The financial and legal terms that define investment agreements — term sheets, liquidation preferences, anti-dilution, and more.
81 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.
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.
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.
Requirements that must be satisfied before a funding round officially closes and money transfers.
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.
A highly dilutive financing round where new investors receive favorable terms that significantly dilute existing shareholders who don't participate.
Future dilution risk created by options, convertibles, or other securities that may convert into equity.
In SAFE/convertible note context: the percentage reduction applied to the next round's price to reward early investors. Typically 15-20%.
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.
Ownership in a company, represented as shares. In venture capital, equity is the primary mechanism through which investors participate in a company's upside.
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.
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.
Governance structures that allow founders to maintain decision-making power despite outside investment.
A requirement that founders earn their equity over time rather than owning it outright from day one.
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.
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 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.
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.
A significant negative event that fundamentally alters the value or prospects of a company, potentially voiding agreements.
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.
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 SAFE where the valuation cap is calculated on a post-money basis, giving investors more predictable ownership percentages.
A company's valuation immediately after a funding round closes, including the new capital raised.
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 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.
An equity provision that fully accelerates vesting upon a single event, typically a change of control (acquisition).
The right to purchase company stock at a fixed price (strike price) in the future — the primary equity compensation tool for startup employees.
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 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 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.
A financing round where a startup raises at a higher valuation than its previous round — the normal, positive progression of a healthy startup.
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.
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 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.