Fundraising & Cap Table Glossary for Founders

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Fundraising

Cap Table & Equity

409A Valuation

An independent appraisal of a private company's common stock fair market value, required for issuing stock options.

Fundraising

Accrued Interest

Interest that accumulates on convertible notes over time, typically converting to additional equity.

Fundraising

Anti-Dilution

Protection that adjusts an investor's share price if the company later raises money at a lower valuation.

Cap Table & Equity

Anti-Dilution Protection

Investor rights that protect against ownership dilution if the company raises money at a lower valuation.

Fundraising

Board of Directors

The governing body responsible for major company decisions, composed of founders, investors, and independent members.

Fundraising

Bridge Financing

Short-term funding to extend runway until the next equity round or specific milestone.

Fundraising

Bridge Round

Short-term financing to extend runway until a larger funding round closes, typically from existing investors.

Cap Table & Equity

Capitalization Table

A document showing company ownership, including all shareholders, share counts, ownership percentages, and security terms.

Fundraising

Carried Interest (Carry)

The share of investment profits that fund managers receive as compensation, typically 20% of gains.

Cap Table & Equity

Cliff (Vesting)

A waiting period before any equity vests, typically one year, protecting companies from early departures.

Cap Table & Equity

Common Stock

Basic ownership shares with voting rights but no special preferences, typically held by founders and employees.

Fundraising

Comparable Company Analysis

A valuation method that determines company value by comparing financial multiples to similar public or private companies.

Fundraising

Conversion Discount

A percentage reduction in share price that convertible investors receive when converting to equity.

Fundraising

Convertible Note

A debt instrument that converts to equity in a future funding round, featuring interest accrual and a maturity date.

Fundraising

DPI (Distributions to Paid-In)

A fund performance metric showing actual cash returned to investors relative to invested capital.

Fundraising

Dilution

The reduction in ownership percentage when new shares are issued, occurring during funding rounds and equity grants.

Fundraising

Discount Rate (SAFE/Note)

A percentage reduction on the next round's share price for SAFE or convertible note holders, rewarding early risk.

Fundraising

Discounted Cash Flow (DCF)

A valuation method that estimates business value by projecting future cash flows and discounting them to present value.

Cap Table & Equity

Double Trigger Acceleration

Vesting acceleration that requires both a company acquisition AND termination of employment to trigger.

Fundraising

Down Round

A funding round where the company raises money at a lower valuation than its previous round.

Fundraising

Down Round

A funding round at a lower valuation than the previous round, diluting existing shareholders.

Cap Table & Equity

Drag-Along Rights

A provision allowing majority shareholders to force minority shareholders to join in the sale of a company.

Cap Table & Equity

Drag-Along Rights

Rights allowing majority shareholders to force minority shareholders to join in the sale of a company.

Fundraising

Due Diligence

The comprehensive investigation of a company by potential investors or acquirers before completing a transaction.

Cap Table & Equity

Exercise Price (Strike Price)

The price an option holder pays to convert options into shares, set at fair market value when granted.

Cap Table & Equity

Fully Diluted Shares

The total share count if all convertible securities converted to common stock, showing true ownership percentages.

Fundraising

Fund Vintage

The year a venture fund began investing, used to compare performance across different market cycles.

Fundraising

General Partner (GP)

The fund managers who make investment decisions, manage portfolio companies, and have unlimited liability.

Fundraising

IRR (Internal Rate of Return)

The annualized return rate that makes the net present value of all cash flows equal to zero.

Fundraising

Information Rights

Investor rights to receive regular financial and operational updates from the company.

Fundraising

Limited Partner (LP)

Investors who provide capital to venture funds but don't participate in investment decisions.

Fundraising

Liquidation Preference

The right of preferred shareholders to receive their investment back before common shareholders in a sale or liquidation.

Cap Table & Equity

Liquidation Preference

The order and amount investors receive in a sale or liquidation event, before common shareholders get anything.

Fundraising

MFN (Most Favored Nation) Clause

A provision guaranteeing an investor will receive terms at least as favorable as any subsequent investor receives.

Fundraising

Management Fee

The annual fee VC funds charge to cover operating expenses, typically 2% of committed capital.

Fundraising

Maturity Date

The deadline by which a convertible note must be repaid or converted to equity.

Fundraising

Most Favored Nation (MFN)

A clause giving early investors the right to adopt better terms offered to later investors.

Cap Table & Equity

Option Pool

A percentage of company equity reserved for future employee stock option grants, typically 10-20% of fully diluted shares.

Cap Table & Equity

Option Pool

Shares reserved for future employee equity grants, typically established before a funding round and included in pre-money valuation.

Cap Table & Equity

Participating Preferred

Preferred stock that receives its liquidation preference plus participates pro-rata in remaining proceeds with common shareholders.

Fundraising

Pay-to-Play Provision

A requirement that investors participate in future funding rounds or face conversion of preferred stock to common stock.

Fundraising

Pay-to-Play Provision

A term requiring existing investors to participate in future rounds or lose preferential rights on their shares.

Fundraising

Post-Money Valuation

The value of a company immediately after receiving new investment, calculated as pre-money valuation plus investment amount.

Fundraising

Pre-Money Valuation

The value of a company before receiving new investment, used to calculate how much equity investors receive for their capital.

Cap Table & Equity

Preferred Stock

A class of stock with special rights including liquidation preference and anti-dilution protection, typically held by investors.

Cap Table & Equity

Pro Rata Rights

The right for existing investors to participate in future funding rounds to maintain their ownership percentage.

Fundraising

Protective Provisions

Veto rights given to preferred shareholders over specific major company decisions.

Fundraising

Protective Provisions

Investor veto rights over major company actions, even if investors don't control the board.

Fundraising

Qualified Financing

The minimum raise amount that triggers automatic conversion of convertible notes or SAFEs.

Cap Table & Equity

Right of First Refusal (ROFR)

The right to match any offer a shareholder receives before they can sell to a third party.

Cap Table & Equity

Right of First Refusal (ROFR)

The right to match any offer a shareholder receives before they can sell shares to a third party.

Fundraising

SAFE (Simple Agreement for Future Equity)

An investment agreement that converts to equity in a future funding round, featuring a valuation cap and/or discount without debt terms.

Fundraising

TVPI (Total Value to Paid-In)

A fund performance metric showing total value (realized + unrealized) relative to invested capital.

Cap Table & Equity

Tag-Along Rights

A provision allowing minority shareholders to join a sale if majority shareholders sell their stake.

Cap Table & Equity

Tag-Along Rights

Rights protecting minority shareholders by allowing them to join when majority shareholders sell their shares.

Fundraising

Term Sheet

A non-binding document outlining the key terms of a proposed investment before final legal documents are drafted.

Fundraising

Valuation Cap

The maximum valuation at which a SAFE or convertible note converts to equity, protecting early investors from excessive dilution.

Fundraising

Valuation Cap

The maximum valuation at which a convertible note or SAFE will convert into equity.

Cap Table & Equity

Vesting Schedule

The timeline over which equity ownership is earned, typically 4 years with a 1-year cliff before any shares vest.

Cap Table & Equity

Vesting Schedule

The timeline over which employees earn ownership of their equity grants, typically four years with a one-year cliff.