Venture capital

Pre-seed is the earliest stage of startup financing, used to turn an idea or prototype into a first product and initial evidence of demand, typically funded by founders, angels, accelerators and specialist pre-seed funds.

A seed round is an early startup financing, often the first led by an institutional investor, used to build and sell the product until the company has the evidence of product-market fit needed to raise a Series A.

Series A is conventionally a startup's first major priced round: it sells a new class of convertible preferred stock at a negotiated price per share, usually led by a venture firm, to scale a product that has found product-market fit.

A down round is a financing in which a company sells shares at a lower price per share than it charged in its previous round.

A simple agreement for future equity (SAFE) is a contract, introduced by Y Combinator in 2013, under which an investor pays a startup now for the right to receive shares later, normally in a priced preferred stock round.

A convertible note is a short-term loan to a startup that accrues interest and normally converts into shares at the next qualifying equity round, usually at a discount and subject to a valuation cap, rather than being repaid.

Preferred stock is a class of shares with rights senior to common stock; in venture financing it is convertible preferred issued in priced rounds, carrying a liquidation preference, conversion rights, anti-dilution protection and separate class voting rights.

Venture debt is a loan, usually senior secured and amortising, to a venture-capital-backed company with little or no positive cash flow, underwritten mainly on its equity backers and ability to raise further rounds, with warrants for equity upside.

A term sheet is a short document setting out the main economic and control terms of a proposed investment, agreed before definitive documents are drafted; most terms are non-binding, but some, such as exclusivity and confidentiality, usually bind.

A liquidation preference is the right of preferred stockholders to receive a set amount, usually a multiple of their purchase price, from the proceeds of a sale, liquidation or other deemed liquidation event before common stockholders receive anything.

Anti-dilution protection is a term of convertible preferred stock that lowers its conversion price when the company later issues shares at a lower price, so the preferred holder receives more common shares on conversion.

Pro rata rights are an existing investor's entitlement to buy enough of a company's newly issued shares in later financings to keep its percentage ownership, usually measured on a fully diluted basis.

A capitalization table (cap table) is a schedule of a company's securities and their holders, covering common and preferred shares, options, warrants and convertible instruments, that shows each holder's ownership on an issued and a fully diluted basis.

An employee option pool is the block of a company's shares reserved under its equity incentive plan for future grants of stock options and other equity awards to employees, directors and advisers.

Dilution is the reduction in an existing shareholder's percentage ownership when a company issues new shares, including through financing rounds, conversion of simple agreements for future equity (SAFEs) and notes, option grants, warrants and anti-dilution adjustments.

Pre-money valuation is the value a financing round places on a company's existing fully diluted equity before the new money; post-money valuation adds the new investment and equals the round price per share times all shares afterward.

A 409A valuation is an appraisal of the fair market value of a private company's common stock, used in the US to set option exercise prices so the options fall outside Internal Revenue Code section 409A.

Annual recurring revenue (ARR) is the annualised value of a company's recurring subscription contracts at a point in time, often monthly recurring revenue (MRR) times twelve; it is an operating metric, not an accounting revenue measure.

Net revenue retention (NRR) is the recurring revenue at the end of a period from the customers a company had at the start, after expansion, contraction and churn, divided by those customers' recurring revenue at the start.