Venture Capital Terms & Startup Glossary

A

  • An accelerator is a program designed to provide mentorship and support to startup companies with the aim of facilitating their growth and success.

  • An accredited investor is an individual who is authorized to invest in private company securities, including those of startups and other high-risk ventures, based on their income and net worth as defined by federal securities laws.

  • Acquisition refers to a transaction between two companies, whereby one company purchases the other.

  • Adverse change redemption is a type of redemption right that allows a shareholder to redeem their shares if the company experiences any adverse events or changes.

  • Advisers are individuals who provide guidance and advice to startup companies, typically receiving compensation for their services.

  • Affirmative covenants are obligations that a company commits to fulfill during the term of a financing agreement.

  • Agency costs are expenses incurred by a principal in an agency relationship, either directly or indirectly.

  • Alpha refers to the earliest stage of a product prototype, preceding the beta stage, which has more refinement.

  • Amortization terms are conditions established by debt lenders to align a company's debt with its capital strategy.

  • An analyst is a junior staff member at a venture capital firm, typically a recent college graduate.

  • An angel investor is a high-net-worth individual who invests their own money in a startup company.

  • Antidilution is a provision that protects investors by adjusting the price of their shares to a lower price per share if a financing round is completed at a lower valuation than a previous round.

  • As-converted basis refers to the equity structure of a company assuming that all preferred stock has been converted to common stock.

  • Assignment is the right of a preferred shareholder to transfer their shares to an affiliated entity without requiring the company's consent.

  • An associate is an individual at a venture capital firm who is responsible for analyzing and managing deals. The seniority of this role varies by firm, but typically associates require the support of a partner to carry out their duties.

  • An at-will employee is a worker who is not bound by an employment agreement and can be terminated by the company at any time, for any reason.

B

  • The barter element refers to the price at which a stock option can be exercised.

  • The basis of a stock option is the price at which it can be exercised.

  • The best alternative to a negotiated agreement (BATNA) is a contingency plan to be implemented if no agreement is reached between two parties.

  • Beta is an advanced prototype of a product, often released to customers for feedback, following the alpha stage.

  • Blended preferences occur when all classes of preferred stock have equal rights to payment in the event of liquidation.

  • The board of directors is a group of individuals elected by a company's shareholders to represent all stakeholders, responsible for overseeing the company, including the hiring and firing of the CEO.

  • A bridge loan is a loan provided by investors to a company with the purpose of financing it until the next equity financing round.

  • Broad-based antidilution is the denominator used in weighted average antidilution calculations, which provides a fully diluted perspective of the company. The opposite is known as narrow-based antidilution.

  • Burn rate refers to the rate at which a company is consuming its cash reserves, typically measured over a period of months, quarters, or a year. This is the net amount of cash that is being depleted from the company's bank account during the given time frame.

C

  • The cap is the maximum valuation limit established in a convertible debt agreement.

  • A capital call is the process by which a venture capital fund requests its investors to contribute their pro rata share of the capital being called by the fund to make investments, pay expenses, or cover management fees.

  • A capitalization table (cap table) is a spreadsheet that outlines the financial structure of a deal, providing a detailed breakdown of all the shareholders and their respective ownership percentages in a company.

  • Carry, also known as carried interest, refers to the share of profits that venture capitalists are entitled to receive after returning the committed capital to their investors. This typically ranges from 20% to 30%.

  • Carve-out (equity) refers to the practice of granting preferential payments to executives and employees of a company ahead of the shareholders in the event of a liquidation, often used when the employees do not have enough financial interest in the company. This is typically agreed upon by the shareholders before the carve-out occurs.

  • Carve-out (merger) pertains to specific representations and warranties made in a merger agreement that will be indemnified outside of the escrow.

  • A clawback is a provision in a limited partnership agreement that allows investors to reclaim a portion of the VC's carried interest if certain conditions are met, such as underperformance or overpayment.

  • A commitment period is the time frame in which a venture capital fund must invest the committed capital, usually ranging from three to five years.

  • Common stock is a class of stock that represents ownership in a company but typically has fewer rights and privileges than preferred stock. Common stock is often held by employees and founders.

  • Conditions precedent to financing is a list of requirements that must be met before an investor will provide financing to a company. These requirements are typically outlined in a term sheet and can include due diligence, legal documentation, and other provisions.

  • Control terms are terms in a financing agreement that give a VC investor the ability to exercise control over the company's operations and strategic decisions.

  • Conversion is the process of converting preferred stock into common stock at a predetermined ratio. This typically occurs during a liquidity event such as an IPO or acquisition.

  • Conversion price adjustment is a mechanism that adjusts the conversion price of preferred stock into common stock in the event of an antidilution provision being triggered. This allows the preferred stock to convert into more common stock than originally agreed upon, giving the preferred stockholders more equity and voting rights.

  • Convertible debt is a debt instrument that can be converted into equity at a later time, typically when a specified event or milestone is reached. This type of investment allows investors to invest in a company as debt holders with the option to convert their investment into equity at a later date.

  • Corporate venture capital is the investment of venture capital funds by a corporation in a startup or early-stage company. This is typically done to gain exposure to new technologies or business models that may be relevant to the corporation's existing operations or strategic objectives.

  • A co-sale is the right of a shareholder to sell shares alongside another shareholder that is selling some or all of its equity to a buyer. This right is typically granted to investors, such as venture capitalists, who have invested in the company.

  • Cross-fund investment is when a venture capital firm invests in a portfolio company using capital from more than one of its funds. This allows the firm to invest larger amounts of capital in a single company while diversifying risk across multiple funds.

  • Crowdfunding is a method of financing a project or business by raising small amounts of money from a large number of people, typically through an online platform. This can take the form of equity crowdfunding, debt crowdfunding, rewards-based crowdfunding, or donation-based crowdfunding.

D

  • A director is a member of the board of directors of a company or a venture capital firm who is responsible for overseeing the management of the company or the investment portfolio.

  • A discount rate is a percentage reduction applied to the future value of an investment or cash flow to reflect the time value of money, risk, or other factors. In the context of a convertible note, it is the rate used to calculate the conversion price.

  • Dividends are a payment made by a company to its shareholders, usually in the form of cash or additional shares, as a share of the company's profits.

  • Double-trigger acceleration is a provision in an equity agreement that accelerates the vesting of equity awards in certain circumstances, such as a change in control or termination of employment, only if both conditions are met.

  • A down round is a financing round in which the valuation of a company is lower than in the previous round, resulting in a dilution of ownership for existing shareholders.

  • A drag-along provision is a contractual provision that allows majority shareholders to force minority shareholders to sell their shares in a company if a certain percentage of shares are being sold to a third party.

  • Drawdown is the process of withdrawing funds from a committed capital pool, such as a venture capital fund or a line of credit.

  • Due diligence is the process of investigating a company or investment opportunity before making a decision to invest, with the aim of verifying facts, identifying potential risks and opportunities, and assessing the overall feasibility of the investment.

E

  • Early-stage funds are venture capital funds that invest in Pre-Seed, Seed and Series A financings of startups.

  • An earn-out is a predetermined amount of money that former shareholders of a target company will receive if certain performance milestones are met post-merger, as agreed upon by the acquirer and the target company.

  • Economic terms are the terms that have an impact on the returns of a venture capitalist's investment in a company.

  • An elevator pitch is a concise summary of what a company does and why it is compelling; typically summarized in 30 seconds or less.

  • An employee option pool is a reserved amount of shares set aside by a company to provide stock options to its employees.

  • Enterprise value is the post-money valuation of a company, adjusted for debt and cash.

  • An entrepreneur is an individual who establishes a new company, also known as a founder.

  • An entrepreneur in residence (EIR) is a former entrepreneur who works with a venture firm to identify investment opportunities or work on their next company that the venture firm may fund.

  • Equity is the ownership stake in a company.

  • Equity crowdfunding is a method of financing made legal by the JOBS Act in 2012 where individuals can invest in a company in exchange for equity.

  • Escrow is a portion of the purchase price that is withheld by the acquiring company after a merger to ensure that the representations and warranties made by the acquired company are accurate.

  • An escrow cap is the maximum amount of funds that are reserved in a merger to address any breaches of the merger agreement.

  • An Executive Managing Director is a high-level partner in a venture capital firm who has greater authority than a managing director or general partner.

  • The executive summary is a brief document, usually one to three pages, that summarizes the key facts and strategies of a company.

  • Exercise is the act of buying stock through a stock option or warrant.

  • The exercise period is the duration of time during which an employee may exercise their stock options after leaving a company.

  • The exercise price is the cost at which an employee can exercise their stock options (and subsequently the price per share paid for the stock option).

F

  • Fair market value is the price that a third party would pay for something in an open market.

  • Fiduciary duties are the legal and ethical responsibility that an individual has towards an entity.

  • Final payment is the loan fee that is paid at the end of a loan.

  • A first right of refusal is the right that allows an investor to have the first opportunity to either make another investment in the company or acquire the company.

  • A flat round is a financing round that is conducted at the same post-money valuation as the previous round.

  • A Founder is an individual who creates a new company, also known as an entrepreneur.

  • Founders’ activities is a provision in the term sheet that mandates that founders spend all of their business time working for the company.

  • Founders’ stock is common stock issued to founders at a very low price at the formation of the company.

  • A Founding General Partner is a senior partner in a venture capital firm who founded the firm.

  • Full-stack venture capital firms are VC firms that employ a team beyond deal professionals, such as marketing, operations, public relations, engineering, and financial executives, to provide assistance to companies beyond what traditional venture capital firms provide.

  • Fully diluted is a term used to explicitly define that all rights to purchase equity should be included in the valuation calculation.

  • A fundamental rep is a representation made by the seller in an acquisition that survives longer than the escrow period.

G

  • Game theory is the concept that an individual's actions depend on the potential actions of others and the inherent incentives that drive those actions.

  • A General Partner (GP) is a senior partner in a venture capital firm who plays a significant role in managing the firm's investments.

  • A General Partnership (GP) is the entity responsible for managing a limited partnership, which is typically formed for the purpose of making investments.

  • General solicitation refers to fundraising efforts aimed at potential investors without a preexisting relationship deemed substantial enough to permit the solicitation.

  • GP Commitment refers to the amount of money, typically between 1% and 5% of the fund, that the general partners invest in their own fund as a sign of their commitment and confidence in the fund's success.

  • Growth investors refer to venture capital funds that specialize in investing in later-stage financing rounds such as Series B and beyond, where a company has demonstrated promising growth potential.

H

  • Holdback is the portion of the consideration paid by an acquiring company in a merger that is withheld to ensure that the representations and warranties made by the acquired company are accurate and truthful.

I

  • Indemnification is the act of one party promising to compensate or make whole another party in case of any loss or damage incurred due to the actions of the former

  • Information rights are the legally mandated minimum amount of information that a company must provide to its investors at regular intervals, including financial statements, reports, and other disclosures.

  • An Initial Coin Offering (ICO) is a method of raising funds for a company where it sells digital tokens or cryptocurrency in exchange for investment, rather than issuing traditional equity.

  • An Initial Public Offering (IPO) Shares Purchase is a provision in a term sheet that allows preferred stockholders to purchase shares of a company during its initial public offering.

  • An Interest-only (I/O) Period is a specific period in a term loan where the borrower is only required to pay the interest component and not the principal amount.

  • An Interest Rate is the rate at which a borrower is charged for borrowing money from a lender, which is one of the primary factors that determine the cost of a loan.

  • The Investment Term is the duration for which a venture capital fund can operate, usually ten years, with the possibility of two one-year extensions.

  • The IRS (Internal Revenue Service), is a federal agency in the United States responsible for collecting taxes and enforcing tax laws. It is a bureau of the Department of the Treasury.

J

  • The JOBS Act stands for Jumpstart Our Business Startups Act, which is a law passed by the United States Congress in 2012. The purpose of the JOBS Act is to make it easier for small businesses to raise capital and go public.

    The JOBS Act contains several provisions that affect various areas of the securities laws, including:

    1) Crowdfunding: It allows companies to raise funds from a large number of investors through online platforms, subject to certain limitations.

    2) Regulation A+: It provides for a streamlined process for companies to raise up to $50 million in a public offering, with reduced disclosure requirements.

    3) IPOs: It eases some of the regulations for companies to go public, such as the ability to file confidentially during the initial stages of the IPO process.

    4) Regulation D: It modifies certain rules for private placements of securities, such as allowing general solicitation and advertising of certain private placements.

    The JOBS Act is intended to promote economic growth and job creation by providing easier access to capital for small and emerging businesses.

  • A joint venture in startups refers to a business arrangement where two or more independent companies come together to undertake a specific business project or activity. The purpose of a joint venture is to combine the resources, expertise, and capabilities of the participating companies to achieve a common goal, which could be to develop a new product, enter a new market, or share risk in a business endeavor.

K

  • A Key Person Clause is a provision included in the limited partnership agreement that outlines the consequences if certain individuals, such as key partners, were to leave the venture capital fund.

  • A KISS (Keep It Simple Security), is a type of financing that can be used as an alternative to both debt and equity financing. KISS was developed by the startup accelerator 500 Startups in collaboration with the law firm Cooley LLP.

L

  • Late-stage funds are investment firms, such as venture capital and hedge funds, that provide funding in the final financing round before an initial public offering (IPO).

  • A lead investor is an individual or entity that assumes a leadership role in a venture capital financing round for a startup company. They typically invest a large portion of the round, such as 25%-50% or more.

  • The Lean Startup methodology is a business approach that advocates for the use of iterative product development cycles and experimentation to shorten the product development process. This methodology was popularized by Eric Ries.

  • A Letter of Intent (LOI) refers to a preliminary document that outlines the proposed terms and conditions of a merger or acquisition.

  • Light Preferred is a type of preferred stock financing that has uncomplicated and simplified terms.

  • Limited Partners (LPs) are individuals or entities who invest in a venture capital fund.

  • A limited partnership (LP) is a legal structure used by the limited partners to invest in a venture capital fund.

  • A limited partnership agreement (LPA) is a legal contract that establishes the terms and conditions of the relationship between a venture capital fund and its investors.

  • A liquidation event or liquidity event occurs when a company is sold and no longer exists as a separate entity.

  • A Liquidation Preference refers to the right granted to a class of preferred stock to receive the proceeds from a liquidation ahead of other classes of stock.

  • Liquidation Preference Overhang is the cumulative amount of liquidation preferences that a company has agreed to during its existence, representing the amount of money owed to investors before the common stock can receive any proceeds.

  • Loan fees are a fixed charge included in a loan agreement for completing the deal.

M

  • In venture capital financing, a major investor is an individual or entity that acquires a significant amount of stock in a company, distinguishing them from other shareholders who have purchased a comparatively smaller amount of stock.

  • A management carve-out is an arrangement between a company and its preferred shareholders, where a portion of the proceeds that would typically go to the preferred shareholders based on liquidation preferences is redirected to management and employees during an acquisition.

  • A management company is the entity that manages and provides services to each fund raised by a venture capital firm.

  • The management fee is the amount charged by venture capital funds to their limited partners (LPs) for managing the operations of the fund, regardless of the fund's performance; typically 2% per year.

  • A Managing Director (MD) is a high-ranking partner in a venture capital firm.

  • Materiality Qualifiers refer to the inclusion of the term "material" in various provisions, including protective provisions, which can be a contentious issue between lawyers.

  • Mentors are individuals who provide advice and guidance to startup companies or their executives, typically without compensation.

  • A micro VC fund is a small fund consisting of professional investors, often referred to as a "super angel."

  • Mid-stage funds, also known as growth investors, are venture capital funds that invest in Series B and later rounds of financing.

  • A minimum viable product (MVP) is the most basic version of a product that includes the essential features required for it to be useful and to gather user feedback. This concept was popularized by Eric Ries as part of the lean startup methodology.

  • Most Favored Nation (MFN) refers to the right to receive the same or equivalent terms as anyone else who may receive better terms in the future.

  • A multiplayer game is a term used in game theory to describe a game or situation where there is an ongoing relationship between the players after the game has ended. This is similar to a venture capital financing, where the VC and entrepreneur continue to work together after the transaction has been completed.

N

  • Negative Covenants are restrictions on certain behaviors and actions that a company cannot engage in without the lender's consent as a condition of the loan in a debt deal.

  • A nondisclosure agreement (NDA) is a contract where one party agrees not to disclose or share confidential information belonging to the other party.

  • Non-participating preferred stock is a type of preferred stock that does not have a participation feature.

  • A no-shop agreement is a provision in a term sheet that prohibits a company from seeking other investors without the approval of the VC that issued the term sheet once it has been signed.

O

  • An Operating Partner is a role at a venture capital firm that typically falls between a Managing Director and a Principal.

  • An option budget refers to the total number of stock options a company plans to allocate to its employees over a specific period of time.

  • An option pool is a portion of a company's shares that are set aside specifically for the purpose of providing stock options to employees.

  • An Outside Director is a member of a company's board of directors who is not an executive or a major investor in the company.

P

  • Pari Passu is the term used to describe a situation where all classes of preferred stock have equal payment rights in the event of liquidation.

  • Partners refer to an investment professional at a venture firm who may or may not be a formal "partner," but has the authority to evaluate and negotiate investment deals.

  • A party round is a financing round that involves many participants who contribute small dollar amounts.

  • Pay-to-play is a term used to describe a provision that requires venture capitalists to continue investing in future company financings or face negative consequences to their ownership positions.

  • A Perfected Lien is a legal document that has been filed with the appropriate agency, allowing for a legal claim to seize assets if a loan borrower defaults on their loan.

  • A Performance Warrant is a warrant that can be exercised by the holder if certain performance metrics are met.

  • Post-money is the value of a company after an investor has injected funds into the business.

  • Preferred stock is a type of stock that enjoys preferential terms, rights, and privileges compared to common stock.

  • Pre-money is the valuation of a company assigned by an investor before investing in it.

  • Prepayments refer to a loan agreement that allows or prohibits a borrower from making payments before the maturity date. In venture debt, prepayments are generally permitted but may come with additional costs depending on the timing of the prepayment.

  • A pre-seed round is the initial financing round of a company, also known as the round before the seed round.

  • Price per share is the amount of money required to purchase a single share of stock.

  • The prime rate is a specific benchmark index used for floating or variable rate loans. Most venture loans are indexed to the prime rate.

  • A Principal is a junior partner at a venture capital firm who is involved in investment deal-making.

  • A Private Placement Memorandum (PPM) is a legal document created by a company, its bankers, and lawyers, serving as a comprehensive business plan designed to attract investors.

  • Product crowdfunding is a fundraising approach for product development that involves customers preordering products, popularized by platforms like Kickstarter.

  • A proprietary information and inventions agreement (also known as proprietary rights agreement or IP assignment), is a contract that all employees of a company should sign, outlining that any intellectual property developed by the employee belongs to the company. The agreement may also include a guarantee that the employee will not use any third-party intellectual property while working for the company.

  • Pro rata is the right of a shareholder to purchase a proportionate number of shares in a future financing round, equivalent to the percentage of shares they currently hold at the time of the financing.

  • Protective Provisions are contractual rights that allow preferred stockholders to vote on certain important matters related to a company.

Q

  • A Qualified Financing is a funding round in which a startup or company successfully raises a certain amount of capital from external investors or venture capitalists, typically at a predetermined minimum valuation.

    The specific criteria and threshold for a qualified financing may vary based on the terms of the funding agreement, but it often serves as a trigger for certain protective provisions or benefits that are offered to the investors, such as the conversion of convertible securities into equity, the issuance of additional shares, or the grant of certain voting rights or board seats.

R

  • Ratchet-based anti-dilution is a type of anti-dilution provision that adjusts the conversion price of an investor's shares in previous funding rounds to match the price paid in the current round.

  • Redemption rights are the ability of a shareholder to compel a company to buy back their shares at a pre-negotiated price.

  • Registration rights are contractual rights granted to investors in a financing round, specifying the ability of shareholders to require the company to register their shares for public trading on a stock market.

  • Representations and warranties are assurances made by a company in a financing purchase agreement or merger agreement about its own condition.

  • Reputation constraints refer to how a person's behavior is affected by their reputation.

  • Reserves are the funds that a venture capital firm sets aside for future investments in a specific portfolio company.

  • Restricted stock units (RSUs) are an alternative to traditional stock options, providing different tax accounting for the issuing company.

  • Restrictions on sales are the right, but not the obligation, to purchase shares from a shareholder who wishes to sell.

  • Reverse dilution is when a company receives stock back from employees who have left before their stock has vested, thereby increasing the effective ownership of all shareholders.

  • The right of first refusal (ROFR) is the right, but not the obligation, for an investor to participate in future financing rounds.

  • The Right of Rescission is the right of shareholders to require the company to buy back their shares, often granted to individuals who were not authorized to purchase the stock under federal securities law.

  • Runway refers to the amount of time a company has until it exhausts its cash reserves and is unable to continue operating. It is a measure of how long a startup can continue to operate without additional funding or revenue.

    To calculate runway, a company would divide its current cash balance by its monthly burn rate, which is the amount of money the company is spending each month on operational costs such as salaries, rent, and other expenses. The resulting number represents the number of months the company has until it runs out of cash and needs additional funding.

    Having a sufficient runway is crucial for startups, as it provides the time needed to build the product, establish a customer base, and secure additional funding. A longer runway provides more time for a startup to achieve milestones and increase its valuation, making it more attractive to potential investors.

S

  • "SAFE" stands for Simple Agreement for Future Equity, which is an alternative method of issuing convertible debt in startup financing

  • Safe harbor is a legal provision that provides protection from liability under certain conditions as defined by the applicable law.

  • A schedule of exceptions is a document that lists the exceptions to the representations and warranties made in a venture financing or acquisition agreement.

  • Schmuck insurance refers to preferences that guarantee a return for an investor, particularly in situations where they are concerned about overpaying at a specific point in time.

  • A secondary sale is a private transaction where a venture capitalist sells their stock in a portfolio company or the entire portfolio to an outside party.

  • A security is a financial instrument that represents an ownership right in a company.

  • Seed preferred is another term for "light preferred," which is a simplified version of preferred stock financing.

  • Seed rounds are what "Series Seed" financings used to be called in the early days of venture capital.

  • The seed stage refers to a startup that is in its early stages of development.

  • Seed stage funds are venture capital funds that focus on being the first institutional investors in a company.

  • A Series A financing is the initial or early stage of institutional financing that a company raises.

  • A Series Seed financing is a small financing round that typically occurs before the Series A financing and is often the first financing round for a company.

  • Simple preferred is a type of lightweight preferred stock that usually only includes a liquidation preference and minimal rights.

  • In game theory, a "single-play game" refers to a game or situation in which there is no ongoing relationship after the game is played.

  • Single-trigger acceleration is a term used to describe the situation in which an individual would receive accelerated vesting of their equity.

  • Stacked preference occurs when different classes of preferred stock have senior rights to payment over other classes of preferred stock.

  • A stock option is a right to purchase shares of stock in a company.

  • Straight line amortization refers to a loan repayment plan in which the principal balance of the loan is divided equally among the number of payments.

  • The strike price is the predetermined price at which a stock option can be exercised.

  • Structure refers to multiple liquidation preferences or participation in a preferred stock, which is typically found in late-stage deals.

  • A super angel is an angel investor who is highly active and experienced.

  • Super pro rata rights are the rights of shareholders to purchase shares in a future financing round equal to a multiple of the percentage they currently hold at the time of such financing.

  • A syndicate refers to the group of investors who collectively invest in a startup.

T

  • A term sheet is a document that summarizes the key terms being contemplated in a financing deal.

  • Transaction costs are the direct and indirect costs, both in terms of time and money, associated with creating a business relationship.

U

  • A unicorn is a term used to describe a privately-held startup company that has reached a valuation of $1 billion or more. This term is derived from the rarity of such companies, similar to the mythical creature of the same name.

V

  • Valuation is the value that an investor assigns to a company.

  • In a convertible note deal, a valuation cap is the maximum conversion price at which the debt can be converted into equity.

  • A venture capital fund (VC fund) is a group of entities that make up the investment family of a venture capital firm.

  • A venture capitalist (VC) is an individual who invests in startup companies.

  • Venture debt is a type of debt financing for an equity-backed company that lacks the cash flows to support traditional debt.

  • A venture debt fund is a provider of venture debt that is not a bank.

  • A Venture Partner is a position at a venture capital firm that is typically below the managing director but above the principal level.

  • Vesting is the concept that a stock award is not earned until a certain period of time or milestone has been reached.

  • The vesting cliff is the length of time that an employee must work at a company before any of their stock or options vest. This is typically one year.

  • Voting rights are the specific rights that preferred and common stockholders have when it comes to voting on company matters.

W

  • A walking dead portfolio company is a company that has reached a point of stagnation and lacks growth, exit opportunities, and financing options, but has just enough revenue, cash, or cash flow to sustain its business.; aka a zombie.

  • A warrant is a type of financial instrument that gives the holder the right to purchase shares of stock in a company at a predetermined price within a specified timeframe.

  • Weighted average anti-dilution is a method of anti-dilution that adjusts the conversion price of an investor's investment, typically through a conversion price adjustment, based on the relative impact of the number of shares sold in the current funding round.

X

  • X (short for Exit) can refer to the goal of achieving an exit strategy for a startup, such as through an acquisition or IPO.

Y

  • Y Combinator is a well-known startup accelerator and seed fund that provides funding, mentorship, and resources to early-stage startups.

  • Year-over-year (YoY) is a metric used to compare data from one year to the same period in the previous year, usually used to measure growth or decline.

  • Yield is the return on an investment, usually expressed as a percentage of the amount invested.

Z

  • ZBB (Zero-Based Budgeting) is a budgeting technique in which all expenses must be justified for each new period or project, rather than basing the budget on the previous period or project.

  • A zero-sum game is a situation in which one person's gain is another person's loss, where the total gains and losses add up to zero.

  • A zombie company is a company that is still operating but is not generating enough revenue to cover its expenses or debt payments.

  • Zone of insolvency refers to a financial state where a company is close to becoming insolvent and lacks enough assets to pay off its liabilities.

0-9

  • 409A is a section of the United States Internal Revenue Code that regulates the valuation of equity-based compensation, such as stock options, granted to employees of privately-held companies.

    The purpose of 409A is to ensure that equity-based compensation is granted at fair market value so that employees are not subject to additional taxes or penalties.

    Companies are required to have a third-party valuation firm determine the fair market value of their stock and regularly update this valuation to remain compliant with 409A regulations.

  • A 506c offering is a type of private placement offering that allows startups and other businesses to sell securities to accredited investors without registering with the Securities and Exchange Commission (SEC) as long as certain requirements are met. The 506c offering is named after Rule 506(c) of Regulation D of the Securities Act of 1933, which was introduced by the SEC in 2013 as part of the JOBS Act.

    The key feature of a 506c offering is that it allows businesses to use general solicitation and advertising to find and attract accredited investors. This means that companies can publicly advertise their private placement offering through various media channels, such as social media, websites, or events, as long as they only accept investments from accredited investors who have been verified to meet certain income or net worth requirements.

    In addition, companies that rely on a 506c offering must provide certain disclosures to investors and comply with other SEC rules and regulations, such as filing a Form D with the SEC and state securities regulators. The use of a 506c offering can be a useful fundraising tool for startups and other businesses that are looking to raise capital quickly from a large number of investors. However, it is important to consult with legal and financial professionals before pursuing this type of offering to ensure compliance with all relevant laws and regulations.

  • An 83(b) election is a provision under the Internal Revenue Code (IRC) that allows employees, founders, and other service providers who receive equity in a company to elect to pay taxes on the stock or options at the time of grant, rather than at the time of vesting.

    By making the election, the recipient is essentially betting that the value of the stock or options will increase significantly between the time of grant and the time of vesting, and by paying taxes upfront, they can potentially save a significant amount of money on taxes later on.

    It is important to note that the 83(b) election must be filed within 30 days of the grant of the equity, and failure to make the election in a timely manner can result in significant tax consequences.

    Therefore, it is important for recipients of equity to consult with a tax professional and carefully consider the potential benefits and risks of making the election.