Glossary
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A
Contractual safeguard that shields an investor from experiencing a substantial decrease in their investment’s ownership percentage during subsequent rounds of fundraising aka when other investors buy stock in a company.
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B
Rate at which the company is spending its capital/cash to cover operating expenses before reaching profitability; calculated on a monthly basis.
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C
A document that provides a detailed breakdown of company’s ownership structure, outlining the equity ownership stakes of shareholders, including investors, founders, and employees.
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Also known as retention rate, the churn rate is a metric that measures the percentage of customers or subscribers who discontinue using a service or product over a given period versus the ones that start.
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Employee stock options typically undergo vesting over a span of several years, meaning they can only be fully converted into stock after this duration.
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The fundamental ownership unit in a company, usually held by founders and employees. Early angel investors may also hold common stock. However, institutional external investors, especially VCs, typically demand preferred stock with added rights, notable priority in a liquidation event.
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An irreversible process of converting preferred share to common shares.
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Type of loan that can turn into ownership in a company when there’s another funding round, offering a straightforward way for startups to get early-stage funding. Investors who use convertible notes usually get a share in the company when it raises more money, based on a set formula or discount. *Discounted convertible note
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Total expense a business spends to acquire a new customer.
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Predicted total revenue business anticipates earning from a customer throughout their entire relationship, reflecting the long-term value and profitability of that customer.
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D
Reduction of existing shareholders’ ownership percentage in a company when additional shares are issued, typically through fundraising rounds.
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Funding round in which a company raises capital at a valuation lower than its previous financing, often resulting in a dilution of existing shareholders.
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Provisions in shareholders’ agreement that empower majority shareholders to force minority shareholders to join in the sale of a company, ensuring a unified decision in favour of a potential buyer.
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Comprehensive investigation and evaluation process conducted by potential investors or acquirers to assess the financial, legal, and operational aspects of a business before making an investment or acquisition decision.
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E
Financial metric that measures a company's core profitability by excluding non-operating expenses (interest and taxes) and non-cash items (depreciation and amortization).
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Benefit plan that allows employees to become partial owners of the company by receiving shares of its stock, fostering employee engagement and aligning their interests with company performance.
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Ownership stake that investors receive in a company in exchange for their investment.
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F
Occurs when startup issues shares at the same post-money valuation as its previous fundraising round.
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Total number of outstanding shares company would have if all potentially dilutive securities, such as stock options, restricted stock units, and convertible securities, were converted or exercised.
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L
A provision in a contract specifying the order of payment to investors in the event of a company’s liquidation or sale, often prioritizing investors over founders.
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Predetermined length of time, often imposed on company insiders and early investors, during which they are restricted from selling or trading their shares following an IPO to prevent sudden stock volatility.
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P
External investors, especially VCs, typically demand preferred stock with enhanced rights compared to common stock, the fundamental ownership unit in a company.
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Clause in a term sheet that grants investors the option to maintain their ownership stake by participating in future funding rounds.
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R
Yearly forecast of revenue derived from current revenue figures.
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Often granted in VC deals, giving priority to the startup and then the investor in any future stock sale.
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Financial metric that calculates the amount of time a startup can sustain its operations with the current level of available funds before exhausting its financial resources, often expressed in months.
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S
When an investor purchases shares from an existing shareholder rather than from the company directly through an issuance of stock.
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T
While warrants in equity funding rounds often introduce unnecessary complexity, they play a vital role in bridge loan and venture debt agreements.
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Non-binding document outlining the key terms and conditions of a potential investment or acquisition, serving as a basis for negotiation between parties involved.
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V
W
Similar to stock options, issued to investors. While warrants in equity funding rounds often introduce unnecessary complexity, they play a vital role in bridge loan and venture debt agreements.
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