Deal Terms
The financial and legal terms that define investment agreements — term sheets, liquidation preferences, anti-dilution, and more.
92 terms
Advisory Shares
Equity given to an outside adviser for guidance or introductions rather than cash, almost always as a nonstatutory stock option out of the company's equity plan.
Anti-Dilution
A contractual protection for investors that adjusts their ownership percentage (or conversion price) if the company later raises money at a lower valuation.
Anti-Dilution Protection
Investor rights that adjust their conversion price downward if the company later issues shares at a lower price.
Anti-Dilution Ratchet
The specific mechanism used to adjust conversion prices in a down round, with full ratchet and weighted average being the two main types.
Belt and Suspenders
A conservative approach to deal structuring that layers multiple protective provisions to guard against downside risk.
Board Seat
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.
Breakage Fee
A penalty paid when a party withdraws from a transaction after signing a binding agreement but before closing.
Broad-Based Weighted Average
The most common and founder-friendly anti-dilution formula that accounts for the size of the down round relative to total shares outstanding.
Capital Stack
The full hierarchy of financing instruments in a company, including equity, preferred equity, debt, and convertible securities.
Clean Term Sheet
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.
Cliff
The minimum period an employee must work before any equity vests — typically one year, after which a lump sum of equity vests at once.
Closing Conditions
Requirements that must be satisfied before a funding round officially closes and money transfers.
Common Stock
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.
Conversion Rights
The right of preferred stockholders to convert their preferred shares into common stock, typically at a 1:1 ratio.
Cram Down
A highly dilutive financing round where new investors receive favorable terms that significantly dilute existing shareholders who don't participate.
Deal Fatigue
The exhaustion and diminished judgment that occurs when a deal process drags on too long, often leading to either over-compromise or deal collapse.
Demand Registration Rights
The right of investors to compel a company to register their shares with the SEC for public sale, typically exercisable after an IPO.
Dilution Overhang
Future dilution risk created by options, convertibles, or other securities that may convert into equity.
Discount Rate
In SAFE/convertible note context: the percentage reduction applied to the next round's price to reward early investors. Typically 15-20%.
Double Trigger Acceleration
Full or partial vesting acceleration that requires two events to trigger, typically a change of control plus termination of the employee.
Downside Protection
Contractual mechanisms designed to reduce investor losses if a company underperforms.
Equity
Ownership in a company, represented as shares. In venture capital, equity is the primary mechanism through which investors participate in a company's upside.
Equity Dilution Curve
A projection of how ownership percentages decline across future funding rounds.
Exclusivity Period
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.
Exercise Price
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.
Exploding Term Sheet
An investment offer with a deliberately short expiry, designed to close before the founder can collect a competing bid.
Financial Engineering
Using complex financial structures or instruments to improve returns, often at the expense of transparency or alignment.
Flat Round
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.
Founder Control
Governance structures that allow founders to maintain decision-making power despite outside investment.
Founder Vesting
A requirement that founders earn their equity over time rather than owning it outright from day one.
Founder Vesting Reset
A restructuring of founder vesting schedules during later funding rounds.
Full Ratchet
An anti-dilution term that resets a preferred holder's conversion price all the way down to the price of any cheaper later issuance, however small.
Fully Diluted
The total number of shares outstanding assuming all options, warrants, and convertible securities have been exercised — representing true economic ownership.
Fully Diluted Shares
The total number of shares that would be outstanding if all convertible securities, options, and warrants were exercised.
ISO
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.
Inclusion Rider
A contractual provision requiring diversity standards in hiring, governance, or vendor selection as a condition of investment.
Letter of Intent
A non-binding document outlining the preliminary terms of a deal, commonly used in M&A and some venture transactions.
Letter of Intent (LOI)
A preliminary agreement outlining the key terms of a proposed transaction — similar to a term sheet but more commonly used in M&A contexts.
Liquidation Analysis
A calculation showing how exit proceeds would be distributed among shareholders based on their liquidation preferences and rights.
Liquidation Event
Any transaction that triggers distribution of proceeds to shareholders — including company sale, merger, or dissolution.
Liquidation Preference
A liquidation preference is the right of preferred stockholders to be paid a set amount out of exit proceeds before common stockholders receive anything.
Liquidation Stack
The ordered hierarchy of how different shareholder classes receive proceeds in a liquidity event, from most senior to most junior.
Liquidity Preference Layering
Stacking multiple liquidation preferences across funding rounds.
Liquidity Preference Stack
The hierarchy of investor claims on proceeds during an exit.
MFN Provision
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.
Material Adverse Change
A significant negative event that fundamentally alters the value or prospects of a company, potentially voiding agreements.
Milestone-Based Funding
A financing structure where capital is released in tranches contingent on the company achieving predefined performance milestones.
Most Favored Nation
A clause ensuring an investor receives terms at least as favorable as those given to any other investor in the same or subsequent round.
NSO
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.
Narrow-Based Weighted Average
A less founder-friendly anti-dilution formula that only counts preferred shares in the denominator, resulting in greater conversion price adjustments in down rounds.
No-Shop Clause
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.
Option Pool
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.
Option Pool Shuffle
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.
Overhang
A large amount of shares or investor rights that could create future selling pressure or governance challenges.
Pari Passu
Latin for 'equal step' — describes securities or investors treated equally, with no one having priority over others in the same class.
Participating Preferred Stock
Preferred shares that get their liquidation preference AND participate pro-rata in remaining proceeds — double-dipping.
Participation Cap
A limit on how much participating preferred investors can receive before their participation rights terminate and they must convert to common stock.
Pay-to-Play
A provision requiring existing investors to participate in future down rounds or lose certain rights — typically conversion rights on preferred stock.
Post-Money SAFE
A SAFE where the valuation cap is calculated on a post-money basis, giving investors more predictable ownership percentages.
Post-Money Valuation
Post-money valuation is the pre-money valuation plus the money raised: the company's agreed value once the new investment is in.
Pre-Money Valuation
Pre-money valuation is the agreed value of a company immediately before new investment arrives, and the number that sets the price per share.
Preferred Stock
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.
Priced Round
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.
Pro Rata
Pro rata means in proportion. In venture capital it is an investor's right to buy enough of a new round to hold their ownership percentage steady.
Pro-Rata Rights
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.
Proforma Cap Table
A projected capitalization table showing post-round ownership percentages after a proposed financing — used to model the dilution impact of a new investment.
Protective Provisions
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.
Ratchet
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.
Recapitalization
A restructuring of a company's capital structure — changing the mix of equity and debt, or renegotiating existing equity terms.
Revenue-Based Financing
A non-dilutive funding model where startups repay investors through a fixed percentage of monthly revenue until a predetermined total return cap is reached.
Reverse Breakup Fee
Cash the buyer owes the target if the buyer cannot close a signed acquisition, most often because antitrust regulators block it.
Reverse Vesting
A structure where a founder receives all shares upfront but the company has the right to repurchase unvested shares if the founder leaves.
Right of First Refusal
A contractual right giving a party the first opportunity to match any offer before shares can be sold to a third party.
SAFE + Token Side Letter
A dual investment structure pairing a standard SAFE for equity with a separate side letter granting rights to future token allocations from the project.
SAFT Agreement
A Simple Agreement for Future Tokens—a pre-functional token investment contract where investors fund development in exchange for tokens delivered at network launch.
Single Trigger Acceleration
An equity provision that fully accelerates vesting upon a single event, typically a change of control (acquisition).
Stock Option
The right to purchase company stock at a fixed price (strike price) in the future — the primary equity compensation tool for startup employees.
Stock Options
The right to purchase company shares at a fixed price (the strike price) granted to employees and service providers as part of equity compensation.
Strike Price
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.
Sunset Provision
A clause that causes a right or obligation to expire automatically after a specified period or triggering event.
Term Sheet
A term sheet is the mostly non-binding summary of a proposed investment's economics and governance, signed before the definitive documents are drafted.
Term Sheet Negotiation
The process of negotiating the key business and governance terms of an investment before detailed legal documentation.
Token Vesting Schedule
A predetermined timeline governing when tokens allocated to investors, team members, or advisors become transferable, often enforced via smart contracts.
Token Warrant
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.
Tranche
A portion of a larger investment, released upon meeting specific milestones — used in milestone-based financing to reduce investor risk.
Up Round
A financing round where a startup raises at a higher valuation than its previous round — the normal, positive progression of a healthy startup.
Valuation
The estimated worth of a company, used to determine investor ownership percentages and share pricing in a funding round.
Valuation Cap
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.
Venture Debt
Debt financing for venture-backed startups that supplements equity rounds, typically structured as term loans with warrants from specialized lenders like SVB and WTI.
Vesting
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.
Warrant
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.
Weighted Average Anti-Dilution
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.