Startup Funding Glossary: Essential Startup & Venture Capital Terms
Startup fundraising has its own language.
Founders encounter terms such as pre-money valuation, dilution, liquidation preference, SAFE, convertible note, cap table, pro rata rights, carry, and dozens of others throughout the fundraising process.
For first-time founders, the terminology can make an already complicated process even harder to understand.
The Startup Funding Glossary is designed as a practical reference for the most important terms used in startup fundraising, venture capital, private markets, and startup finance.
Use this guide as a quick reference, or explore the related Startup Funding 101 guides for deeper explanations.
A
Acquisition
A transaction in which one company purchases another company or its assets. For a venture-backed startup, an acquisition can provide an exit and liquidity for founders and investors.
Accredited Investor
An investor who meets specified financial or professional criteria under applicable securities regulations. The exact definition varies by jurisdiction.
Angel Investor
An individual who invests personal capital in startups, typically at an early stage.
Anti-Dilution
Contractual protection that can adjust certain investor rights or conversion economics if a company later raises financing at a lower valuation.
ARR
Annual Recurring Revenue. A measure commonly used by subscription businesses to estimate annualized recurring revenue.
B
Bear Market
A period characterized by declining asset prices or generally weak investor sentiment.
Board of Directors
The governing body responsible for overseeing the company and making certain major corporate decisions.
Bootstrapping
Building and financing a company primarily through founder capital and operating revenue rather than external equity investment.
Bridge Financing
Capital raised to help a company reach a future financing round or another major milestone.
Burn Rate
The rate at which a startup consumes cash.
A company with $1 million of cash and monthly net cash burn of $100,000 has approximately 10 months of runway, assuming the burn remains constant.
Business Model
The way a company creates, delivers, and captures economic value.
C
Cap Table
Short for capitalization table.
A cap table records a company’s ownership structure, including founders, investors, employees, and relevant securities.
Capital Call
A request by a fund manager for investors to provide capital they previously committed to a fund.
Capitalization
The company’s overall ownership and securities structure.
Carried Interest
Often called carry, this is the share of investment profits allocated to a fund’s general partners under the fund’s governing arrangements.
Cash Runway
The amount of time a startup can continue operating before it runs out of cash, assuming no additional financing or material change in cash flow.
Closing
The point at which a financing transaction is legally completed and the relevant funds and securities are exchanged according to the transaction documents.
Common Stock
A class of equity generally representing basic ownership in a company.
Convertible Note
A debt instrument that can convert into equity under specified conditions.
Conversion
The process through which a convertible security, such as a convertible note or SAFE, becomes equity.
Conversion Price
The price used to determine how a convertible security converts into shares.
Corporate Venture Capital
Venture investing conducted by a corporation, typically through a dedicated investment arm or program.
D
Deal Flow
The stream of investment opportunities reviewed by an investor or venture capital firm.
Debt Financing
Capital provided as a loan or other debt obligation that generally must be repaid according to specified terms.
Dilution
A reduction in an existing shareholder’s percentage ownership resulting from the issuance of new shares or equity-linked securities.
Discount
A provision allowing certain investors to acquire shares at a price below the price paid by investors in a subsequent financing, subject to the applicable agreement.
Down Round
A financing conducted at a lower valuation than a previous financing round.
Due Diligence
The process of investigating a company before completing an investment or transaction.
E
Early-Stage Startup
A startup that is generally in the initial stages of developing its product, market, and business.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization.
A financial measure commonly used to analyze operating performance, although it is generally less relevant for very early startups with limited operating history.
Equity
An ownership interest in a company.
Equity Financing
Raising capital by issuing shares or equity-linked securities.
Exit
A transaction through which investors or shareholders obtain liquidity from their investment.
Common exits include acquisitions and public offerings.
F
Follow-On Investment
Additional capital invested into a company by an existing investor during a later financing round.
Follow-On Round
A financing conducted after an earlier financing round.
Founder
An individual who establishes a company.
Founder Vesting
A contractual arrangement under which a founder’s equity becomes earned or retained over time, subject to specified terms.
Fully Diluted
A capitalization calculation that includes relevant shares and potentially issuable securities, such as options and certain convertible instruments.
Fund
A pool of capital managed according to a defined investment strategy.
Fundraising
The process through which a company obtains capital from investors or other financing sources.
G
General Partner
Usually abbreviated GP.
The person or entity responsible for managing a venture capital or private investment fund.
Growth Equity
Investment in companies that have generally progressed beyond the earliest startup stages and demonstrate meaningful growth.
Gross Margin
Revenue minus the cost of goods or services sold, expressed as a percentage of revenue.
H
Hurdle Rate
A minimum return threshold used in some investment structures before certain carried-interest economics apply.
The exact structure depends on the fund’s governing agreement.
I
IPO
Initial Public Offering.
The process through which a private company offers shares to the public and becomes publicly traded.
Information Rights
Contractual rights allowing investors to receive specified information about a company.
Institutional Investor
A professional organization that invests capital, such as a pension fund, endowment, insurance company, or investment fund.
Investment Committee
A group within an investment organization that evaluates or approves investments according to the firm’s internal process.
Investor Rights
Contractual rights granted to investors through financing documents.
These can include information rights, voting rights, pro rata rights, and other protections.
J
Joint Venture
A business arrangement in which two or more parties collaborate on a specific commercial activity or entity.
K
Key Person Clause
A provision in an investment fund agreement that addresses the continued involvement of specified individuals considered important to the fund’s investment strategy.
L
Lead Investor
The investor that takes a leading role in negotiating or organizing a financing round.
Limited Partner
Usually abbreviated LP.
An investor that provides capital to an investment fund but generally does not manage the fund’s individual investments.
Liquidation Event
An event that can trigger specified distribution or conversion rights under a company’s financing documents.
An acquisition or sale of the company may qualify depending on the applicable documents.
Liquidation Preference
A contractual right giving certain investors priority in receiving proceeds in specified liquidation events.
Lock-Up
A contractual restriction preventing shareholders from selling shares for a specified period, often associated with public offerings.
M
Management Fee
A fee paid by a fund to its manager for operating and managing the investment fund.
Market Capitalization
The total market value of a company’s publicly traded shares.
This is generally relevant to public companies rather than privately negotiated startup valuations.
Maturity Date
The date on which a debt instrument, such as a convertible note, reaches its contractual maturity.
MRR
Monthly Recurring Revenue.
A measure commonly used by subscription businesses to estimate recurring monthly revenue.
Multiple on Invested Capital
Often abbreviated MOIC.
A measure comparing investment proceeds with the amount originally invested.
For example, $20 million of proceeds from a $5 million investment represents a 4× MOIC before considering other fund-level factors.
N
Non-Participating Preferred Stock
Preferred stock in which the investor generally chooses between receiving the applicable liquidation preference or converting to common stock and participating according to the applicable ownership structure.
Non-Dilutive Funding
Capital that does not generally require the company to give investors an ownership interest.
Examples can include certain grants and some forms of revenue-based financing.
O
Option Pool
Shares reserved for employee and other equity incentive programs.
Ordinary Shares
A term used in some jurisdictions for shares that generally correspond to common stock.
Ownership Percentage
The percentage of a company represented by a shareholder’s shares relative to the applicable capitalization.
P
Participating Preferred Stock
Preferred stock that can provide an investor with a liquidation preference and participation in remaining proceeds according to the applicable terms.
Pitch Deck
A presentation used by founders to explain their company to potential investors.
A typical pitch deck includes:
- Problem
- Solution
- Market
- Product
- Traction
- Business model
- Competition
- Team
- Financials
- Fundraising plans
Post-Money Valuation
The implied value of a company immediately after a financing.
In a simplified financing:
Post-money valuation = Pre-money valuation + New investment
Preferred Stock
A class of shares with specified rights that may differ from common stock.
Pre-Money Valuation
The agreed value of a company immediately before a new financing.
Pro Rata Rights
Rights that can allow an investor to participate in future financing rounds to maintain its ownership percentage.
Product-Market Fit
The condition in which a product demonstrates strong evidence of meeting meaningful customer demand.
Protective Provisions
Contractual rights requiring certain investor approval before specified corporate actions can occur.
Q
Qualified Financing
A financing that satisfies specified conditions under a convertible security and triggers conversion into equity.
The exact definition depends on the relevant agreement.
R
Recapitalization
A restructuring of a company’s capitalization or securities.
Recurring Revenue
Revenue expected to repeat periodically under an ongoing customer relationship or subscription arrangement.
Redemption Right
A contractual right that can require a company to repurchase certain securities under specified conditions.
Revenue Multiple
A valuation multiple comparing a company’s valuation with its revenue.
Runway
The estimated amount of time a company can continue operating before exhausting available cash, assuming specified cash-flow conditions.
S
SAFE
Simple Agreement for Future Equity.
An agreement under which an investor provides capital in exchange for a contractual right to receive equity under specified future conditions.
Secondary Sale
A transaction in which an existing shareholder sells shares to another investor or buyer.
Unlike a primary financing, the company generally does not issue new shares in the secondary transaction.
Seed Round
An early-stage financing used to fund product development, initial hiring, customer acquisition, and other early growth activities.
Series A
A financing round generally associated with a startup that has demonstrated meaningful evidence of commercial potential and is seeking capital to scale.
Series B
A later financing round typically used to support significant expansion and scaling.
Series C
A later-stage financing that can support continued expansion, acquisitions, market entry, or other growth initiatives.
Shareholder
An individual or entity that owns shares in a company.
Share Price
The price assigned to an individual share in a financing or public market transaction.
Stock Option
A contractual right to purchase shares at a specified price under applicable terms.
Strategic Investor
An investor that may provide capital along with strategic benefits such as industry relationships, distribution, technology, or commercial partnerships.
T
Tag-Along Right
A contractual right that can allow certain shareholders to participate in a sale of shares by another shareholder under specified conditions.
Term Sheet
A document summarizing the principal terms of a proposed investment or financing transaction.
Traction
Evidence that a startup is making meaningful progress.
Examples include:
- Revenue
- Customer growth
- User growth
- Retention
- Partnerships
- Product adoption
U
Unicorn
A privately held startup valued at $1 billion or more.
The term is commonly used in venture capital and startup markets.
Use of Funds
A description of how a company plans to deploy capital raised from investors.
Common uses include:
- Hiring
- Product development
- Sales
- Marketing
- Infrastructure
- Expansion
V
Valuation
An estimate or negotiated assessment of a company’s value.
Valuation Cap
A maximum valuation used for determining conversion economics under specified SAFE or convertible financing terms.
Venture Capital
Investment capital provided to privately held companies with significant growth potential.
Venture Capitalist
An individual who works at or represents a venture capital firm and evaluates or manages startup investments.
Venture Debt
Debt financing designed for venture-backed companies.
Vesting
The process through which an individual earns or retains equity over time according to specified contractual terms.
W
Weighted Average Anti-Dilution
An anti-dilution mechanism that adjusts certain investor conversion economics using a formula that considers factors such as the existing share price and the size and price of a subsequent financing.
Warrants
Rights to purchase securities at a specified price under defined terms.
Y
Yield
The income or return generated by an investment, generally expressed relative to its value or cost.
Yield is more commonly associated with income-producing investments than early-stage venture equity.
Z
Zero-Cost Financing
A general description sometimes used for financing that does not require conventional interest payments.
The term should be used cautiously because financing can have economic costs even when there is no stated interest rate.
Startup Funding Terms Founders Should Know First
If you’re new to startup fundraising, start with these terms:
- Pre-money valuation
- Post-money valuation
- Dilution
- Cap table
- SAFE
- Convertible note
- Term sheet
- Liquidation preference
- Pro rata rights
- Option pool
- Preferred stock
- Founder vesting
- Anti-dilution
- Primary financing
- Secondary sale
- Runway
- Burn rate
- Lead investor
- Due diligence
- Exit
Understanding these concepts provides a strong foundation for navigating most early-stage fundraising discussions.
How the Terms Connect
Startup funding terminology becomes easier to understand when the concepts are viewed together.
A simplified financing sequence looks like this:
Startup needs capital
↓
Founder prepares fundraising materials.
↓
Investors evaluate the company.
↓
Valuation is negotiated
↓
Term sheet is issued.
↓
Investment is completed
↓
New shares or securities are issued.
↓
Existing ownership may be diluted.
↓
Company uses capital to grow.
↓
Future financing rounds may occur.
↓
Investors eventually seek an exit.
The terminology describes different parts of this process.
The Startup Funding 101 Reference Library
Continue learning with the core guides in this series:
Startup Funding 101
A beginner’s guide to how startup fundraising works.
Funding Stages
Understand pre-seed, seed, Series A, Series B, Series C, and later-stage financing.
Startup Valuation
Learn how investors and founders assess startup value.
Dilution Explained
Understand how new financing affects ownership.
SAFE vs. Convertible Note
Compare two common early-stage financing instruments.
The Term Sheet
Learn how valuation, liquidation preferences, governance, and investor rights shape a deal.
Venture Capital
Understand how VC funds work, how investors evaluate startups, and how venture returns are generated.
The Bottom Line
Startup funding has a specialized vocabulary because the financing process combines corporate ownership, investment, valuation, legal agreements, and long-term risk.
You do not need to memorize every term.
But founders and investors should understand the terms that directly affect:
Ownership.
Valuation.
Dilution.
Control.
Investor economics.
Future financing.
Exit proceeds.
The Startup Funding Glossary is designed to be a living reference.
As startup financing structures evolve, new terminology and financing mechanisms will emerge.
The fundamentals, however, remain consistent:
Who provides the capital?
What does the company give in return?
How does the investment affect ownership?
What rights does the investor receive?
What happens in the next financing?
And how are returns ultimately created?
Those questions form the foundation of startup finance.
Startup Funding Glossary: Essential Startup & Venture Capital Terms
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Reviewed by Erwin Castro
on
Monday, August 31, 2026
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