Startup Fundraising Glossary

The startup financing space has a very specific vocabulary. This page describes the most important terms.

Must know terms

Here are the terms you need to know before going into a fundraising round. Click on them to get additional insights:

  • Anti-dilution: A typical clause that protects investors in case of a decreasing valuation in an upcoming financing round
  • Business Angel (BA): Private person investing in startups
  • Cash flow statement: The central document of startups to steer their financials
  • Common and preferred shares: Classes of shares with different rights
  • Data room: Cloud-based data archive for due diligence
  • Dilution: Decrease of ownership due to a financing round
  • Due diligence (DD): Investor lingo for “research” – the basis for them to take an investment decision
  • Equity crowdfunding: Platforms that enable everyone to invest small amounts into startups
  • Exit: This is when shareholders sell their shares, e.g. in a trade sale or IPO
  • Family office: Manage money of billionaires, and sometimes invest in startups
  • First right of refusal: A typical clause that gives shareholders the right to buy shares in case another shareholder wants to sell
  • FOMO: “Fear of missing out”, situation where investors are afraid that they will not be able to participate in a financing round if they don’t react quickly
  • Family, Friends and Fools (FFF): Potential investors in the pre-seed stage
  • Incentive program: Option plans (ESOP), phantom shares etc are a crucial part of fundraising rounds
  • Initial Public Offering (IPO): Quoting a company on a public stock exchange, the dream of many founders
  • Lead investor: Typically the biggest investor of a fundraising round, who does in-depth due diligence and often takes a board seat
  • Liquidation preference: In case of a trade sale, preferred shareholders receive money ahead of anyone else
  • Market size: It is critical to understand TAM, SAM and SOM. Investors want a TAM of USD 1bn+
  • Non-disclosure agreement (NDA): A confidentiality agreement that is hated by investors and wanted by entrepreneurs
  • Pre- and post-money valuation: Pre is the valuation of your company before the financing, post afterwards
  • Revenue multiple: Method to calculate a company’s valuation based on its revenue
  • Right of first refusal: Term that gives shareholders the right to purchase shares others may want to sell
  • Runway: The time a startup survives with the current funding
  • Shareholders’ agreement (SHA): Agreement between shareholders, defining key terms such as
  • Term sheet: A short document defining the key points of an upcoming financing round
  • Valuation: Multiples, comparables, DCF and other relevant methods
  • Value inflection point: A milestone where the valuation of your startup jumps – e.g. first revenues
  • Venture Capitalist (VC): They invest a few million up to a few dozen million USD into startups

Nice to know terms

Besides the “must know terms” there are various other frequently used terms in startup financing:

  • ARR: Annual Recurring Revenues, with “recurring” typically leading to higher revenue multiples than “one-time” revenues
  • Bootstrapping: Building a startup without external financing, keeping expenses very low
  • Bridge round: Convertible loan to finance the company until the next equity round
  • Corporate Venture Capitalist (CVC): Corporate that invests into startup companies similar as a VC
  • Convertible loan: Debt that is converted into equity at the next financing round
  • Dry powder: Money at hand to make investments into startups. Only talk to investors who have it!
  • Gobble up: A period of a few months after the closing of a financing round where additional investors can participate at the same terms
  • ICO: Initial coin offering, a financing round done with cryptocurrencies
  • MRR: Monthly Recurring Revenue
    Non-dilutive financing: Any money a startup gets which is not classified as equity, and therefore does not “dilute” shareholders
  • Private Equity (PE): The counterpart of public equity (= companies that are quoted on a stock exchange). Note: Venture capital is a subsegment of PE
  • SAFE: “Simple Agreement for Future Equity”, special form of a convertible loan often used in US seed rounds
  • Secondary transaction: Equity traded between two parties, as opposed to a primary where the startup itself gets the money