Startup glossary.
37 words founders meet while raising, going through diligence and running a data room, explained in a sentence or two.
Rounds and securities.
- Pre-seed
- The first outside money, often from angels or a small fund, used to build a first product and test demand. More
- Seed round
- The first priced or SAFE-based round from institutional investors, used to find product-market fit. More
- Series A
- The first large priced round led by a venture fund, usually with full due diligence and a board seat. More
- SAFE
- Simple Agreement for Future Equity: an investor pays now and receives shares at the next priced round, often with a valuation cap or discount. More
- Convertible note
- A loan that converts into shares at a later round, carrying interest and a maturity date. More
- Valuation cap
- The highest company value at which a SAFE or note converts, which protects early investors if the next round is priced high.
- Pre-money valuation
- What the company is worth before new money comes in. Pre-money plus the new investment equals post-money.
- Post-money valuation
- The company value right after the round closes, including the new cash.
- Dilution
- The drop in each existing holder's percentage when new shares are issued. More
- Option pool
- Shares set aside for future employee grants, often enlarged before a priced round at the founders' expense. More
- Bridge round
- A short round, often on notes or SAFEs, that funds the company until the next priced round. More
- Pro rata right
- An investor's right to buy into later rounds to keep the same ownership percentage.
- Liquidation preference
- The amount preferred investors receive before common holders when the company is sold or wound up.
- Term sheet
- A short, mostly non-binding summary of round terms that starts confirmatory diligence and legal drafting.
Diligence and the room.
- Virtual data room
- A secure online space where a company shares documents with investors or buyers, with permissions, watermarks, an activity log and Q&A. More
- Due diligence
- The review an investor or buyer runs on a company's legal, financial, technical and people records before committing. More
- Confirmatory diligence
- The detailed check that follows a signed term sheet, when the lead fund's lawyers and accountants read the full room. More
- Folder index
- The numbered list of folders in a data room (01 Company, 02 Cap table...). A clear index shortens diligence. More
- Dynamic watermark
- The viewer's name, email and time printed across each page as it opens, so a leaked copy can be traced.
- View-only access
- A permission that lets a reader open a file in the browser without downloading or printing it.
- Activity log
- A time-stamped record of who opened, viewed, printed or downloaded each file.
- Q&A module
- A question-and-answer workflow inside the room: investors ask against a file, the company assigns and approves answers.
- Redaction
- Blacking out personal or sensitive data such as salaries or customer names before a file is shared.
- Disclosure schedule
- A list attached to an investment or purchase agreement that sets out exceptions to the company's promises.
- Data room index export
- A spreadsheet or PDF of every file and folder, often attached to closing documents as a record of what was shared.
- Clean room
- A restricted area of a data room for competitively sensitive files, open only to named outside advisers.
Metrics and company records.
- Cap table
- The record of who owns which shares, options, SAFEs and notes in the company.
- ARR
- Annual recurring revenue: the yearly value of subscription contracts in force.
- Burn multiple
- Net cash burned divided by net new ARR in the same period. Lower is better. More
- Runway
- The months the company can operate before cash runs out at the current burn. More
- Net revenue retention
- Revenue from last year's customers this year, including expansion and churn, as a share of last year's revenue. More
- CAC payback
- Months of gross margin needed to recover the cost of winning a customer. More
- 409A valuation
- An independent valuation of common stock that US companies use to set option strike prices. More
- 83(b) election
- A US tax filing that lets a founder pay tax on restricted stock at grant rather than as it vests; it must be filed within 30 days.
- IP assignment
- An agreement that moves ownership of work and inventions from a founder, employee or contractor to the company. More
- SOC 2 report
- An auditor's report on a company's security controls, often requested in enterprise sales and diligence. More
- Board consent
- A written resolution signed by directors, used to approve option grants, financings and other decisions.