100 important venture capital (VC) terms
- ArborESG Tech Research
- Sep 24, 2024
- 7 min read
Accelerator: A program that provides startups with mentorship, resources, and sometimes seed capital in exchange for equity.
Acqui-hire: Acquisition of a company primarily for the talent of its team, rather than its product or services.
Angel Investor: An individual who provides early-stage capital to startups, typically in exchange for equity.
Anti-dilution Clause: A provision that protects investors from being diluted by future rounds of financing at lower valuations.
B2B: Business-to-business; companies that sell products or services to other businesses.
B2C: Business-to-consumer; companies that sell products or services directly to individual consumers.
Burn Rate: The rate at which a startup is spending its capital, typically measured monthly.
Bridge Financing: A temporary round of financing intended to extend the startup's runway until a larger funding round is completed.
Cap Table: A capitalization table that shows the ownership breakdown of the company’s shareholders, including founders, investors, and employees.
Capital Call: When a venture capital firm asks limited partners (LPs) to contribute their committed capital to fund investments.
Capital Gains: Profit earned from the sale of a capital asset, such as shares in a startup.
Capped Note: A convertible note with a valuation cap that puts a ceiling on the price at which the note converts into equity.
Carry: Short for "carried interest," it is the share of profits that a VC firm receives as compensation for managing a fund, usually around 20%.
Cliff: A period (often one year) before equity options or shares start vesting for employees.
Convertible Note: A form of short-term debt that converts into equity, typically in a future financing round.
Covenant: A clause in a debt agreement that requires or prohibits certain actions by the company.
Deal Flow: The rate at which investment opportunities are presented to an investor or VC firm.
Debt Financing: Raising capital through borrowing, as opposed to equity financing.
Dilution: The reduction in ownership percentage caused by issuing new shares, such as in a new funding round.
Down Round: A funding round where the company’s valuation is lower than it was in previous rounds.
Drag-Along Rights: A clause that allows majority shareholders to force minority shareholders to join in the sale of a company.
Due Diligence: The comprehensive appraisal of a business by a potential investor, involving an in-depth look at the company’s financials, operations, and risks.
Equity Crowdfunding: A method of raising capital in which a company sells equity to a large number of individual investors, often through an online platform.
Exit: The process through which investors cash out of their investment, typically via an IPO or acquisition.
Exit Strategy: A planned approach for investors to sell their stakes and realize returns, often through an IPO or acquisition.
Follow-On Investment: Additional funding provided by investors to a company after their initial investment.
Founder's Shares: Shares that are allocated to the founding team, usually subject to vesting and restrictions.
Fund of Funds: An investment vehicle that pools capital from investors to invest in multiple venture capital or private equity funds.
General Partner (GP): A partner in a venture capital firm who manages the fund and makes investment decisions.
Growth Stage: The phase of a startup's lifecycle after it has found product-market fit and is scaling its operations.
Hockey Stick Growth: A pattern of growth characterized by a long period of flat or modest growth followed by rapid acceleration.
IPO (Initial Public Offering): The process of offering shares of a private company to the public for the first time.
Incubator: A program designed to help startups in their early stages by providing workspace, mentorship, and access to resources.
Investment Horizon: The period of time an investor expects to hold an investment before realizing returns.
J-Curve: A pattern of returns in which early losses are followed by significant gains as the investment matures.
Key Person Clause: A contractual clause that allows investors to withdraw or renegotiate terms if a key individual leaves the startup or fund.
Lead Investor: The investor who takes the primary role in a funding round, often setting the terms and investing the largest amount.
Leverage: The use of borrowed capital (debt) to increase the potential return on an investment.
Limited Partner (LP): An investor in a venture capital fund who provides capital but does not manage the fund.
Liquidation: The process of selling a company’s assets to pay off debts before distributing any remaining funds to shareholders.
Liquidation Preference: A clause that gives certain investors the right to be paid back before others in the event of a liquidation or sale.
Lock-Up Period: A time after an IPO during which insiders are restricted from selling their shares.
M&A (Mergers and Acquisitions): The process of companies buying, selling, or merging with other companies.
Management Fee: A fee paid to the general partner for managing a venture capital fund, typically 2% of assets under management.
Market Penetration: The extent to which a product or service is being used by customers in a market.
Minimum Viable Product (MVP): A version of a product with just enough features to satisfy early adopters and gather feedback for further development.
Non-Dilutive Funding: Capital raised by a company that does not require giving up equity, such as grants or loans.
Option Pool: A reserved amount of company shares set aside for future grants to employees or advisors.
Pari Passu: A Latin term meaning "on equal footing," often used in reference to investors sharing equal rights to returns.
Participating Preferred Stock: A type of stock that gives investors the right to both a fixed payout and a share of any remaining proceeds after common shareholders are paid.
Pitch Deck: A presentation used by startups to showcase their business model, product, and financials to potential investors.
Post-Money Valuation: The valuation of a company after new funding is added.
Pre-Money Valuation: The valuation of a company before it raises new funds.
Preferred Stock: A type of equity that has preferential treatment over common stock, often with respect to dividends and liquidation.
Pro Rata Rights: The right of an investor to maintain their ownership percentage in subsequent funding rounds by purchasing additional shares.
Profit-Sharing Agreement: An agreement where profits are shared between parties, typically based on a predefined ratio.
Private Equity: Investment in private companies that are not listed on public exchanges.
Product-Market Fit: The stage at which a company’s product satisfies strong market demand.
Protective Provisions: Rights granted to investors to veto certain decisions made by the company’s management.
Recapitalization: The restructuring of a company’s capital structure, often involving the exchange of debt for equity.
Right of First Refusal (ROFR): A right that gives existing investors the opportunity to purchase shares before the company offers them to new investors.
Roadshow: A series of meetings in which a company’s management presents to potential investors before an IPO or funding round.
Runway: The amount of time a startup can operate before it runs out of cash, assuming a constant burn rate.
Seed Round: The first formal round of capital raised by a startup, usually from angel investors or seed-stage venture funds.
Series A: The first significant round of venture capital funding, typically used to scale a product after achieving some level of product-market fit.
Series B: A funding round that follows Series A, typically aimed at scaling operations and expanding market reach.
Series C: A later-stage funding round, often used to prepare for an IPO or acquisition, or to expand significantly.
SaaS: Software as a Service; a business model where software is licensed on a subscription basis and centrally hosted.
Secondary Market: A market where investors can buy and sell shares of private companies from existing shareholders, rather than from the company itself.
SPAC (Special Purpose Acquisition Company): A company formed to raise capital through an IPO in order to acquire an existing company.
Syndicate: A group of investors that collectively participate in a funding round.
Tag-Along Rights: A provision that allows minority shareholders to sell their shares when a majority shareholder sells their stake.
Term Sheet: A non-binding agreement outlining the key terms of a potential investment deal.
Total Addressable Market (TAM): The total market demand for a product or service.
Tranche: A portion of an investment that is released to the startup upon reaching specific milestones.
Unicorn: A privately held startup valued at over $1 billion.
Valuation Cap: A cap on the valuation at which convertible debt or notes will convert into equity, protecting early investors from excessive dilution.
Venture Capital (VC): A form of private equity financing that is provided to startups and early-stage companies with high growth potential.
Vesting: The process by which an employee earns rights to company shares or options over time.
Vintage Year: The year in which a venture capital fund makes its first investment.
Waterfall: A structure in which proceeds from a sale or exit are distributed to investors and other stakeholders in a predetermined order.
Wearable Technology: Technology devices that are worn by users, often used in healthcare or fitness tracking startups.
Weighted Average Anti-Dilution: A form of anti-dilution protection that adjusts the conversion price of preferred stock based on the price and size of new issuances.
Zebra: A startup that is both profitable and focused on solving real, long-term problems, contrasting with high-growth unicorns.
10x Return: A return that multiplies the original investment by 10.
409A Valuation: An independent appraisal required for determining the fair market value of a private company's common stock.
Accelerated Vesting: When an employee's vesting schedule is sped up due to certain conditions, such as an acquisition.
Cap: A limit on the company valuation at which a convertible note converts to equity.
Common Stock: Shares owned by founders and employees, often with lower preference than preferred stock in a liquidation event.
Convertible Equity: A form of investment that converts into equity at a future financing event, similar to a convertible note but without accruing interest.
Corporate Venture Capital (CVC): Investment from corporate funds into external startups, often for strategic benefits.
Crowdfunding: The practice of raising small amounts of capital from a large number of individuals, typically via the internet.
Customer Acquisition Cost (CAC): The cost of acquiring a new customer, often compared with the customer’s lifetime value (LTV).
Data Room: A secure online repository for storing and sharing due diligence documents during an investment process.
Decacorn: A privately held company valued at over $10 billion.
Dry Powder: Capital that has been committed to a fund but not yet invested.
Entrepreneur-in-Residence (EIR): An experienced entrepreneur who is embedded within a venture capital firm to work on new ideas or assist portfolio companies.
Exit Multiple: The ratio of the value received by an investor at the time of exit compared to the initial investment.
Family Office: A private wealth management firm that manages investments for high-net-worth individuals or families.
Freemium: A pricing strategy where a basic version of a product is offered for free, while premium features require payment.
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