1
A tax-deferred exchange under IRC Section 1031 that allows real estate investors to defer capital gains taxes by reinvesting proceeds into a like-kind property.
4
An independent appraisal of a private company's common stock fair market value, required by the IRS for setting stock option exercise prices.
A
An individual who provides capital to early-stage startups in exchange for equity or convertible debt, typically investing their own personal funds.
Investment assets outside of traditional stocks, bonds, and cash, including private equity, venture capital, real estate, hedge funds, and commodities.
The process of dividing an investment portfolio among different asset categories such as equities, fixed income, real estate, and alternatives.
The process of gradually writing off the initial cost of an asset or paying down debt through regular scheduled payments over a defined period.
An individual or entity that meets SEC-defined financial thresholds, such as $200K annual income or $1M net worth excluding primary residence, qualifying them for private offerings.
The process of confirming that an investor meets SEC-defined financial thresholds before participating in certain private securities offerings.
The gradual increase in an asset's value over time, or in M&A the increase in earnings per share resulting from an acquisition.
An acquisition primarily motivated by acquiring a company's talented team rather than its products, technology, or revenue.
A smaller company acquired and integrated into an existing portfolio company to enhance capabilities, expand market reach, or achieve economies of scale.
The excess return of an investment relative to a benchmark index, representing the value added or subtracted by a fund manager's investment decisions.
An organized network of angel investors who collaborate to evaluate, fund, and mentor early-stage companies, often pooling capital for larger investments.
An early-stage funding round where angel investors provide capital to a startup, typically occurring before institutional venture capital involvement.
The annualized value of recurring subscription or contract revenue, a key metric for SaaS and subscription-based businesses indicating predictable income.
A contractual provision that protects investors from dilution in the event of a future down round by adjusting the conversion price of their preferred shares.
The legal documents filed with a state government to formally establish a corporation, defining its purpose, share structure, and basic governance.
A form of business financing where loans are secured by company assets such as inventory, accounts receivable, equipment, or real estate. Lenders evaluate the value of these assets rather than relying solely on creditworthiness or cash flow projections.
An anti-dilution clause is a provision in investment agreements that protects an investor's ownership percentage by adjusting the number of shares they own if the company issues new shares at a lower price in future funding rounds. This mechanism helps safeguard early investors from having their stake diluted by down rounds or lower valuations.
B
A position on a company's board of directors, often granted to investors as part of a funding agreement, giving them governance influence.
Short-term funding used to cover immediate capital needs until a company secures longer-term financing or reaches its next milestone. Common in startups between funding rounds, bridge loans provide runway while terms for the next round are negotiated.
A tax incentive allowing businesses to immediately deduct a large percentage of the purchase price of eligible assets in the year they are placed in service, rather than depreciating them over their useful life.
State-level securities regulations that require issuers to register their offerings and provide financial details to protect investors from fraud.
An investigation into the personal and professional history of founders, executives, or partners as part of the due diligence process.
A standard or index against which investment performance is measured, such as the S&P 500 for equities or specific vintage year data for private funds.
A broad-based weighted average is an anti-dilution protection mechanism that adjusts an investor's share price based on a weighted average of all shares outstanding, including common stock. This formula is commonly used in venture financing to protect early-stage investors from significant dilution when subsequent funding rounds occur at lower valuations.
Building and growing a business using personal savings and revenue without external funding, maintaining full ownership and control.
A buyback program is a corporate action where a company repurchases its own outstanding shares from the open market or directly from shareholders. This reduces the total number of shares in circulation, potentially increasing earnings per share and returning capital to remaining shareholders.
A measure of an investment's volatility relative to the overall market, where a beta greater than 1 indicates higher volatility and a beta less than 1 indicates lower.
A fund structure where investors commit capital without knowing which specific investments the fund will make, relying on the general partner's judgment.
A distributed digital ledger technology that records transactions across a network of computers in a way that is transparent, immutable, and secure.
A unit of measure equal to one-hundredth of a percentage point (0.01%), commonly used to describe changes in interest rates and investment returns.
An individual who attends board meetings and receives board materials but does not have voting rights, often granted to smaller investors.
A short-term financing round designed to provide a company with enough capital to reach its next major milestone or full funding round.
The rate at which a company spends its available capital, typically measured monthly, before generating positive cash flow from operations.
A transaction in which a company repurchases its own shares from existing shareholders, often used to consolidate ownership or provide investor liquidity.
The acquisition of a controlling interest in a company, either by management, another company, or a private equity firm, often involving significant capital.
Bad Actor Disqualification is a regulatory provision that prevents individuals with certain criminal convictions, regulatory violations, or securities law infractions from raising capital through Regulation D offerings. This safeguard protects investors by excluding founders and key stakeholders with questionable legal histories from soliciting investment funds.
A penalty payment specified in a merger or acquisition agreement that one party must pay if it terminates the deal. Also called a termination fee, it compensates for time, resources, and opportunity costs. Typically ranges from 1% to 3% of deal value.
C
A valuation method that estimates a company's worth by comparing it to similar companies based on metrics such as revenue multiples, EBITDA, or market capitalization.
An SEC-registered online platform that facilitates securities offerings under Regulation CF, connecting companies seeking capital with potential investors.
A vesting provision where no equity is earned until a specified period has passed, after which a significant portion vests at once, typically one year's worth.
The total amount of money that limited partners have pledged to invest in a fund, which is drawn down over time through capital calls.
The total cost of acquiring a new customer, including marketing, sales, and onboarding expenses, divided by the number of customers acquired.
The revenue remaining after subtracting variable costs, representing the amount available to cover fixed costs and generate profit on each unit sold.
A tax strategy that accelerates depreciation deductions by reclassifying real property components into shorter depreciation categories.
A cliff period is the initial phase of a vesting schedule during which an employee or investor receives no equity or compensation, despite employment or investment activity. After this period ends, vesting typically accelerates or begins in earnest, rewarding continued commitment.
The profit realized when an investment is sold for more than its purchase price, subject to either short-term or long-term tax rates depending on the holding period.
A capitalization table that details the equity ownership structure of a company, listing all shareholders, their ownership percentages, and the types of securities held.
The tax treatment of carried interest, which has historically been taxed at long-term capital gains rates rather than ordinary income rates.
A mechanism in fund distribution waterfalls that allows the general partner to receive a larger share of profits until they catch up to their carried interest percentage.
A formal request from a fund manager to limited partners to transfer a portion of their committed capital to fund an investment or cover expenses.
The share of profits, typically 20%, that fund managers receive as compensation after returning the invested capital and preferred return to limited partners.
A contractual right that allows limited partners to reclaim a portion of carried interest paid to general partners if the overall fund performance declines.
The hierarchy of all capital sources used to finance an investment or company, ordered by priority of claims from senior debt to common equity.
The total market value of a company's outstanding shares or the financial structure of a company, including equity and debt components.
The percentage of customers or revenue lost over a specific period, a critical metric for subscription businesses indicating customer satisfaction and retention.
An arrangement where multiple investors jointly invest alongside a lead investor or fund in a particular deal, sharing risk and reward.
A real estate valuation metric calculated by dividing a property's net operating income by its current market value, indicating the expected rate of return.
A real estate metric measuring the annual pre-tax cash flow relative to the total cash invested, expressed as a percentage.
The standard equity ownership in a company, typically held by founders and employees, that carries voting rights but is subordinate to preferred stock in liquidation.
An investment instrument that starts as equity but converts into a different class of shares upon a triggering event such as a future funding round.
A short-term debt instrument that converts into equity, typically preferred stock, upon the occurrence of a future financing event at a predetermined discount or cap.
Preferred stock that gives the holder the option to convert their shares into a fixed number of common shares, usually at a predetermined ratio.
A financial instrument, such as a bond or preferred share, that can be converted into a different type of security, typically common stock, under specified conditions.
An asset pledged by a borrower to secure a loan or credit facility. If the borrower defaults, the lender can seize the collateral to recover losses.
A liquidity metric calculated by dividing current assets by current liabilities. It measures a company's ability to pay short-term obligations within one year. A ratio above 1.0 indicates the company has more current assets than current liabilities.
A benefit given to early investors in convertible notes or SAFEs that allows them to convert their investment into equity at a price lower than what later investors pay. Typical discounts range from 15% to 25%, rewarding early investors for taking on greater risk.
A valuation method that determines a company's value by comparing it to similar publicly traded companies using financial metrics such as price-to-earnings, EV/EBITDA, and price-to-revenue ratios. Also called trading comparables or comps.
A tax levied on the profit from the sale of an asset held for investment. Short-term capital gains (assets held under one year) are taxed at ordinary income rates. Long-term capital gains (assets held over one year) receive preferential rates of 0%, 15%, or 20%.
D
A financial leverage metric calculated by dividing total liabilities by total shareholders' equity. It measures how much debt a company uses to finance operations relative to equity. A higher ratio indicates greater financial risk but potentially higher returns.
A privately held company valued at ten billion dollars or more, representing an exceptionally rare and successful venture-backed enterprise.
A funding round in which a company raises capital at a lower valuation than its previous round, often signaling financial distress or missed milestones.
Debt securities of companies that are in financial distress, default, or bankruptcy, typically trading at significant discounts to par value. Distressed debt investors purchase these securities at deep discounts and profit through restructuring, recovery, or liquidation.
A secure virtual or physical repository where a company shares confidential documents with potential investors during the due diligence process.
A comprehensive investigation and analysis of a potential investment, examining financial, legal, operational, and market factors before committing capital.
An organization governed by smart contracts and token-holder voting rather than traditional management structures, enabling community-driven decision-making.
A financial ecosystem built on blockchain technology that operates without traditional intermediaries like banks, offering lending, borrowing, and trading services.
Any asset that exists in digital form and comes with a distinct right to use, including cryptocurrencies, tokens, NFTs, and digital securities.
A distribution waterfall is the hierarchical order in which investment returns are allocated among investors and founders in a startup exit or liquidation event. It determines who receives funds first, second, and third based on predetermined priority levels, typically protecting preferred shareholders before common equity holders.
An investment strategy that spreads capital across different asset classes, sectors, and geographies to reduce risk and minimize the impact of any single loss.
A structured list of items and questions to investigate when evaluating a potential investment, covering financials, legal, market, team, and technology areas.
The accounting method of allocating the cost of a tangible asset over its useful life, reducing taxable income as the asset loses value.
The rate at which investment opportunities are presented to an investor or fund, often measured by quantity and quality of potential deals.
The arrangement of terms, conditions, and financial instruments used to execute an investment, including equity, debt, or hybrid components.
The process of raising capital by borrowing money that must be repaid with interest, without giving up equity ownership in the company.
A financial ratio comparing a property's net operating income to its total debt obligations, measuring the ability to cover mortgage payments.
The reduction in an existing shareholder's ownership percentage that occurs when a company issues new shares, typically during a fundraising round.
A method of going public where a company lists existing shares on an exchange without issuing new shares or using underwriters, avoiding traditional IPO costs.
A percentage reduction applied to the share price in a future funding round, rewarding early investors for the additional risk they assumed.
A valuation method that estimates the present value of a company based on projections of its future cash flows, discounted back at an appropriate rate.
An investment strategy focused on acquiring securities or assets of companies facing financial difficulties, bankruptcy, or restructuring at significant discounts.
The return of profits or capital to fund investors (limited partners) when portfolio companies are sold or generate liquidity events.
A distribution of a portion of a company's earnings to shareholders, typically paid in cash or additional shares on a regular basis.
A transaction where a company takes on new debt to fund a special dividend to its equity holders, allowing investors to realize returns without selling the company.
A provision that enables majority shareholders to force minority shareholders to join in the sale of a company, ensuring a clean exit for all parties.
The amount of committed but undeployed capital available to a fund or investor for future investments.
A Definitive Agreement is a legally binding contract that outlines the final terms and conditions of an investment or business transaction. It serves as the authoritative document governing the rights, obligations, and commitments of all parties involved, replacing earlier preliminary agreements and term sheets.
A Dutch Auction is a pricing method where the initial asking price is set high and systematically reduced until a buyer accepts the current price or a reserve price is reached. In equity financing, this mechanism can determine share prices in IPOs or secondary offerings, benefiting investors who secure shares at lower final prices.
A tax provision requiring taxpayers to report gain on the sale of depreciable property as ordinary income to the extent of previously claimed depreciation deductions. For real estate, Section 1250 depreciation recapture is taxed at a maximum rate of 25%.
E
A method of raising capital by offering equity stakes in a company to a large number of investors, typically through an online platform under specific regulatory exemptions.
A comprehensive measure of a company's total value that accounts for market capitalization, debt, and cash, providing a clearer picture than market cap alone.
An arrangement where a neutral third party holds funds or assets until specific conditions are met, commonly used in M&A transactions and real estate deals.
A contractual provision in an acquisition where a portion of the purchase price is contingent on the acquired company achieving specific future performance milestones.
A brief overview of a business plan or investment opportunity that highlights key points, designed to capture investor interest and prompt further due diligence.
Earnings Before Interest, Taxes, Depreciation, and Amortization, a widely used metric that approximates operating cash flow and facilitates company comparisons.
A valuation ratio comparing a company's enterprise value to its earnings before interest, taxes, depreciation, and amortization, widely used in M&A transactions.
A company benefit program that grants employees the right to purchase company shares at a predetermined price, aligning their interests with company growth.
The process of raising capital by selling shares of ownership in a company to investors, as opposed to borrowing money through debt.
An open-ended fund structure with no fixed termination date that continuously reinvests returns to make new investments over time.
The ratio of the return on an investment relative to the initial investment amount, commonly expressed as a multiple of invested capital (e.g., 3x).
Exercise price, also called strike price, is the predetermined cost at which an option holder can purchase or sell an underlying asset. For angel investors, it's the fixed price specified in stock options or warrants granted to founders and employees, determining the value of equity compensation.
A planned approach to liquidating an investment position to realize returns. Common exit strategies include initial public offerings (IPOs), acquisitions by larger companies, secondary sales, management buyouts, and recapitalizations.
A defined timeframe during negotiations where one party agrees not to engage with competing offers. In M&A, it gives the buyer exclusive access to due diligence. In fundraising, it may restrict a company from soliciting other investors during term sheet negotiations.
F
The earliest informal funding round where entrepreneurs raise capital from personal connections such as friends, family members, and close associates.
A financial model is a spreadsheet-based tool that projects a company's future financial performance using historical data, assumptions, and mathematical formulas. It helps investors evaluate business viability, growth potential, and return on investment by forecasting revenue, expenses, cash flow, and profitability over multiple years.
The Financial Industry Regulatory Authority is a self-regulatory organization that oversees broker-dealers and registered representatives in the United States.
A person or organization that acts on behalf of another and is legally obligated to put the other party's interests above their own.
The most protective form of anti-dilution adjustment that resets an investor's conversion price to the lower price of a subsequent down round, regardless of the amount raised.
The price at which an asset would trade between a willing buyer and seller, both having reasonable knowledge of the relevant facts and neither being compelled to act.
A legal obligation requiring one party to act in the best interest of another, commonly applied to fund managers, board members, and financial advisors.
An independent examination of a company's financial statements and records to verify accuracy and compliance with accounting standards.
An additional investment made by an existing investor in a subsequent funding round of a company they have previously backed.
An SEC filing that companies must submit after selling securities under a Regulation D exemption, disclosing basic information about the offering and its executives.
The cash a company generates from operations after accounting for capital expenditures, representing funds available for distribution, debt repayment, or reinvestment.
The total number of shares outstanding if all convertible securities, options, and warrants were exercised, representing the maximum possible number of shares.
An investment vehicle that allocates capital across multiple venture capital or private equity funds rather than investing directly in companies.
A flat round is a funding event where a company raises capital at the same valuation as its previous funding round. In this scenario, investors receive equity at no discount or premium compared to earlier investors, indicating the company's value has remained stable rather than increased.
A full ratchet is an anti-dilution protection that adjusts an investor's conversion price downward to match any lower price in a subsequent funding round. If a company raises capital at a lower valuation, early investors' shares are repriced as if they invested at that new, lower price, significantly increasing their share count.
Form D is the SEC filing required to notify the Securities and Exchange Commission of offerings under Regulation D exemptions. Angel investors and startups use this form to legally raise capital from accredited investors without full SEC registration, enabling faster fundraising with lower compliance costs.
A Fund Administrator is a third-party service provider responsible for managing the operational and administrative functions of an investment fund, including investor accounting, NAV calculations, fund reporting, and compliance documentation. For angel networks, administrators handle cap tables, equity tracking, and investor communications.
G
Growth Stage refers to the phase in a company's lifecycle after product-market fit has been established, where the business focuses on scaling revenue and expanding market share. Companies at this stage typically have proven business models, recurring revenue, and are seeking capital to accelerate expansion.
The managing partner of a venture capital or private equity fund who makes investment decisions, manages operations, and bears unlimited liability.
The percentage of revenue remaining after subtracting the direct costs of goods sold, indicating how efficiently a company produces its product or service.
A type of private equity investment in relatively mature companies that need capital to expand, restructure, or enter new markets without a change of control.
A go-to-market strategy is a comprehensive plan that outlines how a company will launch, position, and sell its product or service to customers. It includes target market identification, pricing, distribution channels, and marketing tactics designed to achieve rapid market penetration and revenue growth.
The total value of goods or services sold through a marketplace over a given period, before deducting fees, returns, or discounts.
A simple real estate valuation metric calculated by dividing the property price by its gross annual rental income.
General solicitation refers to the unrestricted advertising and marketing of securities to the general public without targeting specific accredited investors. Under SEC Regulation D Rule 506(c), companies can publicly advertise private securities offerings, provided all purchasers are verified as accredited investors.
H
The minimum rate of return that a fund must achieve before the general partner becomes entitled to receive carried interest on profits.
I
Investor suitability refers to the alignment between an investment opportunity's characteristics and an investor's financial goals, risk tolerance, investment experience, and capital availability. It ensures that angel investors only commit to deals that match their personal circumstances and investment strategy.
A clear, well-defined strategy that outlines the types of companies, sectors, stages, and criteria an investor uses to guide their investment decisions.
Contractual rights that entitle investors to receive regular financial reports, updates, and other material information about a company's performance.
Legal rights protecting creations of the mind, including patents, trademarks, copyrights, and trade secrets, which are key assets for technology companies.
The process by which a private company first offers its shares to the public on a stock exchange, providing liquidity to early investors and raising additional capital.
A fundraising method where a company creates and sells digital tokens to investors, often used to fund blockchain and cryptocurrency projects.
An asset that cannot be quickly sold or exchanged for cash without a substantial loss in value, such as private company equity or real estate.
In the context of convertible notes, the annual rate at which interest accrues on the principal, typically adding to the conversion amount rather than being paid in cash.
A contractual provision where one party agrees to compensate the other for losses or damages arising from specified events, breaches, or liabilities.
The annualized rate of return that makes the net present value of all cash flows from an investment equal to zero, accounting for the time value of money.
A group within an investment firm or angel group responsible for reviewing, evaluating, and making final decisions on potential investments.
J
The J-Curve Effect describes the initial performance dip followed by strong recovery in startup investments. Early-stage companies typically show declining metrics before turning profitable, creating a J-shaped graph when plotting financial performance over time.
A pattern in private equity and VC fund returns where initial negative returns gradually turn positive as portfolio companies mature and generate exits.
L
A non-binding document outlining the preliminary terms of a proposed transaction, signaling serious interest and guiding further negotiation.
The total revenue a company expects to generate from a single customer over the entire duration of their relationship, a critical metric for unit economics.
A financial metric comparing the amount of a mortgage loan to the appraised value of the property, used by lenders to assess lending risk.
A predetermined period after an IPO during which insiders and early investors are restricted from selling their shares, typically lasting 90 to 180 days.
An acquisition of a company using a significant amount of borrowed money, where the acquired company's assets and cash flows typically serve as collateral.
The investor who takes the primary role in negotiating deal terms, conducting due diligence, and often contributing the largest portion of capital in a funding round.
An investor in a venture capital or private equity fund who provides capital but has limited liability and no active role in managing the fund's investments.
A term that determines the order and amount investors receive before common shareholders in a liquidity event such as an acquisition or liquidation.
The ease with which an asset can be converted into cash without significantly affecting its market price, a key consideration in private market investing.
M
A Most Favored Nation (MFN) clause is a contractual provision that guarantees an investor receives terms no less favorable than those offered to other investors in the same funding round or company. This protects early investors by ensuring their equity stakes, valuations, and rights remain competitive if the company later negotiates better terms with subsequent investors.
A significant negative event or development that substantially affects the value, operations, or financial condition of a company, often triggering deal protections.
A formal but typically non-binding agreement between parties that outlines the terms and details of a mutual understanding or intended transaction.
The consolidation of companies through various financial transactions, including mergers, acquisitions, asset purchases, and management buyouts.
A transaction in which a company's existing management team acquires a controlling interest in the business, often with the support of private equity financing.
A metric measuring total return as a multiple of the original investment, calculated by dividing total distributions plus remaining value by invested capital.
The simplest version of a product that can be released to early customers to test core assumptions and gather feedback for iterative development.
An annual fee, typically 1.5-2.5% of committed capital, charged by fund managers to cover operational expenses such as salaries, office costs, and deal sourcing.
The total market value of a company's outstanding shares of stock, calculated by multiplying the share price by the total number of shares.
The date on which a debt instrument, such as a convertible note or bond, becomes due and must be repaid or converted according to its terms.
A hybrid form of financing that combines debt and equity features, typically subordinated to senior debt and often including warrants or conversion rights.
The predictable revenue a company earns each month from active subscriptions or contracts, calculated before churn or expansion.
A contractual provision ensuring an investor receives terms at least as favorable as those given to any subsequent investor in the same or similar round.
Market penetration rate measures the percentage of a target market that a company has captured through sales of its products or services. For investors, it indicates how successfully a startup is gaining customers within its addressable market and predicts growth potential and competitive positioning.
A management presentation is a formal pitch where a startup's leadership team presents their business strategy, financial projections, and growth plans to potential angel investors. This structured communication is critical for securing funding and building investor confidence in the company's vision and execution capability.
A measure of how much a product or service is used by customers compared to the total estimated market. It can also refer to a growth strategy focused on increasing market share within existing markets through competitive pricing, marketing, or product improvements.
N
A legal contract that prevents parties from sharing confidential information, commonly used during due diligence and business negotiations.
The percentage of revenue that remains as profit after all expenses, including taxes and interest, have been deducted from total revenue.
A unique digital asset verified on a blockchain that represents ownership of a specific item such as artwork, collectibles, or real estate.
A provision in a term sheet or LOI that prevents the company from soliciting or entertaining competing offers for a specified period during negotiations.
The per-share value of a fund or company calculated by subtracting total liabilities from total assets and dividing by the number of outstanding shares.
A real estate metric calculated as total property revenue minus operating expenses, excluding debt service, taxes, and capital expenditures.
A metric measuring the percentage of recurring revenue retained from existing customers over a period, including expansion revenue and accounting for churn.
Non-participating preferred stock is a type of preferred equity where investors receive either their preferred dividend or a pro-rata share of common stock proceeds upon exit, but not both. This structure limits upside participation compared to participating preferred, making it more founder-friendly while still providing downside protection through liquidation preferences.
O
A formal document used in private securities offerings that provides detailed information about the investment opportunity, company, risks, and terms.
A legal document that outlines the governance structure, ownership percentages, and operating procedures of a limited liability company.
A designated economically distressed community where new investments may qualify for preferential tax treatment under the Tax Cuts and Jobs Act of 2017.
An Opportunity Zone Fund is an investment vehicle that allows investors to defer and potentially reduce capital gains taxes by investing in designated economically distressed areas. These funds pool capital from multiple investors to support businesses and real estate projects in Opportunity Zones, which are low-income communities certified by the U.S. Treasury Department.
The potential dilution from unexercised stock options, warrants, or convertible securities that could increase the total number of outstanding shares.
A comprehensive review of a company's operational infrastructure, processes, and risk management systems conducted before an investment. ODD examines IT systems, compliance, human resources, vendor relationships, and business continuity planning beyond financial metrics.
P
The contractual right of an existing investor to participate in future funding rounds to maintain their ownership percentage in a company.
A provision requiring existing investors to participate in future funding rounds to maintain their preferential rights, such as anti-dilution protection.
The earliest stage of startup funding, often used to build a prototype, conduct market research, or develop an initial business plan before a formal seed round.
A legal document provided to prospective investors in a private offering that discloses material information about the investment, risks, and terms.
The sale of securities to a select group of investors rather than through a public offering, typically conducted under Regulation D exemptions.
Precedent transactions are historical M&A deals involving comparable companies that investors and valuators use as benchmarks for pricing and valuation analysis. These past transactions help establish market standards for similar business sales, providing data points for determining fair value in current investment decisions.
The right of existing shareholders to purchase new shares before they are offered to outside investors, allowing them to maintain their ownership percentage.
A pay-to-play provision is a contractual requirement that existing investors must contribute additional capital to future funding rounds to maintain their ownership percentage and voting rights. Failure to participate results in significant dilution or loss of board representation and other investor protections.
The initial acquisition in a private equity buy-and-build strategy that serves as the foundation for subsequent add-on acquisitions in the same industry.
The strategic process of selecting and sizing investments to build a portfolio that balances risk and return objectives across different asset types and stages.
A statistical pattern in venture capital where a small number of investments generate the vast majority of returns, making portfolio construction critical.
Contractual rights that give preferred shareholders veto power over certain company actions such as issuing new shares, taking on debt, or selling the company.
A Latin term meaning 'on equal footing,' used in finance to describe securities or creditors that have equal rights to payment or seniority.
The degree to which a product satisfies a strong market demand, often considered the most important milestone for early-stage startups.
A concise presentation used by entrepreneurs to communicate their business plan, market opportunity, and funding needs to potential investors.
A fundamental shift in a company's business strategy, product, or target market based on insights gained from customer feedback or market conditions.
A feature of preferred stock that allows investors to receive their liquidation preference and then share in remaining proceeds with common shareholders.
The time required for an investment to generate enough cash flow to recover the initial investment cost, a simple measure of investment risk.
A compensation arrangement that provides the economic benefits of ownership without issuing actual shares, typically paid out as a cash bonus tied to company value.
A collection of financial investments such as stocks, bonds, real estate, and alternative assets held by an individual or institution.
The value of a company immediately after receiving new investment, calculated by adding the investment amount to the pre-money valuation.
The estimated value of a company immediately before receiving new investment capital, used to determine the price per share and investor ownership percentage.
A minimum return that limited partners must receive before the general partner earns carried interest, typically set at 7-8% per year.
A class of equity that gives holders priority over common stockholders in dividend payments and asset distribution, commonly issued to venture capital investors.
The amount of money an investor pays for each individual share of stock in a company during a funding round or secondary transaction.
Non-bank lending where private funds provide debt financing directly to companies, often offering more flexible terms than traditional bank loans.
Participating preferred stock is a class of preferred shares that allows investors to receive both their predetermined dividend payments and a share of remaining profits alongside common shareholders. This dual-payment structure provides downside protection while maintaining upside participation in company success.
The current worth of a future sum of money or stream of cash flows given a specified rate of return. Present value calculations discount future amounts to reflect the time value of money, the principle that a dollar today is worth more than a dollar in the future.
Contractual rights that give existing shareholders the opportunity to purchase additional shares before the company offers them to new investors, allowing them to maintain their proportional ownership stake. Also known as anti-dilution rights or rights of first refusal.
Q
An individual or entity that meets higher financial thresholds than an accredited investor, typically holding $5 million or more in investments, qualifying for certain fund structures.
Stock in a qualified small business that may be eligible for significant federal tax exclusions under IRC Section 1202 when held for more than five years.
A third-party facilitator in a 1031 tax-deferred exchange who holds the proceeds from the sale of a relinquished property and uses them to acquire a replacement property. The QI ensures the investor never takes constructive receipt of the funds.
R
An SEC exemption that allows companies to raise up to $75 million from the general public through a simplified registration process, sometimes called a mini-IPO.
A federal crowdfunding exemption that allows companies to raise up to $5 million per year from both accredited and non-accredited investors through registered platforms.
A contractual right that gives existing shareholders the opportunity to purchase shares before they are offered to outside parties.
A Regulation D exemption allowing companies to raise unlimited capital from accredited investors and up to 35 sophisticated non-accredited investors without general solicitation.
A Regulation D exemption allowing companies to raise unlimited capital using general solicitation and advertising, but only from verified accredited investors.
A valuation metric calculated by dividing a company's enterprise value by its annual revenue, commonly used to compare companies within the same industry.
Company shares granted to employees that vest over time or upon meeting certain conditions, subject to forfeiture if conditions are not met.
A mechanism that adjusts the conversion price of preferred shares to protect investors if the company raises capital at a lower valuation in a subsequent round.
Statements of fact and guarantees made by parties in a transaction about the condition of the business, which serve as the basis for the deal.
A set of SEC rules that provide exemptions from registration requirements, allowing companies to raise capital through private placements without a public offering.
A company that owns, operates, or finances income-producing real estate, offering investors a way to invest in real estate without directly owning properties.
A partnership structure where multiple investors pool capital to collectively invest in a real estate property or portfolio managed by a sponsor or general partner.
A restructuring of a company's debt and equity mix, often used to optimize capital structure, return capital to shareholders, or prepare for a transaction.
The percentage increase in a company's revenue over a specific period, a fundamental metric for evaluating the pace of business expansion.
A reverse merger occurs when a private company acquires a publicly traded shell company, allowing the private firm to become public without undergoing a traditional IPO. This strategy provides rapid access to public markets and capital while bypassing lengthy regulatory processes.
A performance metric calculated by dividing the net gain from an investment by its cost, expressing the percentage return relative to the initial outlay.
A measure of investment performance that accounts for the level of risk taken to achieve returns, enabling comparison of investments with different risk profiles.
A consolidation approach where a private equity firm acquires multiple smaller companies in the same industry and merges them into a larger, more valuable entity.
The estimated number of months a company can continue operating at its current burn rate before running out of cash, calculated as cash divided by monthly burn.
Regulation D Rule 506(b) is an SEC exemption allowing companies to raise unlimited capital from accredited investors and up to 35 non-accredited investors without registering the securities. This rule enables private placements while maintaining investor protections through disclosure requirements and relationship-based sales restrictions.
Regulation D Rule 506(c) is an SEC exemption allowing companies to raise unlimited capital from accredited investors through general solicitation and advertising. This rule enables startups and growth companies to conduct public marketing campaigns while maintaining exemption from full SEC registration requirements.
A Restricted Stock Unit (RSU) is a promise by a company to grant an employee or investor a specific number of shares after certain conditions are met, typically a vesting schedule. Unlike stock options, RSUs have guaranteed value tied to the company's stock price at vesting.
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The first significant round of institutional venture capital financing, typically used to scale a product, build a team, and accelerate growth after achieving initial traction.
The negative perception that arises when a prominent existing investor chooses not to participate in a company's subsequent funding round.
Ownership interest or equity received in exchange for labor, effort, or services contributed to a company rather than financial capital.
A Simple Agreement for Future Equity is an investment contract that provides investors the right to convert their investment into equity at a future priced round.
The U.S. federal agency responsible for enforcing securities laws, regulating markets, and protecting investors from fraud and manipulation.
A portion of a company's equity reserved for future issuance to employees, advisors, and consultants, typically established before or during a funding round.
A contract among a company's shareholders that governs their rights, obligations, protections, and the management of the company.
A digital token representing ownership in a real-world asset such as equity, debt, or real estate, subject to securities regulations.
A regulated fundraising method where companies issue blockchain-based tokens that represent ownership in an asset, complying with securities laws.
A self-executing digital agreement with terms written directly into code on a blockchain, automatically enforcing obligations when predetermined conditions are met.
A cryptocurrency designed to maintain a stable value by pegging it to a reserve asset such as the US dollar, gold, or other fiat currency.
Section 1202 Exclusion is a federal tax provision allowing eligible investors to exclude up to 100% of capital gains from the sale of qualified small business stock (QSBS) held for at least five years. This exclusion can result in significant tax savings when angel investors exit their investments in qualifying startups.
Debt that takes priority over other forms of financing in the capital stack, giving lenders the first claim on assets in the event of default or liquidation.
A situation where key stakeholders, such as fund managers or founders, have their own money invested in a venture, aligning their interests with other investors.
Seed stage refers to the earliest phase of startup funding, typically occurring before or shortly after a company launches. At this stage, founders raise capital—usually $50,000 to $2 million—to develop their initial product, validate market demand, and build a founding team. This earliest investment round precedes Series A funding.
A Self-Directed IRA is a retirement account that allows investors to make their own investment decisions rather than relying on a custodian to manage their portfolio. Unlike traditional IRAs, SDIRAs enable investors to invest in alternative assets such as private equity, real estate, and startups, making them particularly attractive for angel investors seeking diversified retirement strategies.
A Solo 401k is a retirement plan designed for self-employed individuals and business owners with no employees, allowing them to make both employer and employee contributions. For angel investors, it offers a tax-advantaged vehicle to invest personal capital into startups while building retirement savings.
The portion of the total addressable market that a company can realistically serve based on its current business model, geography, and capabilities.
The ability of a business to grow revenue significantly without a proportional increase in costs, a key attribute investors look for in startups.
The realistic share of the serviceable addressable market that a company can capture in the near term given its resources and competitive position.
A marketplace where investors buy and sell existing interests in private equity or venture capital funds, providing liquidity before the fund's natural termination.
A measure of risk-adjusted return calculated by dividing the excess return over the risk-free rate by the standard deviation of returns.
A transaction where existing shareholders sell their shares to other investors rather than the company issuing new shares, providing early liquidity.
An early funding round that provides capital for a startup to develop its product, validate its business model, and achieve initial milestones.
A separate agreement between an investor and a fund or company that grants specific terms or rights not included in the main investment agreement.
An investor who may not meet accredited investor thresholds but possesses sufficient knowledge and experience to evaluate the merits and risks of an investment.
A later-stage venture capital round focused on scaling operations, expanding market reach, and building infrastructure for rapid growth.
A co-investment vehicle that allows investors to participate alongside a main fund in specific deals, often with reduced fees.
A shell company formed to raise capital through an IPO with the specific purpose of acquiring an existing private company, providing an alternative path to going public.
A separate legal entity created for a specific investment or transaction, often used to pool investor capital for a single deal.
An advanced venture capital round typically raised by companies preparing for an IPO, major acquisition, or significant expansion into new markets.
A purchase of one company by another for strategic reasons such as gaining technology, market share, talent, or competitive advantage.
Debt that ranks below senior debt in the capital stack, carrying higher risk and typically higher interest rates because it is repaid only after senior obligations.
A legal contract between an investor and a company in which the investor agrees to purchase a specified number of shares or units at a set price.
A highly active and experienced angel investor who invests larger amounts of personal capital across many deals, often bridging the gap between traditional angels and VCs.
A group of investors who pool their capital together to invest in a single deal, typically organized by a lead investor or syndicate lead.
A SPAC merger is a business combination where a Special Purpose Acquisition Company (SPAC)—a blank-check company created to raise capital—merges with a private operating company to take it public. This alternative to traditional IPOs allows private companies to access public markets more quickly and with greater certainty of funding.
A stock option is a contract that gives an investor the right, but not the obligation, to buy or sell shares of a company at a predetermined price within a specific timeframe. Angel investors often receive stock options as compensation for their early investment and support.
An exemption under the Investment Company Act of 1940 that allows a fund to avoid SEC registration if it limits investors to qualified purchasers. Unlike 3(c)(1) funds which cap at 100 investors, 3(c)(7) funds have no investor limit but require each to hold at least $5M in investments.
A Simple Agreement for Future Equity is an investment contract where an investor provides capital in exchange for the right to receive equity at a future priced round. Created by Y Combinator, SAFEs have no maturity date, no interest rate, and convert into preferred stock upon a qualifying event.
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The total revenue opportunity available for a product or service if it achieved 100% market share, representing the maximum potential demand.
The process of converting rights to a real-world asset into a digital token on a blockchain, enabling fractional ownership and increased liquidity.
An investment strategy focused on acquiring underperforming or financially distressed companies and implementing operational improvements to restore profitability.
Measurable evidence that a startup's product or service is gaining market acceptance, typically demonstrated through revenue, user growth, or engagement metrics.
A tender offer is a public or private proposal to purchase shares from existing shareholders at a specified price and within a defined timeframe. It's commonly used in acquisitions, going-private transactions, or when investors seek to gain control of a company by buying a majority stake directly from shareholders.
A provision that protects minority shareholders by giving them the right to participate in a sale on the same terms as majority shareholders.
A non-binding document outlining the key terms and conditions of a proposed investment, serving as the basis for negotiation between investors and founders.
A test definition.
The financial principle that money available today is worth more than the same amount in the future due to its potential earning capacity.
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A privately held startup company valued at one billion dollars or more, a term coined by venture capitalist Aileen Lee in 2013.
The direct revenues and costs associated with a particular business model expressed on a per-unit basis, such as per customer or per transaction.
A digital token that provides access to a product, service, or platform rather than representing ownership or investment returns.
A funding round in which a company raises capital at a higher valuation than its previous round, indicating growth and positive momentum.
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A form of private equity financing where institutional investors provide funding to startups and emerging companies with high growth potential in exchange for equity.
A form of debt financing provided to venture-backed companies that supplements equity funding, typically structured with warrants or conversion rights.
The rights granted to shareholders to vote on key corporate decisions such as board elections, mergers, and changes to the company's charter.
The maximum valuation at which a convertible note or SAFE will convert into equity, protecting early investors from excessive dilution in high-valuation rounds.
A timeline that determines when founders or employees earn full ownership of their equity, typically structured as a four-year schedule with a one-year cliff.
An investment strategy focused on identifying securities trading below their intrinsic value. Value investors seek stocks or assets that the market has underpriced relative to their fundamentals, using metrics like price-to-earnings and discounted cash flow analysis.
The process of determining the current worth of a company or asset. For startups, common approaches include comparable company analysis, discounted cash flow, and precedent transactions. Pre-money and post-money valuations determine ownership percentages in funding rounds.
A real estate investment strategy focused on acquiring underperforming properties and increasing their value through renovations, better management, or repositioning.
The year in which a private equity or venture capital fund makes its first investment, used to benchmark fund performance against peers from the same period.
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A contractual right granted to investors, typically in debt or bridge financing deals, that allows them to purchase equity in a company at a predetermined price within a specified timeframe. Warrants serve as additional compensation for investors taking on risk.
The difference between a company's current assets and current liabilities, measuring its ability to meet short-term financial obligations.
An anti-dilution formula that adjusts the conversion price based on the weighted average of the new lower price and existing price, providing a more moderate protection than full ratchet.
A financial instrument that gives the holder the right to purchase a company's stock at a specific price before a set expiration date.
The hierarchical method by which investment returns are allocated between general partners and limited partners, typically following a defined sequence.
A working capital adjustment is a post-closing cash settlement between a buyer and seller that accounts for changes in a company's net working capital between the signing and closing of a deal. It ensures the buyer receives the business with the same financial health expected during negotiations, protecting both parties from unexpected shifts in assets and liabilities.
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The income return on an investment, expressed as a percentage, including dividends, interest, or rental income relative to the investment's cost or market value.