The financial and legal terms that define investment agreements — term sheets, liquidation preferences, anti-dilution, and more.
133 terms
Equity granted to advisors in exchange for guidance, introductions, or strategic support.
A contractual protection for investors that adjusts their ownership percentage (or conversion price) if the company later raises money at a lower valuation.
Investor rights that adjust their conversion price downward if the company later issues shares at a lower price.
The specific mechanism used to adjust conversion prices in a down round, with full ratchet and weighted average being the two main types.
A conservative approach to deal structuring that layers multiple protective provisions to guard against downside risk.
The most advantageous alternative a party can pursue if negotiations fail — the foundation of negotiating leverage.
A position on a company's board of directors, giving the holder voting rights on major corporate decisions. VC investors typically receive a board seat as part of a lead investment.
A penalty paid when a party withdraws from a transaction after signing a binding agreement but before closing.
The most common and founder-friendly anti-dilution formula that accounts for the size of the down round relative to total shares outstanding.
A clause allowing a company to repurchase shares from investors or employees under specified conditions.
The full hierarchy of financing instruments in a company, including equity, preferred equity, debt, and convertible securities.
A term sheet with minimal investor-protective provisions beyond the standard — no full ratchets, no excessive liquidation preferences, no onerous governance rights. A founder-friendly sign.
The minimum period an employee must work before any equity vests — typically one year, after which a lump sum of equity vests at once.
A vesting provision where no equity is earned until a specified period (usually one year) has passed, after which a large chunk vests at once.
Requirements that must be satisfied before a funding round officially closes and money transfers.
When multiple VC firms co-invest in a round by splitting the allocation rather than competing, reducing competitive pressure on terms.
A contractual privilege allowing LPs to invest directly alongside the fund in specific portfolio companies, typically at no additional management fee or carried interest.
The standard share class held by founders and employees. Common stock has lower priority than preferred stock in liquidation events but participates fully in the company's upside above the preferred stock liquidation stack.
The right of preferred stockholders to convert their preferred shares into common stock, typically at a 1:1 ratio.
An investment instrument that converts into equity at a future financing event, similar to a convertible note but structured as equity rather than debt.
The maximum valuation at which a convertible note converts into equity, protecting early investors from excessive dilution if the company raises at a very high valuation.
The standard equity instrument issued to VC investors — preferred stock that can be converted to common stock, typically at IPO or acquisition.
A highly dilutive financing round where new investors receive favorable terms that significantly dilute existing shareholders who don't participate.
A financing round where new investors impose severely dilutive terms on existing shareholders, often restructuring the cap table to their advantage.
A severely dilutive funding round, often at a fraction of the previous valuation, that dramatically reduces the ownership of founders and earlier investors who cannot participate.
Equity held by individuals who are no longer contributing to the company, creating a drag on the cap table and reducing available equity for active contributors.
The exhaustion and diminished judgment that occurs when a deal process drags on too long, often leading to either over-compromise or deal collapse.
The right of investors to compel a company to register their shares with the SEC for public sale, typically exercisable after an IPO.
Future dilution risk created by options, convertibles, or other securities that may convert into equity.
Contractual mechanisms that protect investors from having their ownership percentage reduced by future issuances — primarily anti-dilution provisions and pro-rata rights.
In SAFE/convertible note context: the percentage reduction applied to the next round's price to reward early investors. Typically 15-20%.
A percentage reduction applied to the price per share in a future equity round when converting a note or SAFE, typically 15-25%, rewarding early investors for their risk.
Full or partial vesting acceleration that requires two events to trigger, typically a change of control plus termination of the employee.
Contractual mechanisms designed to reduce investor losses if a company underperforms.
The ownership percentage required to trigger drag-along rights, forcing all shareholders to participate in a sale of the company.
A company benefit that allows employees to purchase company stock at a discount, typically through payroll deductions.
Ownership in a company, represented as shares. In venture capital, equity is the primary mechanism through which investors participate in a company's upside.
The reduction in an existing shareholder's ownership percentage when new shares are issued, typically during a funding round.
A projection of how ownership percentages decline across future funding rounds.
A negotiated window, typically 30-60 days, during which a startup agrees not to solicit or engage with other potential investors while the lead investor completes due diligence.
The price per share at which an option holder can purchase shares — same as strike price, set at fair market value on the grant date.
A term sheet with an artificially short deadline designed to pressure founders into accepting before they can shop the deal to other investors.
A contractual threshold based on a company's fair market value that activates certain rights, obligations, or conversion mechanisms.
Using complex financial structures or instruments to improve returns, often at the expense of transparency or alignment.
A funding round where the company raises capital at approximately the same valuation as the previous round, indicating stagnant growth or a challenging fundraising environment.
A provision that automatically converts preferred stock to common stock upon certain events, typically an IPO meeting minimum size and price thresholds.
Governance structures that allow founders to maintain decision-making power despite outside investment.
A deal structure or investor with minimal control provisions — founders retain more board seats, decision-making power, and downside protection than in traditional VC terms.
A requirement that founders earn their equity over time rather than owning it outright from day one.
A provision that immediately vests some or all of a founder's unvested shares upon certain trigger events like acquisition or termination.
A restructuring of founder vesting schedules during later funding rounds.
The most aggressive anti-dilution provision — resets an investor's conversion price to match any lower future round price, regardless of how many shares are issued.
The total number of shares outstanding assuming all options, warrants, and convertible securities have been exercised — representing true economic ownership.
The total number of shares that would be outstanding if all convertible securities, options, and warrants were exercised.
Preferred stock that participates in both its liquidation preference AND the remaining proceeds after conversion — the most investor-favorable liquidation structure.
Contractual rights that give investors influence over company decisions through board seats, voting provisions, and consent requirements.
Incentive Stock Option — a type of employee stock option with favorable tax treatment if holding period requirements are met, available only to employees of the granting company.
A contractual provision requiring diversity standards in hiring, governance, or vendor selection as a condition of investment.
A non-binding document outlining the preliminary terms of a deal, commonly used in M&A and some venture transactions.
A preliminary agreement outlining the key terms of a proposed transaction — similar to a term sheet but more commonly used in M&A contexts.
A calculation showing how exit proceeds would be distributed among shareholders based on their liquidation preferences and rights.
Any transaction that triggers distribution of proceeds to shareholders — including company sale, merger, or dissolution.
When accumulated liquidation preferences exceed the company's realistic exit value, making common shares effectively worthless.
A contractual right giving preferred shareholders the right to receive their investment back (often with a multiplier) before common shareholders receive anything in a liquidation event.
The ordered hierarchy of how different shareholder classes receive proceeds in a liquidity event, from most senior to most junior.
Stacking multiple liquidation preferences across funding rounds.
The hierarchy of investor claims on proceeds during an exit.
Most Favored Nation clause — a provision in a SAFE or convertible note giving the holder the right to adopt any better terms offered to future investors in subsequent rounds.
A Most Favored Nation clause guaranteeing an investor receives terms at least as favorable as those given to any subsequent investor in the same round or instrument.
A significant negative event that fundamentally alters the value or prospects of a company, potentially voiding agreements.
A contractual provision allowing investors to back out of a deal if the company experiences a significant negative change before closing.
A financing structure where capital is released in tranches contingent on the company achieving predefined performance milestones.
A clause ensuring an investor receives terms at least as favorable as those given to any other investor in the same or subsequent round.
Non-Qualified Stock Option — a stock option that does not receive the favorable ISO tax treatment, taxed as ordinary income upon exercise. Can be granted to employees, contractors, and advisors.
A less founder-friendly anti-dilution formula that only counts preferred shares in the denominator, resulting in greater conversion price adjustments in down rounds.
A provision in a term sheet that prevents a startup from soliciting competing offers from other investors for a defined period — typically 30-60 days.
Shares reserved by a company to grant as equity compensation to employees, advisors, and service providers — typically representing 10–20% of the fully diluted cap table.
The practice of requiring founders to expand the employee option pool before a funding round, effectively shifting dilution to existing shareholders while the new investors get a clean post-money ownership percentage.
A large amount of shares or investor rights that could create future selling pressure or governance challenges.
Simultaneously pursuing multiple deal process steps or negotiations to compress timelines and maintain competitive position.
Latin for 'equal step' — describes securities or investors treated equally, with no one having priority over others in the same class.
Preferred shares that get their liquidation preference AND participate pro-rata in remaining proceeds — double-dipping.
A limit on how much participating preferred investors can receive before their participation rights terminate and they must convert to common stock.
A provision requiring existing investors to participate in future down rounds or lose certain rights — typically conversion rights on preferred stock.
A contractual right that provides economic benefits equivalent to equity ownership without actual ownership of shares.
A SAFE where the valuation cap is calculated on a post-money basis, giving investors more predictable ownership percentages.
How the post-money SAFE calculates ownership: investors know their exact percentage at conversion, unlike pre-money SAFEs.
A company's valuation immediately after a funding round closes, including the new capital raised.
An investor's right to maintain their ownership percentage by investing in future rounds before new investors.
A company's valuation before a funding round closes — the negotiated price of the company excluding the new capital being raised.
A class of equity that gives investors priority over common shareholders in liquidation events and often includes additional rights — like anti-dilution protection and voting provisions. The standard share class for VC investors.
A financing round that establishes a specific per-share price and valuation — as opposed to a convertible note or SAFE which convert at a future price.
A proportional allocation — in VC, it means an investor's right to maintain their ownership percentage by investing their proportional share in future funding rounds.
The right of an existing investor to participate in future financing rounds to maintain their ownership percentage. A key investor protection that allows early backers to avoid dilution as the company grows.
A projected capitalization table showing post-round ownership percentages after a proposed financing — used to model the dilution impact of a new investment.
Contractual rights giving preferred stockholders veto power over certain major company decisions — such as raising new funding, selling the company, or changing the capital structure.
An aggressive anti-dilution mechanism that resets an investor's conversion price to the lower of the original price or any subsequent lower price — also called full ratchet.
A restructuring of a company's capital structure — changing the mix of equity and debt, or renegotiating existing equity terms.
A revised cap table showing how ownership changes after a restructuring event like a down round, cram down, or debt conversion.
A non-dilutive funding model where startups repay investors through a fixed percentage of monthly revenue until a predetermined total return cap is reached.
A structure where a founder receives all shares upfront but the company has the right to repurchase unvested shares if the founder leaves.
A contractual right giving a party the first opportunity to match any offer before shares can be sold to a third party.
A contractual right requiring a shareholder to offer their shares to existing investors before selling to third parties.
A dual investment structure pairing a standard SAFE for equity with a separate side letter granting rights to future token allocations from the project.
The current standard Y Combinator SAFE where the valuation cap represents the post-money valuation including the SAFE investment, making ownership percentage calculations straightforward.
The original Y Combinator SAFE variant where the valuation cap represents the pre-money valuation, meaning ownership percentage depends on total capital raised across all SAFEs.
A Simple Agreement for Future Tokens—a pre-functional token investment contract where investors fund development in exchange for tokens delivered at network launch.
An equity provision that fully accelerates vesting upon a single event, typically a change of control (acquisition).
When multiple preferred stock series stack their liquidation preferences, each getting paid before common shareholders.
The right to purchase company stock at a fixed price (strike price) in the future — the primary equity compensation tool for startup employees.
A legal document granting an individual the right to purchase company shares at a specified price within a set timeframe.
The right to purchase company shares at a fixed price (the strike price) granted to employees and service providers as part of equity compensation.
The price at which an option holder can purchase company shares — set at fair market value at time of grant, as determined by a 409A valuation.
A clause that causes a right or obligation to expire automatically after a specified period or triggering event.
A non-binding document outlining the key terms of a proposed investment, including valuation, investment amount, and investor rights. The starting point for negotiating a financing round.
The process of negotiating the key business and governance terms of an investment before detailed legal documentation.
A predetermined timeline governing when tokens allocated to investors, team members, or advisors become transferable, often enforced via smart contracts.
A legal instrument giving an investor the right to receive tokens from a blockchain project at a future token generation event, separate from their equity investment.
A portion of a larger investment, released upon meeting specific milestones — used in milestone-based financing to reduce investor risk.
Investment capital released in multiple installments tied to the company hitting specific milestones.
An event that activates a contractual provision — such as anti-dilution adjustments triggered by a down round, or acceleration triggered by an acquisition.
A financing round where a startup raises at a higher valuation than its previous round — the normal, positive progression of a healthy startup.
The ability of an investor to benefit from value appreciation above their guaranteed returns.
The estimated worth of a company, used to determine investor ownership percentages and share pricing in a funding round.
The maximum company valuation used to calculate conversion price for SAFEs and convertible notes, setting a ceiling on the effective price per share for early investors.
Debt financing for venture-backed startups that supplements equity rounds, typically structured as term loans with warrants from specialized lenders like SVB and WTI.
The schedule by which a founder or employee earns their equity over time. Standard startup vesting is 4 years with a 1-year cliff, ensuring team members are incentivized to stay and contribute over the long term.
Provisions that speed up an employee's equity vesting schedule, typically triggered by acquisition or termination events.
A right to purchase company shares at a fixed price (the exercise price) before an expiration date, typically issued alongside debt or as a sweetener in deals.
The right for a lender or investor to purchase a specified percentage of equity at a predetermined price, commonly issued alongside venture debt as additional compensation.
Financial instruments giving the holder the right to purchase shares at a predetermined price before expiration.
The most common form of anti-dilution protection, adjusting an investor's conversion price based on both the new lower price and the number of shares issued.
A negotiation dynamic where one party's gain comes directly at the other party's expense, common in valuation, liquidation preference, and board control discussions.