Venture capital (VC) terminology is essential for anyone involved in startups, whether you’re an entrepreneur seeking funding, an aspiring venture capitalist, or someone working with startups in a support role. Understanding these terms not only enhances communication but also empowers you to make informed decisions, build stronger relationships with investors, and engage more effectively with stakeholders.

Here’s a curated glossary of 90 crucial VC terms every start-up and aspiring venture capitalist, LP or Angel investor should know.

A

1. Accelerator
A program designed to fast-track the growth of startups by providing mentorship, resources, and sometimes funding.

2. Acquisition
The process where one company buys another, in full or in part.

3. Angel Investor
An individual who invests personal funds in a startup, typically in exchange for convertible debt or equity ownership.

4. Anti-Dilution Provision
A clause in investment agreements that safeguards investors against equity dilution when new shares are issued at a lower price than previously invested.

B

5. Bootstrapping
Self-funding a startup using personal savings or business revenue without seeking external investment.

6. Bridge Financing
Temporary funding to meet short-term capital needs until long-term financing is secured.

7. Burn Rate
The speed at which a startup is using up its available capital, typically before becoming cash flow positive.

8. Buyout
The acquisition of a company’s shares to take control of the business.

9. Benchmarks
Targeted performance goals that a company seeks to achieve, often assessed by investors.

C

10. Capital Call
A request made by a VC fund for investors to contribute the committed capital.

11. Capital Under Management
The total capital that a venture capital firm currently manages across its various funds.

12. Cap Table (Capitalization Table)
A detailed chart showing ownership stakes, the dilution of equity, and share value after each investment round.

13. Carry (Carried Interest)
The portion of profits that general partners of a VC firm receive as compensation, typically around 20%.

14. Convertible Note
A short-term loan that converts into equity, usually during a future funding round, often with a discount.

15. Crowdfunding
Raising small amounts of capital from a large group of people, usually via the internet.

D

16. Deal Flow
The rate at which potential investment opportunities are presented to an investor or fund.

17. Due Diligence
The detailed investigation and evaluation process an investor performs before committing to an investment.

18. Dilution
A decrease in an existing shareholder’s ownership percentage, typically due to the issuance of additional shares.

19. Drag-Along Rights
Provisions that allow majority shareholders to force minority shareholders to sell their shares in the event of a company sale.

E

20. Exit Strategy
A plan for how investors will liquidate their investment, usually through an IPO, acquisition, or secondary sale.

21. Equity Financing
Raising capital by issuing shares of the company, thus giving up a portion of ownership.

22. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
A financial metric that gauges a company’s overall performance by measuring profitability before certain expenses.

23. Early-Stage Funding
Investment provided during the initial phases of a startup’s development, typically when a company is still establishing its product or service.

F

24. Follow-on Investment
Additional capital invested by existing investors in future funding rounds.

25. Fund of Funds
A type of fund that invests in other venture capital funds rather than directly in startups.

26. Founder’s Stock
Equity granted to the original founders of a company, often subject to vesting schedules.

27. Full Ratchet
A form of anti-dilution protection that adjusts the price at which preferred stock converts to common stock if a new round is priced lower.

28. Family Office
A private wealth management firm that handles the financial interests of high-net-worth individuals or families.

G

29. Growth Stage
The phase in a startup’s lifecycle when the company is scaling rapidly, often requiring significant capital to expand operations.

30. GP (General Partner)
A partner in a VC firm who manages the fund and makes day-to-day investment decisions.

H

31. Hurdle Rate
The minimum return required by a VC firm before general partners can take carried interest.

32. Harvest Period
The period in which a VC firm attempts to realize returns on its investments, often through exits.

I

33. IPO (Initial Public Offering)
The process of a company offering its shares to the public for the first time, transitioning from private to public ownership.

34. Incubator
A program or organization designed to help early-stage companies by providing resources, mentorship, and sometimes capital.

35. Internal Rate of Return (IRR)
A metric used to evaluate the profitability of an investment by estimating the rate of return that will make the net present value (NPV) of all cash flows equal to zero.

36. Investment Committee
A group within a VC firm that makes final decisions on investments.

J

37. J-Curve
A graphical representation that shows the expected pattern of negative returns followed by positive returns over time for private equity funds.

K

38. KPI (Key Performance Indicator)
A measurable metric that indicates how effectively a company is achieving its business goals.

L

39. Lead Investor
The primary investor in a funding round who usually takes the lead in negotiations and due diligence.

40. Limited Partner (LP)
An investor in a VC fund who has limited liability and typically does not participate in day-to-day management of the fund.

41. Liquidation Preference
The order in which investors are paid back in the event of a liquidation or exit.

M

42. Management Fee
The fee paid by fund investors to the general partners for managing the fund, typically expressed as a percentage of assets under management.

43. Market Capitalization
The total value of a company’s outstanding shares, calculated as share price multiplied by the number of shares outstanding.

44. Mezzanine Financing
A type of financing that combines debt and equity elements, often used by established companies seeking expansion capital.

45. Multiples
Valuation ratios such as price-to-earnings (P/E) or enterprise value-to-revenue used to determine a company’s value.

N

46. Non-Disclosure Agreement (NDA)
A legal contract that ensures confidentiality of proprietary information shared between parties.

47. Net Asset Value (NAV)
The value of a fund’s total assets minus its liabilities, often used to determine a fund’s performance.

48. Non-Dilutive Funding
Capital raised by a company that does not require giving up equity, such as grants or certain types of debt.

O

49. Option Pool
A portion of a company’s equity set aside for future issuance to employees, advisors, or other key stakeholders.

50. Overhang
The total amount of capital that has been committed but not yet invested by a venture fund.

51. Operational Support
Resources, guidance, and services provided by VCs to help portfolio companies succeed beyond just capital.

P

52. Pivot
A significant change in a startup’s business model or product offering in response to market feedback.

53. Preferred Stock
A class of stock that provides investors with preferential treatment in terms of dividends and liquidation preferences.

54. Pre-Money Valuation
The valuation of a company before new capital is injected through an investment or funding round.

55. Post-Money Valuation
The valuation of a company immediately following the receipt of new investment.

56. PIPE (Private Investment in Public Equity)
A private investment made in a public company, typically at a discounted price.

Q

57. Quorum
The minimum number of shareholders or board members required to hold a valid meeting and make decisions.

58. Quick Ratio
A measure of a company’s ability to meet short-term obligations with its most liquid assets.

R

59. ROI (Return on Investment)
A metric that measures the profitability of an investment relative to its cost.

60. Round
A series of funding rounds (e.g., Series A, B, C) in which companies raise capital from investors.

61. Runway
The amount of time a startup can continue operating before it runs out of cash, based on its current burn rate.

62. Recapitalization
The process of restructuring a company’s debt and equity mixture to optimize its financial position.

S

63. Seed Capital
The initial investment used to start a company, often sourced from angel investors or early-stage VC funds.

64. Series A, B, C Funding
Sequential rounds of funding used by a company to raise capital at various stages of its growth.

65. Syndicate
A group of investors who pool resources to co-invest in a startup.

66. Strategic Investor
An investor who provides capital with the intent of gaining non-financial benefits, such as market access or synergies.

67. SAFE (Simple Agreement for Future Equity)
A type of agreement allowing investors to convert their investment into equity in a future financing round, without setting a price at the outset.

T

68. Term Sheet
A non-binding document that outlines the key terms and conditions of an investment.

69. Traction
The measurable progress a startup has made in its growth, typically in terms of customers, revenue, or product adoption.

70. Total Addressable Market (TAM)
The total market demand for a product or service, often used to estimate the revenue potential for a startup.

U

71. Unicorn
A privately held startup valued at over $1 billion, considered rare and highly successful in the venture capital world.

72. Unsecured Debt
Debt that is not backed by collateral, meaning the lender has no specific assets to claim if the borrower defaults.

V

73. Valuation
The process of determining the current worth of a company, often based on metrics like revenue, market size, and growth potential.

74. Vesting
The process by which employees or founders gradually gain ownership of stock options or equity over a set period of time, typically tied to performance or tenure.

75. Venture Debt
A form of debt financing specifically designed for high-growth startups, typically used as a supplement to equity funding.

76. Vintage Year
The year in which a VC or private equity fund makes its first investment, helping to track performance relative to other funds.

W

77. Warrants
Financial instruments that give the holder the right to purchase a company’s stock at a specified price within a set time frame.

78. Waterfall
The distribution structure that outlines how the profits from an investment are allocated to various investors, especially in liquidation or exit events.

X

79. Exit Multiple
A valuation metric used to estimate the potential future value of an investment based on a multiple of current earnings or revenue.

Y

80. Yield
The income return on an investment, often expressed as a percentage of the investment’s value.

Z

81. Zero-Based Budgeting
A budgeting method where all expenses must be justified for each new period, starting from a “zero base” rather than being based on the previous budget.

Additional Terms

82. Venture Partner
A part-time partner at a VC firm who contributes to sourcing deals, conducting due diligence, or providing expertise but doesn’t have the same responsibilities as a general partner.

83. Side Letter
An agreement between a VC fund and an investor that specifies additional terms or conditions not included in the main investment agreement.

84. Clawback
A provision that allows limited partners to reclaim some or all of the carried interest if the fund’s performance falls below certain thresholds after distribution.

85. Convertible Preferred Stock
Preferred stock that can be converted into common stock at the investor’s discretion or under specific conditions.

86. General Solicitation
A form of public advertising allowed under certain SEC regulations, enabling startups to cast a wider net for investors.

87. Management Buyout (MBO)
A transaction in which a company’s management team purchases the assets and operations of the business they manage, often with financing from private equity or venture capital firms.

88. Pre-Seed Funding
The earliest stage of funding, typically coming from founders, friends, family, or angel investors, used to develop initial ideas, prototypes, or market research.

89. Special Purpose Vehicle (SPV)
A legal entity created for a specific purpose, typically used to isolate financial risk, often formed for a single investment or a group of investments.

Conclusion

Familiarity with venture capital terms is essential for navigating the startup ecosystem and making strategic decisions whether you are an entrepreneur, investor, or part of a startup’s support team. By understanding the language of venture capital, you position yourself to better engage with investors, raise capital, and ultimately drive success for your business.

This glossary serves as a useful guide for mastering the fundamentals of venture capital and helping you communicate more effectively in this fast-paced and ever-evolving field.