90 Essential Venture Capital Terms: A Comprehensive Glossary

nderstanding the terminology in venture capital is crucial for anyone looking to work in this field or is involved with startups.

Whether you're an entrepreneur seeking funding, an aspiring venture capitalist, or someone working with startups in some sort of capacity, navigating VC terms not only improves communication but also empowers you to make informed decisions and engage more effectively with investors, partners, and stakeholders.

Below we have put together a comprehensive glossary of 90 essential VC terms that every aspiring venture capitalist should know.

A

1. Accelerator

A program that provides startups with mentorship, resources, and sometimes capital to help them grow rapidly.

2. Acquisition

When one company buys another company, either in whole or in part.

3. Angel Investor

An individual who provides capital for a startup, often in exchange for convertible debt or ownership equity.

4. Anti-Dilution Provision

A clause that protects investors from dilution by providing them with additional shares if new shares are issued at a lower price than they originally paid.

B

5. Bootstrapping

When a startup funds its growth without external financing, using personal finances or revenue from the business.

6. Bridge FinancingTemporary funding intended to cover short-term expenses until long-term financing is secured.

7. Burn Rate

The rate at which a startup spends its capital before generating positive cash flow.

8. Buyout

The purchase of a company's shares to gain control of the company.

9. Benchmarks

Performance goals that a company aims to achieve, often used by investors to assess progress.

C

10. Capital Call

A request by a fund for the investors to contribute their committed capital.

11. Capital Under Management

The total amount of capital that a VC firm is currently managing across all of its funds.

12. Cap Table (Capitalization Table)

A table showing the ownership stakes, equity dilution, and value of equity in each round of investment.

13. Carry (Carried Interest)

The share of any profits that the general partners of VC firms receive as compensation.

14. Convertible Note

A type of short-term debt that converts into equity, typically during a future financing round.

15. Crowdfunding

Raising small amounts of capital from a large number of people, typically via the internet.

D

16. Deal Flow

The rate at which investment opportunities are presented to a fund or investor.

17. Due Diligence

The process of investigating and evaluating a potential investment opportunity.

18. Dilution

The reduction in existing shareholders' ownership percentages caused by the issuance of new shares.

19. Drag-Along Rights

Provisions that allow majority shareholders to force minority shareholders to join in the sale of a company.

E

20. Exit Strategy

The plan for a venture capitalist to sell their investment in a startup, typically through an IPO or acquisition.

21. Equity Financing

Raising capital through the sale of shares in the company.

22. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

A measure of a company's overall financial performance.

23. Early-Stage Funding

Capital provided to startups in their initial stages of development.

F

24. Follow-on Investment

Additional funding provided by investors in subsequent rounds of financing.

25. Fund of Funds

An investment strategy where a fund invests in other venture capital funds.

26. Founder’s Stock

Equity given to the founders of a company.

27. Full Ratchet

An anti-dilution protection mechanism that adjusts the conversion price of preferred stock to the price paid in a new financing round.

28. Family Office

A private wealth management advisory firm that serves ultra-high-net-worth investors.

G

29. Growth Stage

The phase in a startup's lifecycle where it is expanding rapidly and scaling its operations.

30. GP (General Partner)

A partner in a venture capital firm who has unlimited liability and is actively involved in the management of the fund.

H

31. Hurdle Rate

The minimum rate of return that a fund must achieve before the general partners can receive carried interest.

32. Harvest Period

The time frame in which a VC firm seeks to realize returns from its investments, typically through exits.

I

33. IPO (Initial Public Offering)

The process of offering shares of a private company to the public for the first time.

34. Incubator

An organization designed to help startups succeed by providing them with resources, mentorship, and sometimes capital.

35. Internal Rate of Return (IRR)

A metric used to evaluate the profitability of an investment.

36. Investment Committee

A group of individuals within a VC firm responsible for making investment decisions.

J

37. J-Curve

A graphical representation showing the tendency of private equity funds to deliver negative returns in early years and higher returns in later years.

K

38. KPI (Key Performance Indicator)

A measurable value that indicates how effectively a company is achieving its key business objectives.

L

39. Lead Investor

The main investor in a funding round, often responsible for negotiating terms and conducting due diligence.

40. Limited Partner (LP)

An investor in a venture capital fund who has limited liability and is not involved in day-to-day management.

41. Liquidation Preference

The order in which investors are paid back in the case of a liquidation event.

M

42. Management Fee

A fee paid by the investors in a fund to the general partners for managing the fund, typically a percentage of the fund’s assets.

43. Market Capitalization

The total value of a company's outstanding shares, calculated by multiplying the current share price by the total number of shares.

44. Mezzanine Financing

A hybrid of debt and equity financing, typically used to finance the expansion of an established company.

45. Multiples

Ratios used to value a company, such as price-to-earnings or enterprise value-to-revenue.

N

46. Non-Disclosure Agreement (NDA)

A legal contract ensuring that parties do not disclose confidential information.

47. Net Asset Value (NAV)

The value of a fund's assets minus its liabilities.

48. Non-Dilutive Funding

Capital received that does not require giving up equity in the company, such as grants or certain types of debt.

O

49. Option Pool

A portion of a company’s equity reserved for future issuance to employees, advisors, and other stakeholders.

50. Overhang

The amount of capital committed but not yet invested by a venture capital fund.

51. Operational Support

Additional resources and assistance provided by VCs to help their portfolio companies succeed.

P

52. Pivot

A significant change in a startup's business model or strategy.

53. Preferred Stock

A class of ownership in a corporation with a higher claim on assets and earnings than common stock.

54. Pre-Money Valuation

The valuation of a company before new investment or financing is added.

55. Post-Money Valuation

The valuation of a company immediately after receiving new investment or financing.

56. PIPE (Private Investment in Public Equity)

A private investment in a company that is publicly traded.

Q

57. Quorum

The minimum number of shareholders or directors that must be present at a meeting to make the proceedings of that meeting valid.

58. Quick Ratio

A measure of a company's ability to meet its short-term obligations with its most liquid assets.

R

59. ROI (Return on Investment)

A measure of the profitability of an investment.

60. Round

A stage of funding for a company, such as Series A, B, C, etc.

61. Runway

The amount of time a company can operate before it runs out of money, given its current burn rate.

62. Recapitalization

The restructuring of a company's debt and equity mixture.

S

63. Seed Capital

The initial funding used to start a company, typically provided by angel investors or venture capitalists.

64. Series A, B, C Funding

Stages of investment rounds a company goes through to raise capital.

65. Syndicate

A group of investors who collaborate to fund a startup.

66. Strategic Investor

An investor who provides capital with the intention of gaining strategic advantages, such as market access or product synergies.

67. SAFE (Simple Agreement for Future Equity)

An agreement that provides rights to the investor for future equity, similar to a convertible note but with fewer complexities.

T

68. Term Sheet

A non-binding agreement outlining the terms and conditions under which an investment will be made.

69. Traction

The progress and growth a startup has achieved, often measured in terms of users, revenue, or other key metrics.

70. Total Addressable Market (TAM)

The total revenue opportunity available for a product or service.

71. Trade Sale

The sale of a company's shares or assets to another company in the same industry.

U

72. Unicorn

A privately held startup valued at over $1 billion.

73. Unsecured Debt

A loan that is not backed by collateral.

V

74. Valuation

The process of determining the current worth of a company.

75. Vesting

The process by which employees earn the right to own shares or stock options over time.

76. Venture Debt

A type of debt financing provided to early-stage, high-growth companies.

77. Vintage Year

The year in which a private equity or venture capital fund makes its first investment.

W

78. Warrants

Financial instruments that give the holder the right to purchase the company’s stock at a specific price before expiration.

79. Waterfall

The order in which investment returns are distributed to investors, often used in the context of liquidation preferences.

X

80. Exit Multiple

A valuation metric used to estimate the future value of an investment based on a multiple of current earnings or revenue.

Y

81. Yield

The income return on an investment.

Z

82. Zero-Based Budgeting

A method of budgeting in which all expenses must be justified for each new period.

Additional Terms

83. Venture Partner

A part-time partner at a venture capital firm who sources deals and helps with due diligence but does not have the same responsibilities as a general partner.

84. Side Letter

An agreement between a fund and an investor that provides specific terms or conditions not found in the main fund documents.

85. Clawback

A provision that allows limited partners to reclaim a portion of the carried interest if the fund underperforms in the future.

86. Convertible Preferred Stock

Preferred stock that can be converted into a specified number of common shares.

87. General Solicitation

A form of advertising for fundraising that is allowed under certain SEC regulations, expanding the pool of potential investors.

88. Management Buyout (MBO)

When a company's management team purchases the assets and operations of the business they manage.

89. Pre-Seed Funding

The earliest stage of funding, often provided by founders, friends, and family, to develop an initial idea or prototype.

90. Special Purpose Vehicle (SPV)

A subsidiary created by a parent company to isolate financial risk.

By familiarizing yourself with these terms, you'll be better equipped to understand and engage in the venture capital ecosystem.

Whether you're an entrepreneur seeking investment or an aspiring venture capitalist, this glossary will serve as a valuable resource in your journey.