeled as if the proposed round closes. Shows new ownership %, SAFE conversions, option pool top-ups, founder dilution. Run a pro forma before every term sheet — surprises in the numbers kill deals.
Pro rata: Right to invest in future rounds to maintain ownership percentage. Standard for institutional leads; often a side-letter ask from significant angels. Honoring pro rata vs. capping it shapes future round dynamics.
Protective provisions: Actions requiring preferred-class approval: changing the cert, issuing senior preferred, taking on debt above thresholds, selling the company. Usual scope; pushback only when investors ask to vet operational decisions (hiring exec, signing contracts).

QSBS — Qualified Small Business Stock: US tax provision (Section 1202): up to $10M of gain (or 10× basis, whichever is greater) on C-corp shares held 5+ years can be federally tax-free. Massive for founders and employees at exit. Verify QSBS eligibility annually.
Qualified financing: In SAFE/note language: a priced equity round above a minimum threshold (often $1M) that triggers SAFE/note conversion. Below threshold doesn't trigger automatic conversion; SAFEs stay outstanding.
Quick ratio (SaaS): (New ARR + expansion ARR) ÷ (churned ARR + contraction ARR). Above 4× is excellent — for every dollar lost, you gain four. The metric you cite alongside burn multiple to argue capital efficiency.

R&D tax credit: US federal credit for qualified research expenses, often 6–10% of qualifying spend. Pre-revenue companies can apply up to $500K against payroll taxes. Real money — engage a specialist firm (Ardius, MainStreet, TaxRobot) in year one.
Recapitalization (recap): Restructuring of the cap table, usually in distress: existing preferred holders convert at lower prices, founders sometimes receive refreshed equity in exchange for resetting the cap table. Painful but sometimes the only path forward.
Reg D: SEC regulation creating exemptions from public registration for private offerings. Rules 506(b) and 506(c) cover almost all venture financings. Triggers a Form D filing within 15 days of first sale.
Registration rights: Investor rights to force or piggyback on a registration of shares for public sale. Demand rights (force company to register) and piggyback (join an existing registration). Activates post-IPO; standard NVCA terms apply.
Reps & warranties: Statements about the company made by founders/sellers in financing or M&A docs (cap table accurate, no pending litigation, IP owned cleanly). Breach can trigger indemnification or escrow claw-back. Be precise — careless reps are how M&A holdbacks get burned.
Revenue recognition: GAAP rules for when revenue is recorded. SaaS: ratably over the service period (a $120K annual contract recognizes $10K/month, not $120K upfront). ASC 606 is the standard. Sloppy revrec hurts diligence and delays IPO.
ROFO — Right of First Offer: Before selling, the holder must first offer to the company/preferred at a specified price; if they decline, the holder may sell elsewhere. Less restrictive than ROFR. Sometimes seen in late-stage employee secondaries.
ROFR — Right of First Refusal: Company (or its preferred holders) can match any offer a stockholder receives to buy shares from outside parties. Combined with co-sale rights, it gives the company control over secondary sales. Standard term.
Roll-up: Strategy of acquiring multiple small companies in the same vertical to consolidate. Common in PE; appears in venture when one portfolio company acquires fragmented competitors. Diligence multiplies in complexity.
Rolling close: Convention of closing SAFEs (or sometimes equity) as each commits, vs. coordinating one big close. Default for SAFE rounds — the money lands as the legal docs sign and the wire arrives.
RSA — Restricted Stock Award: Grant of actual common stock subject to vesting, typically used for founders at incorporation. Different from options. Pair with an 83(b) election within 30 days to start QSBS and capital-gains clocks at $0 basis.
RSU — Restricted Stock Unit: Promise to issue shares (not the shares themselves) when conditions are met (vesting + sometimes liquidity event). Common at late stage / public companies. Pre-IPO RSUs often have double-trigger vesting to avoid premature tax events.
Rule 506(b): Reg D exemption: raise unlimited capital from accredited investors plus up to 35 sophisticated non-accredited investors, no general solicitation. The default exemption for venture rounds — investors self-certify accreditation.
Rule 506(c): Reg D exemption that allows general solicitation (public marketing of the raise) but requires you to verify each investor's accredited status. Used by some equity-crowdfunding platforms and demo-day raises.
Rule of 40: Growth rate (%) + profit margin (%) ≥ 40 is the bar for healthy SaaS scale. A 60%-growth/-20%-margin company hits 40; so does 30%-growth/+10%-margin. Investors apply Rule of 40 starting around Series B.
Runway: Months of cash remaining at current net burn. Investors expect 18–24 months post-raise; running below 6 weakens negotiating posture. Quote runway with a date attached ("cash zero in March 2027"), not just a count.

SAFE — Simple Agreement for Future Equity: Y Combinator instrument that converts to equity at the next priced round. Has a valuation cap and/or discount. No interest or maturity, unlike convertible notes. Default seed instrument since ~2018.
SAFE: post-money: YC 2018+ default. Cap references post-money valuation, so a $10M cap SAFE with $1M check = exactly 10% ownership at conversion. Dilution from later SAFEs falls on founders, not earlier SAFE holders.
SAFE: pre-money: Original 2013–2018 SAFE. Cap references pre-money valuation; ownership at conversion depends on what comes after. Harder to reason about with multiple SAFEs stacked. If a counterparty proposes pre-money SAFE, push back — post-money is now standard.
Sales-led growth: GTM motion where outbound + AEs drive acquisition (vs. self-serve product-led). Higher ACVs, longer cycles. Typical for enterprise SaaS. Different metrics matter: pipeline coverage, ramp time, magic number.
Scout (VC scout): Operator/founder deploying small checks ($25K–$200K) on behalf of a VC firm under a sub-fund. Sequoia popularized the format. Scout investments often signal future firm interest, but the firm isn't bound.
Secondary: Sale of existing shares from one holder to another (vs. primary, where the company issues new shares). Founders and early employees sometimes sell 5–15% of holdings in Series B+ rounds. Tax treatment and ROFR/co-sale rules apply.
Section 1202: US tax code section governing QSBS. Up to $10M of gain (or 10× basis) tax-free at federal level on C-corp shares held 5+ years if the company met QSBS criteria when stock was issued. Document QSBS eligibility annually.
Seed extension: Additional SAFE/note round between seed and Series A, usually at the same or modestly higher cap. Used to extend runway before a Series A milestone. Common; not stigmatized like a bridge round unless it stretches multiple times.
Seed round: First substantial round for most companies, typically $1M–$5M on SAFEs at $8M–$15M post-money. Lead writes $1M–$3M; angels/microfunds fill the rest. Goal: 18–24 months of runway and credible Series A metrics.
Series A: First priced round. Typical: $5M–$15M raised at $20M–$60M post-money. Lead writes $5M–$10M, takes a board seat, sets terms. Expectations have hardened — $1M+ ARR, 3× YoY growth, clear unit economics are the table stakes.
Series B: Scaling round, typically $15M–$40M at $50M–$200M post-money. Investors expect proven repeatable GTM, $3M–$10M ARR, and Rule-of-40 trajectory. Series B is where capital efficiency and process maturity start to dominate the conversation.
Series Seed: Priced seed round using standardized templates (Cooley GO, Cooley/NVCA Series Seed, or YC's). Bridges between pure SAFE rounds and a full NVCA Series A. Faster, cheaper, but creates real preferred stock.
Side letter: Investor-specific addendum adding rights (pro-rata, information, board observer) beyond the standard SAFE or stock purchase agreement. Use sparingly; track every side letter in your cap-table tool so they don't get lost in future rounds.
Signaling risk: The danger that an existing investor's non-participation in your next round signals weakness to outside leads. Common with multi-stage funds that pass on later rounds in their own seed companies. Manage by reading your investors' incentives explicitly.
Single-trigger acceleration: Equity vests early on a single event (usually change of control). Less common than double-trigger because acquirers don't like inheriting fully-vested teams. Reserved for CEO/founder agreements; rare for rank-and-file.
SOC 2: AICPA audit standard for service organizations on security, availability, processing integrity, confidentiality, privacy. Type I is point-in-time; Type II covers a 6–12 month operating window. Required to sell to most mid-market and enterprise B2B customers.
SOM — Serviceable Obtainable Market: Subset of SAM you can realistically capture given your GTM and resources. The honest middle of TAM/SAM/SOM. Investors discount TAM-only pitches; they expect founders to articulate SOM coherently.
Sponsor (deal sponsor): Lead investor in a deal — the partner championing it internally at their firm. The sponsor's calendar drives the timeline; their conviction drives the IC outcome. Identify and nurture your sponsor early in every meeting.
Standstill: Agreement preventing a party (often a potential acquirer or strategic investor) from buying additional shares or making a takeover bid for a set period. Common in late-stage strategic investments. Founders should weigh standstills carefully — they limit optionality.
Strategic investor: Corporate VC arm or operating company investing for strategic alignment, not just financial return. Can accelerate distribution or kill it (signaling lock-in to competitors). Negotiate ROFRs and standstills carefully on strategic investments.
Super-voting shares: Founder share class with disproportionate voting rights (e.g., 10 votes per share). Lets founders maintain control through dilution. Becoming more common at IPO (Snap, Coinbase) but rarely structured at venture stage.
Sweat equity: Equity granted in exchange for work rather than cash. Pre-incorporation co-founders are the canonical case. Document grants formally with vesting and 83(b) elections — informal "we'll figure it out" arrangements blow up at the first diligence.

Tag-along: Minority shareholder right to sell their shares on the same terms as a majority shareholder selling. Practically: if a founder sells, investors can join the sale pro-rata. Co-sale right is the typical name in venture docs.
TAM — Total Addressable Market: Total annual revenue opportunity if you captured 100% of every potential customer at full price. Founders inflate it; investors halve it. Pair TAM with SAM and SOM to show realistic capture, not aspirational scale.
Tender offer: Coordinated secondary sale where employees and early shareholders can sell shares at a set price to a buyer (often a late-stage investor). Late-stage liquidity vehicle; appears at Series C+ when the company isn't ready to IPO.
Term sheet: Non-binding summary of economic and control terms before definitive docs. Usually 2–6 pages. The 80/20 of the deal — once signed, lawyers translate into binding documents over 4–8 weeks. Negotiate hard at term sheet stage; everything afterward is incremental.
Trade secret: Confidential info that gives competitive advantage (algorithms, customer lists, methods). Protected by NDAs, PIIAs, and trade-secret law (no registration required). Less robust than patents but cheaper and broader. Document what you treat as trade secret.
True-up: Post-close adjustment to the option pool or cap table to honor a target ownership %. Investor term sheets sometimes include true-up if pre-money option pool turns out smaller than agreed. Watch for these in fine print.
TVPI — Total Value to Paid-In: Fund-level: (cash distributed + remaining unrealized value) ÷ cash invested. TVPI counts paper gains; DPI counts realized cash. Funds talk up TVPI when DPI is low. LPs increasingly demand DPI, which trickles into how partners behave with you.

Underwater options: Options whose strike price is above current fair market value. Common after a down round or correction. Companies sometimes re-strike or re-grant to retain talent; counsel and 409A advisor should drive the mechanics.
Unit economics: Profitability of one customer (or one transaction): revenue, gross margin, CAC, payback, LTV. Investors probe unit economics before scaling capital. Bad unit economics at scale = unfundable; great unit economics at small scale = fundable story.
Up round: Round priced above the last round's valuation. The default expectation; anything else is a story to manage. Headline valuation matters less than the per-share price (which determines dilution and 409A).
Up round: Round priced above the last round's valuation. The default expectation; anything else is a story to manage. Headline valuation matters less than the per-share price (which determines dilution and 409A).

Valuation cap: The maximum company valuation at which a SAFE or note converts. A $10M cap means: regardless of the priced round price, the investor's SAFE converts as if the company were worth $10M. Lower cap = more ownership for the investor.
Valuation cap: The maximum company valuation at which a SAFE or note converts. A $10M cap means: regardless of the priced round price, the investor's SAFE converts as if the company were worth $10M. Lower cap = more ownership for the investor.
Vesting: Schedule on which equity becomes earned. Standard: 4 years monthly with a 1-year cliff. Until vested, the company has a repurchase right if the holder departs. Vesting accelerates only on triggers (acquisition + termination).
Vesting: Schedule on which equity becomes earned. Standard: 4 years monthly with a 1-year cliff. Until vested, the company has a repurchase right if the holder departs. Vesting accelerates only on triggers (acquisition + termination).
Vintage (fund): Year a VC fund first deployed capital. Vintage shapes deployment urgency, exit pressure, and DPI expectations. A 2018-vintage fund is currently under intense DPI scrutiny; a 2024-vintage fund is still deploying.
Vintage (fund): Year a VC fund first deployed capital. Vintage shapes deployment urgency, exit pressure, and DPI expectations. A 2018-vintage fund is currently under intense DPI scrutiny; a 2024-vintage fund is still deploying.
Voting agreement: Contract among shareholders about how to vote on specific matters (board election, drag-along, ROFR triggers). One of the five core priced-round documents. Standard NVCA template; founders should know who controls each vote.
Voting agreement: Contract among shareholders about how to vote on specific matters (board election, drag-along, ROFR triggers). One of the five core priced-round documents. Standard NVCA template; founders should know who controls each vote.

Warrant: Option-like right to buy shares at a specified price, usually issued to lenders (venture debt) or strategic partners. Adds dilution at exercise. Track warrants in fully diluted share count, not just outstanding shares.
Warrant: Option-like right to buy shares at a specified price, usually issued to lenders (venture debt) or strategic partners. Adds dilution at exercise. Track warrants in fully diluted share count, not just outstanding shares.
Weighted-average anti-dilution: The standard fair flavor: re-prices preferred only partially based on the dilutive impact of a down round. Broad-based version (large denominator) is the founder-friendly default. See anti-dilution and full-ratchet for the spectrum.
Weighted-average anti-dilution: The standard fair flavor: re-prices preferred only partially based on the dilutive impact of a down round. Broad-based version (large denominator) is the founder-friendly default. See anti-dilution and full-ratchet for the spectrum.
Workers' comp insurance: US state-mandated insurance covering employee work-related injuries. Required as soon as you have employees (often even one). Cheap at startup scale but missing it surfaces fast in customer/insurance diligence.
Workers' comp insurance: US state-mandated insurance covering employee work-related injuries. Required as soon as you have employees (often even one). Cheap at startup scale but missing it surfaces fast in customer/insurance diligence.
Working capital: Current assets minus current liabilities. Indicates short-term operating health. For software startups, working capital is mostly cash + AR minus AP. Becomes a focus once you have meaningful billings + collections cycles or carry inventory.
Working capital: Current assets minus current liabilities. Indicates short-term operating health. For software startups, working capital is mostly cash + AR minus AP. Becomes a focus once you have meaningful billings + collections cycles or carry inventory.

YC SAFE: Y Combinator's official SAFE template. Post-money default since 2018. Four variants: cap-only, cap+discount, discount-only, MFN-only. Use the canonical YC docs; counsel should redline only side letters, not the SAFE itself.
YC SAFE: Y Combinator's official SAFE template. Post-money default since 2018. Four variants: cap-only, cap+discount, discount-only, MFN-only. Use the canonical YC docs; counsel should redline only side letters, not the SAFE itself.

Zero to one: Peter Thiel's framing: creating something genuinely new (0 → 1) vs. copying or scaling something existing (1 → n). Venture backs 0 → 1 bets; PE backs 1 → n. Investors test whether your story is genuinely new or a category retread.
Zero to one: Peter Thiel's framing: creating something genuinely new (0 → 1) vs. copying or scaling something existing (1 → n). Venture backs 0 → 1 bets; PE backs 1 → n. Investors test whether your story is genuinely new or a category retread.