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Fundraising glossary

38 terms founders run into during a raise. Each one has its own page with a worked example and what is actually standard, because "what is a liquidation preference" deserves a real answer rather than a line in a list.

Updated 2026-07-26

Several of these terms decide how much money you personally walk away with, and they are usually agreed in a single week under time pressure. Understanding them before a term sheet lands is worth more than any negotiation tactic.

By topic

Round mechanics

How a round is priced and what it does to ownership.

Pre-money valuationWhat your company is agreed to be worth immediately before new investment goes in. Post-money valuationThe pre-money valuation plus the new money invested. DilutionThe reduction in your ownership percentage when new shares are issued. Option poolShares set aside to grant to future employees, usually expressed as a percentage of the fully diluted company. AllocationThe specific dollar amount an investor is taking in the round. Bridge roundInterim financing between priced rounds, usually intended to reach a milestone that unlocks the next round. Down roundA round priced below the valuation of the previous round.

Instruments

The paper you actually sign to take money in.

SAFESimple Agreement for Future Equity. An investor gives you money now in exchange for shares later, when a priced round happens. Valuation capThe maximum valuation at which a SAFE or convertible note converts into equity. DiscountA percentage reduction on the priced round share price, given to early money as compensation for earlier risk. Convertible noteDebt that converts into equity at a future priced round. Preferred stockThe share class investors buy, carrying rights that common stock does not have.

Terms that decide your outcome

The clauses that quietly determine what you are paid at exit.

Liquidation preferenceThe amount investors are paid out of exit proceeds before common shareholders receive anything. Participating preferredPreferred stock that takes its liquidation preference AND then shares in the remaining proceeds according to its ownership. Preference stackThe total of all liquidation preferences across every round, which must be repaid before common shareholders receive anything. SeniorityThe order in which investors are paid from exit proceeds. Anti-dilutionProtection that adjusts an investor's effective share price if the company later raises at a lower valuation. Pro rata rightsThe right to invest again in future rounds to maintain an existing ownership percentage. Drag-alongA provision forcing minority shareholders to join a sale that has been approved by a defined majority. Tag-alongA provision letting minority shareholders join a sale on the same terms as a selling majority holder. SecondaryThe sale of existing shares by a current shareholder, rather than the issue of new shares by the company. Information rightsA contractual entitlement to receive regular financial and operating information about the company. Board observerA right to attend board meetings without a vote.

Process language

The vocabulary of running a raise.

Soft circleA verbal indication from an investor of a specific amount they intend to invest, subject to conditions. Lead investorThe investor who sets the terms, does the deepest diligence and usually takes the largest allocation. FollowAn investor who joins a round on terms set by the lead rather than negotiating their own. Term sheetA mostly non-binding document setting out the proposed valuation, structure and key economic and control terms of an investment. Due diligenceThe investor's formal verification of your business, financials, legal position, technology and team. Data roomThe secure repository of documents shared with investors during diligence. Wall crossingFormally bringing someone across an information barrier and making them an insider with respect to confidential information. MNPIMaterial non-public information: information not publicly available that a reasonable investor would consider important to a trading decision.

Metrics investors ask for

The numbers you will be asked to defend.

ARRAnnual recurring revenue: the annualised value of contracted, recurring subscription revenue. Net revenue retentionRevenue from your existing customer base this period versus the same cohort last period, including expansion, contraction and churn. CACCustomer acquisition cost: fully loaded sales and marketing spend divided by the number of new customers acquired in the same period. CAC paybackThe number of months of gross profit required to recover the cost of acquiring a customer. Burn multipleNet cash burned divided by net new ARR added over the same period. RunwayThe number of months you can continue operating at your current net burn before running out of cash. TAM, SAM, SOMTotal addressable market, serviceable addressable market, and serviceable obtainable market: three progressively narrower views of market size.

Every term, A to Z

Run your raise on this

VCTerminal models these terms on your real cap table, so the vocabulary turns into numbers you can act on.