Glossary

Startup terms, in plain English.

The words you'll meet when you find a cofounder, split equity and raise your first round — each answered in a sentence or two.

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409A valuation

A 409A valuation is an independent appraisal of a US private company's common stock, used to set the exercise price of employee stock options so they aren't treated as discounted for tax purposes.

A

Accelerator

An accelerator is a fixed-length programme, usually a few months, that gives early startups mentorship, a network and often a small investment in exchange for equity, ending in a demo day.

Advisor equity

Advisor equity is a small stake, usually stock options vesting over one to two years, given to advisors in exchange for ongoing help.

Angel investor

An angel investor is an individual who invests their own money in early-stage startups, typically at pre-seed or seed, often alongside advice and introductions.

Anti-dilution protection

Anti-dilution protection adjusts an investor's conversion price if the company later raises money at a lower valuation, so they receive more shares and are partly protected from a down round.

B

Board of directors

The board of directors oversees a company on behalf of its shareholders: it approves major decisions, hires and fires the CEO, and approves things like option grants and new financings.

Bridge round

A bridge round is a smaller raise between major rounds that extends runway until the next milestone or financing, often from existing investors on SAFEs or convertible notes.

Burn rate

Burn rate is how much cash a company spends per month. Gross burn is total monthly spending; net burn is spending minus revenue.

C

Cap table

A capitalization table lists who owns what in a company: founders, employees, option holders and investors, with their shares, options and ownership percentages.

Churn

Churn is the share of customers (or revenue) lost over a period. Monthly revenue churn of a few percent compounds into a large annual loss.

Cofounder

A cofounder is one of the people who start a company together, sharing ownership, risk and responsibility for building it — usually with meaningful equity rather than a salary-only role.

Common stock

Common stock is the basic share class held by founders and employees (through options). It sits behind preferred stock in a sale or liquidation.

A convertible note is a short-term loan from investors that converts into equity at a later financing round, usually with a valuation cap and/or discount. Unlike a SAFE, it accrues interest and has a maturity date.

D

Data room

A data room is a secure, organised folder of company documents — financials, cap table, contracts, incorporation papers, metrics — shared with investors during fundraising or diligence.

Dilution

Dilution is the decrease in your ownership percentage when a company issues new shares — for example in a funding round or when it creates an option pool. You own the same number of shares, but a smaller slice of a (hopefully) larger company.

Discount (SAFE or note)

A discount lets SAFE or convertible note holders convert at a lower price than new investors in the next priced round — for example, a 20% discount means paying 80% of the round price.

Down round

A down round is a financing at a lower valuation than the previous round. It dilutes existing shareholders more and can trigger anti-dilution protections.

Drag-along rights

Drag-along rights let a majority of shareholders force the minority to join a sale of the company on the same terms, so a small holder can't block an acquisition.

Due diligence

Due diligence is the investigation an investor (or acquirer) does before committing: checking the company's finances, legal setup, cap table, IP, contracts, team and claims.

E

Exercise price

The exercise (or strike) price is the fixed price per share an option holder pays to buy shares. It is usually set at the fair value of common stock on the grant date.

F

Founder agreement

A founder (or cofounder) agreement records how founders split equity, how shares vest, who owns the IP, each person's role and decision rights, and what happens if someone leaves.

Founder equity split

The founder equity split is how ownership is divided among cofounders at the start. It should reflect each founder's future contribution — commitment, role and expertise — not only who had the idea.

Founder–market fit

Founder–market fit is how well a founding team's experience, insight and network suit the market they're tackling — why this team is unusually likely to win here.

Fully diluted shares

Fully diluted share count includes all issued shares plus every share that could be issued — options, the option pool, warrants and convertibles. Ownership is usually quoted on a fully diluted basis.

I

Incubator

An incubator supports very early startups — often at the idea stage — with workspace, mentoring and resources over a longer, more flexible period than an accelerator, sometimes without taking equity.

Information rights

Information rights entitle investors to regular company information, such as financial statements, budgets and key metrics.

IP assignment

An IP assignment transfers ownership of intellectual property a founder or employee creates — code, designs, brand, inventions — to the company.

L

Lead investor

The lead investor sets the terms of a round, usually invests the largest amount, and often brings other investors in. Many investors will only commit once a lead is in place.

Liquidation preference

A liquidation preference decides who gets paid first, and how much, when a company is sold or wound down. Investors with a 1x preference get their money back before common shareholders receive anything.

LTV and CAC

CAC (customer acquisition cost) is what it costs to win one customer; LTV (lifetime value) is the gross profit a customer brings over their lifetime. A healthy business earns much more from a customer than it spends to acquire them.

M

Minimum viable product (MVP)

A minimum viable product is the simplest version of a product that lets you learn whether customers want it, with the least time and money spent.

MRR and ARR

MRR (monthly recurring revenue) is the predictable subscription revenue a company earns each month; ARR (annual recurring revenue) is the same figure annualized, usually MRR × 12.

O

Option pool (ESOP)

An option pool is a block of shares reserved for future employees, advisers and sometimes later cofounders, granted as stock options. Investors often ask for it to be created or enlarged before their round, which dilutes existing holders.

P

Pitch deck

A pitch deck is a short presentation founders use to explain their startup to investors: problem, solution, market, traction, business model, team and the raise.

Pre-money and post-money valuation

Pre-money valuation is what a company is worth before new investment; post-money valuation is pre-money plus the new money raised. An investor's ownership is their investment divided by the post-money valuation.

Pre-seed round

A pre-seed round is the earliest outside funding a startup raises, usually from angels, friends and small funds, often before the product has meaningful traction. It is commonly raised on SAFEs or convertible notes.

Preferred stock

Preferred stock is the share class investors usually receive in priced rounds. It carries extra rights over common stock, such as a liquidation preference, protective provisions and sometimes anti-dilution protection.

Priced round

A priced round is an equity financing where investors buy shares at an agreed price per share, setting the company's valuation — unlike SAFEs or notes, which postpone the valuation.

Pro rata rights

Pro rata rights let an existing investor buy into future rounds to maintain their ownership percentage, so they are not diluted.

Product–market fit

Product–market fit is when a product clearly satisfies a strong market demand — customers adopt it, keep using it, and recommend it with little push.

R

Reverse vesting

Reverse vesting means founders receive all their shares upfront, but the company can buy back the unvested portion if a founder leaves. It is how founder vesting usually works in practice.

Right of first refusal (ROFR)

A right of first refusal lets the company or existing investors buy shares before a shareholder sells them to an outsider, on the same terms.

Runway

Runway is how many months a startup can keep operating before it runs out of cash, usually cash in the bank divided by monthly net burn.

S

SAFE (Simple Agreement for Future Equity)

A SAFE is an investment contract where an investor pays money now in exchange for shares issued later, usually at the next priced round. It is not debt: there is no interest and no maturity date.

Seed round

A seed round is an early funding round used to find product–market fit and build the initial team, typically raised from seed funds and angels after some early traction.

Series A

A Series A is usually a startup's first major priced equity round from venture capital investors, raised to scale a product that has shown traction.

Stock options

A stock option is the right to buy a set number of company shares at a fixed price (the exercise or strike price) after they vest. Options are how most startups share ownership with employees.

Sweat equity

Sweat equity is ownership earned by contributing work rather than money — the usual way founders and early team members earn their stake.

T

TAM, SAM and SOM

TAM is the total addressable market (all possible demand), SAM the serviceable addressable market your product can reach, and SOM the serviceable obtainable market you can realistically win soon.

Technical cofounder

A technical cofounder is a founding team member responsible for building the product and technology, often taking the CTO role, and holding meaningful founder equity rather than a salary-only position.

Term sheet

A term sheet is a short, mostly non-binding document setting out the key terms of an investment — valuation, amount, board seats, investor rights — before the full legal documents are drafted.

Traction

Traction is measurable evidence that a startup is working — revenue, growth, active users, retention, pilots or signed letters of intent.