One of two types of investors permitted to invest in startups by the SEC. To become accredited, an investor must meet a specific income or net worth threshold, or pass a financial exam and hold a specific license.

The SEC defines an accredited investor as either: an individual with gross income exceeding $200,000 in each of the two most recent years or joint income with a spouse or partner exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.

An “advisory share” is a term of art used in the VC space; there is not a uniform legal or securities law definition applicable to an advisory share. Advisory shares are often understood to refer to equity compensation for advisors. Instead of draining precious capital, a young startup company may instead offer an adviser equity in the form of advisory shares. However, not all advisory shares are created equal. These shares often come in two forms, and the form they take influences how advisory shares work.

An individual person with enough capital to invest in startups who invests directly into the company, rather than putting money into a fund.

An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes

Bootstrapping describes a situation in which an entrepreneur starts a company with little capital, relying on money other than outside investments. An individual is said to be bootstrapping when they attempt to found and build a company from personal finances or the operating revenues of the new company.

It’s a record of who has equity in a company, how many shares they hold, what types of equity they have, and how they will eventually get paid out.

When a fund makes money, the general partner of a VC firm has to pay back all her LPs for their original investment. Then, the general partner gets to keep a percentage of whatever money the fund makes on top of that. Often, carried interest (aka “the carry”) is 20%.

Cashless contributions refer to non-monetary contributions made by a venture capital investor to a portfolio company, typically in exchange for equity. These contributions can take various forms, such as expertise, industry connections, or access to resources.

In the context of venture capital, cashless contributions are often an important consideration for startups when evaluating potential investors. While cash investments are obviously important, many startups also value the strategic benefits that an investor can bring to the table.

For example, an investor with deep industry expertise may be able to provide valuable guidance and mentorship to a portfolio company's management team. Similarly, an investor with a broad network of industry contacts may be able to help the company secure partnerships, customers, or key hires.

Cashless contributions can also take the form of operational support, such as access to specialized equipment or facilities, or assistance with recruiting or marketing. In some cases, investors may also provide access to their own proprietary technology or intellectual property, which can be a significant advantage for a startup.

The date when the first part of your equity grant vests and you’ve earned your shares or the right to buy stock options.

Just like you’d think from the title, it’s the most common and simplest form of stock. This is the type of stock that’s typically issued to employees and founders.

A way private companies raise money from investors. The investor gives the company a sum of cash. In exchange, the company will either pay the investor back with interest or convert that money into shares later on.

This is the discount to the priced round valuation that convertible note holders will get when they convert. The higher the discount, the better for investors. The discount reduces the valuation used to calculate an investor’s shares, allowing them to convert into more equity.

Drag along rights are provisions that allow the majority shareholders to compel the minority shareholders to participate in the sale of the company.

In venture capital, the majority shareholders can either be the investors or the founders—it typically depends on the company's stage. The earlier the stage, the more likely it is that the founders are the majority shareholders.

Due diligence is a systematic way to analyze and mitigate risk from a business or investment decision

A portion of shares in a company that is set aside for employees as equity compensation.

An ownership interest in a company, as with shares of stock

A way for your employer to reward you with partial ownership in their company—and for you to share in the success of the company as it grows.

A record that you receive when your employer grants you equity as part of your compensation. It tells you how many shares you’ll get, the amount of money each share is worth, and how your shares will be made available to you.

The act of purchasing stock from your company. If you were issued stock options, you don’t own shares until you actually exercise them. That’s important to know so you can plan to pay for them, and to pay any applicable taxes.

The FMV is the agreed-upon value of what one share of common stock is worth as of a specific date.

A legal structure that pools other people’s money together to invest.

A fund secondary position refers to the buying or selling of an existing limited partner (LP) interest in a private equity or venture capital fund. In other words, it involves purchasing or selling an ownership stake in a fund that has already been established and has a portfolio of investments.

When an LP wants to sell its position in a fund, it can do so through a secondary market transaction. This allows the LP to exit its investment in the fund before the fund's term expires, providing liquidity and flexibility. The buyer of the LP interest then assumes the economic rights and obligations associated with that interest, including any future distributions from the fund.

Fund secondary positions are typically bought and sold by institutional investors such as pension funds, endowments, and sovereign wealth funds, as well as specialized secondary funds that focus on buying and selling these positions. The market for fund secondary positions has grown significantly in recent years, as more investors seek to access the returns of established private equity and venture capital funds without committing to a long-term investment.

A general partner (GP) is a member of the management team of a private investment fund. The GP is responsible for managing the fund's investments, raising capital from limited partners (LPs), and making investment decisions on behalf of the fund.

The GP typically has decision-making authority over the fund's investments and is responsible for sourcing, evaluating, and executing investment opportunities. They also oversee the day-to-day operations of the fund, including managing relationships with LPs, monitoring portfolio companies, and providing strategic guidance to the companies in which the fund invests.

In addition to their management responsibilities, GPs also typically receive a share of the fund's profits, known as carried interest, as a form of compensation for their work. Carried interest is usually calculated as a percentage of the fund's profits, with the GP receiving a larger percentage as the fund's returns increase.

A hurdle rate is the minimum rate of return on a project or investment required by a manager or investor.

A type of stock option that’s typically taxed only when you sell your shares

When your company “goes public,” meaning that its stock is listed on a public exchange.

A limited partner (LP) is an investor in a private investment fund who contributes capital to the fund but is not involved in the day-to-day management of the fund's investments. LPs are typically institutional investors such as pension funds, endowments, family offices, and high net worth individuals.

As an LP, the investor has limited liability for the fund's debts and obligations, and their financial exposure is typically limited to the amount of capital they have invested. LPs are typically required to commit their capital to the fund for a certain period of time, known as the fund's term, which can range from several years to a decade or more.

LPs do not have decision-making authority over the fund's investments but instead rely on the fund's general partners (GPs) to manage the investments and make investment decisions on their behalf. LPs receive periodic reports on the fund's performance and may have limited opportunities to provide input or feedback to the GPs.

In exchange for their investment, LPs receive a share of the fund's profits, which is typically distributed to them after the fund has generated a return on its investments and paid any expenses or fees associated with managing the fund. The LP's share of the profits is usually determined by their percentage ownership of the fund, which is based on the amount of capital they have invested.

A liquidation event refers to the sale or disposition of a company's assets, typically through a merger, acquisition, or initial public offering (IPO). A liquidation event is a critical milestone for investors, as it provides an opportunity for them to realize a return on their investment in the company.

Liquidity is the ability to sell your shares for cash. While public company shares are bought and sold fairly easily on the stock market, opportunities to sell your private company shares are more limited.

A "loss leader" is a marketing strategy in which a business offers a product or service at a price that is below its cost in order to attract customers and encourage them to make additional purchases. The idea is that the loss incurred by selling the product below cost is offset by the additional sales generated by customers who are attracted by the low price.

For example, a grocery store might offer a popular item like milk or bread at a very low price, even if the store is not making a profit on that item, in order to attract customers to the store. Once customers are in the store, they may purchase other products at regular prices, which can help the store to make up for the loss on the loss leader.

The term "loss leader" comes from the idea that the initial product is being sold at a loss in order to lead customers to make additional purchases that will ultimately result in a profit for the business.

A fee on a fund charged by the management company so it can handle overhead. Usually, the fee is around 2% of the value of a fund.

Market defensibility is a term used in the context of venture capital to describe the ability of a startup to protect its market share and profitability from competitors. In other words, it refers to a startup's ability to create a sustainable competitive advantage in its market.

There are several factors that can contribute to a startup's market defensibility, including intellectual property, network effects, economies of scale, and branding. For example, a startup with strong patents or trademarks can protect its products or services from competitors. Similarly, a startup with a large and engaged user base can benefit from network effects, where the value of the product or service increases as more users join the platform.

When your company gets bought by another entity, or merges with another company.

MAU stands for Monthly Active Users, which is a commonly used metric to measure the number of unique users who engage with a particular product or service on a monthly basis. MAU is often used in the context of digital products and services, such as social media platforms, mobile apps, and online games.

The MAU metric is calculated by counting the number of unique users who interact with a product or service at least once in a given month. This includes any action that indicates engagement, such as opening the app, logging in, or performing any other activity within the app or service.

Net Promoter Score (NPS) is a measure used to gauge customer loyalty, satisfaction, and enthusiasm with a company that's calculated by asking customers one question

Another type of stock option. If you have NSOs, you’ll typically pay taxes both when you exercise them and when you sell the resulting shares

In venture capital, a "party round" refers to a funding round in which multiple investors, often with no clear lead investor, invest in a startup at the same time. In a party round, there is no single investor taking the lead in setting the terms of the investment, negotiating the valuation, or conducting due diligence. Instead, the startup may receive investments from a group of investors who are all investing on similar terms.

Pay-to-play typically refers to a provision in a company's funding agreement that requires existing investors to participate in subsequent funding rounds to maintain their ownership percentage in the company.

Under a pay-to-play provision, if an existing investor chooses not to participate in a subsequent funding round, they may face a penalty in the form of a reduced ownership stake in the company. This can incentivize investors to continue supporting the company and prevent them from abandoning their investment if the company encounters financial difficulties.

A calculation of the amount of money the company will be worth after an investment comes in. It’s based on the price of preferred shares, which are granted to investors.

A set period of time your company gives you to exercise your vested options after you leave. Often, this window is 90 days.

A calculation of the amount of money the company is worth when an investment comes in.

A type of stock that is mainly issued to investors. Preferred stock is mainly issued to investors, who usually pay a higher price per share.

Shareholders of preferred stock get paid out first if the company holds a liquidity event (like an IPO or M&A) or in case of bankruptcy.

A way private companies can raise funds from investors by taking money in exchange for shares in the company. In these agreements, the investor pays a clear, defined price for a certain percentage (or number of shares).

"Reserves" refers to the capital that a venture capital firm sets aside to support its portfolio companies after an initial investment.

Restricted Stock Units (RSUs) are a form of equity compensation used by companies to reward their employees. RSUs are typically granted as part of an employee's compensation package, and represent a promise to deliver a certain number of shares of company stock at a future date.

Unlike stock options, which give employees the right to purchase company stock at a set price, RSUs represent actual shares of stock that are granted to the employee. However, the shares are "restricted" in that they cannot be sold or transferred until specific conditions are met, such as the passage of a certain amount of time, the achievement of certain performance targets, or the occurrence of a liquidity event like an IPO or acquisition.

Once the restrictions on the RSUs are lifted, the shares can be sold or transferred like any other stock. The value of the shares is determined by the market price of the company's stock at the time the restrictions are lifted.

Rights of first refusal are provisions that give certain parties the option—but not the obligation—to buy shares from existing shareholders before they can be sold to an external party. Generally, the sale to the ROFR holder, should they choose to exercise the ROFR, must be on the same terms as the original third-party offer

In venture investing, first rights of refusal can be held by either the venture investor(s) or the company itself. They are considered to be a “standard” request by venture investors

Rolling funds are a relatively new type of investment vehicle in the venture capital industry. They were introduced by AngelList, a platform that connects startups with investors, in late 2020.

A rolling fund is a type of venture fund that allows fund managers to raise capital on a rolling basis, rather than having to go through the traditional fundraising process of raising a fixed amount of capital upfront. Fund managers can accept commitments from investors on a quarterly basis, and investors can choose to invest in one or more quarters at a time.

Rolling funds are typically structured as limited partnerships, just like traditional venture funds. However, because they can raise capital on a rolling basis, they provide more flexibility for fund managers and investors. This can make them more accessible to a wider range of investors, including high-net-worth individuals and family offices that may not have previously had access to venture capital investments.

Overall, rolling funds represent an innovative new way for fund managers to raise capital and for investors to participate in the venture capital asset class. They are still relatively new and their long-term performance is yet to be determined, but they have generated a lot of interest and could potentially become an important part of the venture capital industry going forward.

The Sean Ellis test, also known as the "Startup Growth Diagnostic" or the "One-Question Survey," is a tool used to measure the product-market fit of a startup.

The test involves asking a single question to a group of users who have recently used the startup's product or service: "How would you feel if you could no longer use [product]?" The response options are "very disappointed," "somewhat disappointed," "not disappointed," or "I no longer use [product]."

The results of the Sean Ellis test are interpreted as follows:

- If over 40% of users answer "very disappointed," this is a strong indication that the startup has achieved product-market fit and is on the right track.

- If the percentage of "very disappointed" users is less than 40%, the startup likely needs to make significant improvements to its product or pivot its strategy to better meet the needs of its target market.

The Sean Ellis test is a quick and simple way for startups to gauge the level of demand for their product or service and assess whether they are on the path to sustainable growth.

A SAFE is a financial instrument that is used by early-stage startups to raise capital from investors.

A SAFE is a type of convertible note which means that it can be converted into equity in the company at a later date, typically when the company raises its next round of financing. Unlike traditional convertible notes, SAFEs do not accrue interest or have a maturity date, which simplifies the terms of the agreement and reduces legal costs.

The terms of a SAFE typically include a valuation cap, which sets the maximum valuation at which the SAFE can be converted into equity, and a discount rate, which provides investors with a lower price per share than later investors in the next financing round. SAFEs are often used in seed-stage and early-stage funding rounds, where the company's valuation is less certain and traditional equity financing may not be practical.

SPV (Special Purpose Vehicle) is a legal entity that is created for the purpose of making a single investment. SPVs are typically used by angel investors, family offices, or other groups of individual investors to pool their capital together and make a single investment in a specific startup company.

Stock options are a form of equity compensation that companies use to reward their employees. A stock option gives an employee the right to purchase a certain number of shares of the company's stock at a set price, known as the exercise price or strike price, for a specified period of time.

Stock options are often granted as part of an employee's compensation package, and the exercise price is typically set at the market price of the company's stock on the date of grant. If the stock price increases above the exercise price, the employee can exercise their option, purchase the shares at the exercise price, and then sell them at the higher market price to realize a profit.

However, if the stock price does not increase above the exercise price before the option expires, the employee may not exercise the option and may lose the opportunity to purchase the shares.

What it will cost to exercise your stock options, as specified on your equity grant.

A less forceful version of drag along rights are called tag along rights. Tag along rights (also called co-sale rights) give minority shareholders the right—but not the obligation—to participate in the sale. The minority shareholders can “tag along” if they so choose. Tag along rights can be paired up with a right of first refusal clause, giving the minority shareholder the right to buy out the majority stake.

A tender offer is an event where your own company actually buys shares back from you to help you get liquidity.

A legal document that lists the terms and conditions under which an investor will give money to a company.

"Time to markup" refers to the amount of time it takes for a venture capitalist to make a decision on whether or not to invest in a particular startup after receiving their pitch. This decision is typically communicated to the startup in the form of a term sheet, which outlines the terms and conditions of the proposed investment.

The time to markup can vary widely depending on a number of factors, including the complexity of the deal, the stage of the startup, and the level of due diligence required. In some cases, venture capitalists may be able to make a decision within a few days, while in other cases it may take several months.

Overall, a shorter time to markup is generally viewed as a positive signal for startups, as it indicates that the venture capitalist is interested in moving forward with the deal and is willing to commit resources to further due diligence and negotiations.

An event after which you actually begin to receive your shares.

A way to determine the fair market value of your company’s common stock.

This is the maximum price a note converts at. The lower the cap, the better for investors because they’ll be able to convert notes to more shares of a company.

Earning the right to actually own your equity. Companies use vesting to entice you to stay longer or reward you for performing well. Time-based vesting (earning more of your options or shares the longer you stay with your company) is common. Event-based vesting is tied to an event like a work goal or a company milestone.

Is a type of editing software that allows users to see and edit content in a form that appears as it would when displayed on an interface, webpage, slide presentation or printed document. WYSIWYG is an acronym for "what you see is what you get.”