Venture Evolved
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Venture Evolved

Venture Capital Glossary

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The most common compensation structure for a General Partner (GP) led VC fund. The terms refer to an annual management fee of 2% of the assets under management and 20% carried interest (20% of the fund’s profits).


Fixed-term, competitive, cohort-based program designed to accelerate progress for seed-stage startups. In exchange for providing modest funding (often a grant or note), mentorship, and education, the accelerator takes an equity position in each company. The accelerator culminates in a pitch event with prospective investors in the audience (“demo day”). Y-Combinator is the most selective and highest-performing accelerator in the US; Techstars and 500 Startups are two additional prominent programs.


An individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience.

ACV: Annual Contract Value

The value of a contract over a 12-month period.


High-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company.


Anti-dilution protection is a mechanism in a venture capital deal that increases ownership of previous investors in the event the company raises money at a lower price in the future. These mechanisms are also called ratchets, and there are different levels of “power.” A full-ratchet adjusts conversion prices to effectively retroactively adjust prior rounds to the future round’s price. A weighted average ratchet adjusts conversion prices to based on (1) the relative size of the previous and future round and (2) the relative prices (to prevent an extreme case of raising a small amount of money at a low price improving the price of a substantially larger round previously). Weighted average can be “narrow-based” or “broad-based.” The difference is how the formulae account for option pools.

AOV: Average Order Value

The average revenue per order, typically used to measure consumer-focused businesses. Also called cart size.

ARR: Annual Recurring Revenue

Metric used by subscription businesses to represent the value of recognized recurring revenue normalized to a one year period.

ARPA: Average Revenue Per Account

Total revenue divided by number of accounts; interchangeable with average selling price (ASP).

ARPU: Average Revenue per User

Total revenue divided by the number of users.

AUM: Assets Under Management

The total value of LP capital (assets) committed to a venture capital firm in its constituent funds.


Dollar value of signed contracts in a specified period. Bookings represents future revenue potential that must be earned/recognized over time by delivering the product or service. For example, a three year, $100K per year SaaS contract would be $300K in bookings upon signing. After the the first year, it would only be $100K of recognized revenue.


A description of a startup where the founding team has self-financed the growth to-date with their own funds (and time/effort). Most founders in the early stages of building their business are said to be “bootstrapping” their company.

B2B: Business-to-Business

A situation where a business enters into a commercial transaction with another business. Contrasted with B2C.

B2C: Business-to-Consumer

A situation where a business transacts directly between itself and consumers who are the end-users of the company’s products or services. Contrasted with B2B.


A financing that takes place between traditional rounds (Seed, Series A, etc.). Often this is driven by a firm realizing a higher-than-anticipated burn rate and failing to make their capital last until their next planned round. It can also be when a company is close to a milestone where achieving it creates an inflection point in value. Bridges are often raised from current investors since the failure can scare away new investors but some external investors may see bridges as a chance to get into deals they otherwise could not. Bridges tend to be structured as convertible notes.


A term in a financing that allows a majority of shareholders to force smaller investors to sell. This is typical in venture financings, and is used to prevent small shareholders from holding up a company sale.


The rate at which a startup consumes cash during the course of normal operation. Typically expressed in terms of the cash depleted per month, the burn rate is an indicator of a startup’s solvency and number of months until the company is out of cash (the “cash runway”) and will need to raise more money or sell by then. The term runway is a metaphor for a plane that must get airborne before the end of the runway.

CAC: Customer Acquisition Cost

The cost associated with acquiring customers; includes all sales and marketing costs.


Customer acquisition cost (CAC) divided by customer lifetime value (LTV); measures effectiveness of marketing and sales; has a large impact on the capital requirements of a business.


The number of months it takes for the contribution margin of a customer to exceed the CAC. CAC payback periods fewer than 12 months are ideal, under 18 months are sustainable and more than 18 months needs addressing.


The amounts of capital in various securities in a company and their relative seniority in a liquidation (in order of claims to underlying assets). Senior Debt has the senior most claim, followed by subordinated or mezzanine debt. Various series of preferred equity follow, often with the latest series the most senior of the preferred equity. Common equity is the very bottom of the stack, but captures all of the remaining proceeds. Preferred equity in venture capital settings almost always has the ability to convert into common equity. Also known as “liquidation stack” or “preference stack.”


An LP’s commitment to a fund is not wired up front. Instead, a fund calls capital as it needs it. When a fund needs cash for an investment, management fee to operate the firm, and/or for certain expenses, it sends a notice to its limited partners requesting the cash. This is called a capital call. LPs usually have a period of time (typically 10 days) to wire the money to the fund. Funds operate this way so that they can optimize the LPs’ IRR in the fund. Some funds use lines of credit to wire money for an investment and then use the LP capital to pay off the line when the wires arrive 10 days later.

CARR: Contracted Annual Revenue

Same as ARR but also includes revenue under signed contract but not yet recognized. The longer the implementation time, the bigger the difference between ARR and CARR.


A profit share earned by the managers of a venture fund, typically earned by the general partners usually after the fund has returned more than the amount of capital it has called from its limited partners. Typically, carried interest is 20% of these net profits.

COGS: Cost of Good Sold

Direct costs attributable to the production of the goods (or services) sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. In software companies, this is often hosting and support costs.


A group of customers that became customers in the same month (or quarter). Analyzing the behavior of cohorts (cohort analysis) can reveal how loyal customers are their tenure with the product lengthens.


A dividend payment that is a fixed percentage multiplied by the original per share price plus the dividends that have accrued over time. The equation to calculate the amount of compound interest per share is:


A cumulative dividend is a right in a preferred share to a fixed amount or percentage of a share’s original par value (for example, 8% of the Series A Original Issue Price). The term “cumulative” refers to the fact that dividends accrue over time if they are not paid and must be paid before any dividend payments to common shareholders. That is, cumulative shareholders must receive both the current period’s dividend, as well as all unpaid past dividends when dividends are eventually paid. Note that just because dividends are cumulative does not mean they are paid in a liquidation event! The payment timing must also be specified in legal language. See “Non-cumulative Dividend.”


A product’s price minus all associated variable costs. For a SaaS business, this is typically revenue minus support costs minus cloud hosting costs.


Venture firms purchase preferred stock when making an investment into a company, as opposed to common stock that founders hold. Preferred stock typically gets paid a liquidation preference ahead of the common stock. Instead of the preference, which is typically limited to 1.0x the capital invested, preferred holders can convert into common at the conversion price. The conversion price is set equal to the purchase price (a 1:1 conversion ratio) when the shares are issued, but can be altered due to anti-dilution protection, stock dividends, and other events.


A right customarily provided to preferred shareholders that allow the preferred holders to sell their stock if other key holders (usually the founders) sell theirs. Nicknames include the “anti-bailout provision” and “tag along rights.”


A cliff is a period of time (usually a year) during which vesting does not accrue until the end of the period. For example, if one has a one year cliff and a four year vest on an option, if they departed on day 364, the percent vested would be zero. At the end of day 365, the percent vested would be 25%. Cliffs are both retention mechanisms and designed to prevent equity from being in the hands of employees who didn’t work out.


Used to describe a resource (e.g., storage, streaming music, software, etc.) that is always accessible through the Internet versus being installed on a local computer or local server (“on premises”).


Percentage of users that take an action that is next in a sequence toward purchase. For example, a business might observe a 20% of users progressing from visiting a website to downloading an app — a 20% conversion rate. When specific steps are not specified, it is assumed that the conversion is from initial encounter with a company to purchase.


A form of debt that converts into equity, typically in conjunction with a future financing round; commonly used for seed rounds to delay the task of deciding the value of the company and to simplify the financing.


See “Pay-to-Play”

CRM: Customer Relationship Management

Software used to manage the relationship between a business and a prospective customer. Can also encompass managing the relationship after the sale.


A team whose sole function is to ensure that customers achieve their desired outcome while using a product. Customer success is often tasked with upselling existing customers and performing account management functions. A customer success team that is effective can lead to a lower gross churn rate and additional expansion revenue.

CVC: Corporate Venture Capital

A branch, division, or financial arm of a corporate entity dedicated to investing in startups. Unlike a traditional VC, however, CVCs are not exclusively focused on optimizing returns for a separate investor. In addition, corporate venture groups aim to derive strategic value from investments. This may mean that the CVC is an on-ramp for Corporate Development (M&A) teams, a lens for monitoring industry trends, or a way to outsource some form of R&D. CVCs often invest directly off of the balance sheet for the parent corporation and thus they are not limited partners like there would be in a VC Fund.

DAU: Daily Active Users

Number of unique users interacting with a product over a given day. Used as a measure of user engagement with a product.


Quantity of opportunities that a fund/angel considers in a period of time.


A company with a valuation at or exceeding $10B. See “Unicorn.”


The percentage reduction in equity ownership existing investors experience, often in new rounds of financing or expansions of option pools. The amount of dilution is dependent on, among other things, valuation, dollars invested, and amount of option pool expansion.


A feature of a convertible note of SAFE that reduces the price at which the note or SAFE converts into the next round of equity. For example, a discount of 20% means that the note or SAFE converts at 80% of the price set by the next round (this assumes no valuation cap). This discount is used to compensate investors for the risk they take and is designed to induce investors to invest. See “Valuation Cap.”


An option that has a double trigger will accelerate its vesting to 100% if both (1) the company is acquired and (2) the employee is not retained for employment by the acquirer. See “Single Trigger.”


A round of financing in which the valuation of the startup decreases relative to the valuation in its prior round. So-called “Flat Rounds” are when the valuation stays basically the same. Both Down and Flat Rounds are typically viewed negatively by investors who are expecting to see strong, consistent growth quickly after investment.

DPI: Distributed to Paid-in

A fund performance measure equal to the cash distributed to Limited Partners by the Fund divided by the total amount of capital paid into the fund to date.


See “Bring Along Rights”


The remaining capital in a fund that is not yet invested in companies or consumed as fees or expenses. In a 10-year fund, the bulk of dry powder is often spent in the first 4–6 years, with the remainder held in reserves for potential follow-on investments. Industry data sources often report on the dry powder of the entire industry as a measure of future supply of venture capital dollars. Unfortunately, this is a term of war — when war was fought with muskets and cannon balls, the ability to wage war depended on your stockpiles of dry gunpowder.


The various intertwined stakeholders (investors, founders, accelerators, corporates, mentors, universities, etc.) in the startup economy in a specific geographic area.


Segment of the market that includes large companies of 1,000 or more employees. Enterprise customers tend to demand different sales and marketing approaches than the small and medium (SMB) segment.

ESOP: Employee Stock Option Pool

See “Option Pool”


An investment round that is done typically at the same terms as the last round, and often using the same round nomenclature (seed extension, series A extension, etc.). Extensions are usually a smaller amount of capital, designed to get the company to a point where it can raise the next round of capital more confidently.


An exit or exit event is a situation where a private company is sold (in whole or part) and if there are sufficient proceeds, proceeds are distributed to debt holders and equity holders. Types of exits include company sale, recapitalization, sale of shares following a lockup that follow and IPO, liquidation/asset sale, etc. See “Recapitalization”, “IPO”, “Liquidation.”

F&F: Friends and Family Round

See “Pre-Seed Round”


An investment round done at the same per share price as the last round. This can be because the company has made little progress, or if the company has grown revenue but the market revenue multiples have declined.


An investment into an existing portfolio company by investors who are already on the cap table. These can be seen as a good thing for investors when the firm is growing in that it can mitigate dilution. However, investors may deploy follow on capital intro struggling startups to keep them afloat, though only if the capital is deemed to have a strong chance of turning the fortunes around (i.e. not sending “good money after bad”).

FMV: Fair Market Value

Value of an investment based on GAAP rules articulated in topic 820 (previously FASB 157). These GAAP rules govern valuation of assets, including illiquid assets that are typical in a venture capital portfolio.


A general partner means either (1) a partner in a venture capital fund that is making investment decisions and has carried interest, or (2) the legal entity, usually a partnership, that governs investment decisions, vesting of carry, and adding/removing partners. The general partner entity is also what receives carried interest proceeds.


The percentage of revenue lost in a given time period due to customers canceling their contract or discontinuing service entirely. See “Net Churn Rate” and “Logo Churn Rate.”

GMV: Gross Merchandise Value

Total dollar value of items sold in a marketplace. Marketplace businesses report this number as a measure of economic activity flowing through the marketplace, but this number does not represent the revenue of the marketplace business. The revenue is GMV multiplied by the “take rate”.

IPO: Initial Public Offering

An initial public offering is a financing event where the shares of private company are traded on a public market for the first time. Usually in an IPO, the company sells new shares in exchange for cash. IPOs are often incorrectly considered an exit event — management and existing investors are usually subject to a lock up that prevents them from selling their shares for 6 months or longer, so liquidity is delayed. See “Lock Up.”


An institution that hosts and develops startup companies, providing them with office space, resources, advice and networking opportunities, often for indefinite periods of time. Often incubators generate their own startup ideas that they attempt to launch. Incubators can also have a team that provides shared services to all of the fledgling companies in the incubator. Incubators often own a much larger percentage of a company vs. accelerators. Some incubators are organized as non-profits.


The graphed value from a startup business over time, with time on the x-axis and value on the y-axis. Initially, investment is spent without earning a return and value dips negative. When revenue traction begins to be established, the curve turns upwards, hopefully dramatically. The best firms will then experience exponential growth that causes a chart to look like the shape of a hockey stick or the letter “J”.


The entity or individual that makes the largest investment in a given venture capital round. As the primary financier for the round, the lead investor determines the current valuation of the company. In later rounds, the lead investor may be the primary candidate to take a board seat, in governance terms afford that to the round’s investors.


A limited partner means either (1) an investor in a venture capital fund, or (2) the legal entity that is the “fund” and makes capital calls, holds investments, and gets direct returns from portfolio companies. The word “limited” is used because LPs have limited liability and limited control over investment decisions.


The process of selling remaining assets of the business and distributing any proceeds to debt and equity holders. Usually liquidations happen when a company is not successful as a business or in a process to sell the entire company.


Within a company, it refers to access to usable cash. Within a fund, it can refer to successful exits.


Preferred equity term that specifies a multiple of capital that the preferred equity holder would receive ahead of other series of equity in a liquidation. Liquidation preferences are expressed as a multiple of capital invested and are typically 1x. There are various ways these preferences can be structured, stacked, and eliminated– all subject to a negotiation between an investor and a company at the term sheet phase. The most common is straight preferred (also called non-participating preferred). Participating preferred with a cap and fully participating preferred are other choices. See “Straight Preferred,” and “Participating Preferred.”


Restricted period of time (usually 6–24 months) during which shareholders may not divest, sell, hypothecate their equity holdings in a company that has recently become public. This is usually to (a) retain key employees at a sensitive time, (b) prevent an oversupply of sellers when investment bankers are trying to carefully align supply and demand of IPO shares. Investors in startups are usually required to agree to lockups when they make their initial investments into companies.


Measures the number of customers, not revenue dollars, that cancel in a given period divided by the total number of customers. See “Gross Churn Rate” and “Net Churn Rate.”

LTM: Last Twelve Months

For younger startups, it may not be useful to report financial data or performance metrics for the prior calendar/reporting year. Strong growth rates mean that such data would be poor indicators for current investment decisions. Instead, many firms choose to share data for the 12 months directly preceding a current round.

LTV: Lifetime Value

A prediction of the net profit attributed to the entire future relationship with a customer; takes into account predicted churn, revenue and cost of service. Many companies mistakenly use revenue instead of net profit — mainly because in most software companies COGS is very low and Revenue and net profit are very close.


An investor which invests more than a certain threshold (measured by number of shares or dollars invested) is classified as a major investor in many deals. Certain rights, usually pro-rata rights and information rights (and sometimes shareholder voting rights) are afforded to major investors only.


A measure of a company’s marketing effectiveness.

  • CQR is current quarter revenue
  • PQR is prior quarter revenue
  • PQSM is prior quarter sales and marketing spend


A type of e-commerce website where product or service information is provided by multiple third parties and transactions are processed by the marketplace operator.


A markup happens when VC X invests in a portfolio company of VC Y at a higher price than the company’s last priced round. This allows VC Y to show that its current holdings have an unrealized gain in value, making the VC and its LPs happy. This gain is “on paper” and only until an investment is exited and converted into cash (or liquid stock) is the markup realized.

MAU: Monthly Active Users

Number of unique users interacting with a product over a given month. Used as a measure of user engagement with a product.


A business objective or goal. Often investors want to understand what milestones can be achieved with a round of capital in an effort to understand if a company’s narrative at that point will be compelling enough to raise the next round at a step up in valuation. In addition, bonuses and subsequent tranches of capital might be contingent on achievement of a milestone. Milestones were used in ancient times to mark distance along a road — so it makes sense as a term to use for progress.

MRR: Monthly Recurring Revenue

A measure of the predictable, recognized and recurring monthly revenue for a subscription business; excludes one-time and variable fees.

MVP: Minimum Viable Product

A version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.


Gross Churn Rate minus dollars of revenue lost due to downgrades plus revenue gained due to upgrades or expansions. See “Gross Churn Rate” and “Logo Churn Rate.”

NRR: Net Retention Rate

Measures the percentage of revenue retained from customers over a specific period. This includes upgrades/expansion and downgrades/cancelations.


Similar to a cumulative dividends, a non-cumulative dividend is a right of a share to a fixed amount or percentage of a share’s original par value. Unlike cumulative dividends, a non-cumulative dividend does not accrue and does not result in a future obligation to the shareholders if a dividend is not paid when due. See “Cumulative Dividend.”


A number of options on common stock that startups use to compensate select employees. These options are “reserved” in a “pool” at company formation or in conjunction with a financing to ease the process of granting options to employees. This is the primary tool that startups use to distribute equity ownership to employees as an incentive. This pool is often expanded during subsequent financings (at the urging of the VC). Options granted from the pool typical vest (See also “Vesting”).


Pari Passu in venture capital settings usually refers to payments being made to two or more groups of investors at the same time or seniority and in the same manner. Most often used to refer to liquidation preferences being equal and paid in parallel and not serial or senior/junior to one another. In Latin, the term means “Equal Footing”.


An economic feature of preferred stock which directs the proceeds from a sale or liquidation to first pay the liquidation preference amount and the preferred shareholder’s percentage of remaining proceeds to the preferred stock holder. This is also called a “double-dip” because investors are (a) getting their money back (downside protection) and (b) a percent of remaining proceeds (upside). Single-dip is straight preferred, where investors have to choose between (a) or (b) above. (see “Liquidation Preference” and “Straight Preferred”).


A provision in a term sheet or a company’s legal documents that requires existing investors invest in subsequent rounds to avoid consequences. Those consequences include preferred stock converting to common (and thus losing the preferred rights and economics), a reverse stock split which would reduce ownership percentages (called a “Cram Down” or the nicer, “pull-through”), or other penalties. A pay-to-play provision is designed to induce investment when a company is not faring well, preventing free-riding by a subset of the investors.


A class of stock with rights and economics that are superior to common stock. Typically, investors own preferred stock and founders/management owns common stock (or options on common stock). The main economic advantage of a preferred stock is the liquidation preference. The main control advantage of preferred stock are protective provisions (veto rights on various corporate actions taken by the board of directors).


Equity value of a company before cash is invested.

PMF: Product-Market Fit

Proof that a target market is interested in a product being sold, usually evidenced by revenue from customers.


A right of a security that affords the holder the right to invest additional capital in future rounds of financing (i.e. invest more as a follow-on). The dollar amount of this right is often what would maintain the current security holder’s ownership stake. That said, the pro-rata amount to which an investor is entitled can be calculated lots of different ways, and it’s best to read the legal language to see how the number of shares is calculated. While these rights can prevent dilution of the investor, some investors ultimately waive their rights if they lack capital funds (see “Dry Powder”) for an investment at that time or to make room for a prestigious investor that requires a large allocation. See “Pro-rata”


A portion to which a shareholder is entitled when dividing something up, whether it’s proceeds in a sale, pre-emptive rights (see “Preemptive Rights”), or voting power. In Latin, it translates to “by rate.” At a high level, it’s calculated by taking the number of shares a shareholder owns and dividing it by a total number of shares. What’s included in the denominator is defined in legal documents and can vary.


Equity value of a company after cash is invested. Pre-money + investment amount = post-money. In other words, founder contributes company worth its pre-money and investor contributes cash, and together they form the “new” company that is valued at the post-money.


See “Pay-to-Play”

Q-o-Q: Quarter-over-Quarter

Growth, expressed as a percent, measured from one quarter to the next.


see anti-dilution protection.


The process by which a company’s capital stack (mixture of debt and equity) is restructured by buying out portions of securities, replacing securities with new ones, or renegotiating terms of securities. Typically executed as a new financing, recapitalization is often seen in larger private equity deals (ex. LBOs) but can also occur in earlier startups, especially if earlier investors need liquidity and are willing to sell their stake in a company or if a company has such a large capital stack that (a) management has little incentive or (b) the company can’t raise financing. Other times, a debt holder might be bought out to reduce the debt servicing expense.


Capital in a fund that’s available for existing portfolio companies (follow-on investments), and is also set aside for projected fees and expenses.


Instead of a typical close where all investment happens at once on a single day, a rolling close accepts investments over time and at different times. It is typical for SAFE investments to be accepted in a rolling close.


Annualized revenue, often a recent month * 12 or a quarter * 4. This is a more useful measure than TTM revenue for companies that are growing rapidly, but assumes the company’s fortunes remain constant and that all revenue is recurring.

RVPI: Residual Value to Paid In

A fund performance measure equal to the total fair market value of investments in a portfolio which have not yet exited divided by the total amount of capital paid into the fund to date.

SAAS: Software-as-a-Service

A software licensing and delivery model in which software is licensed on a subscription basis and is hosted remotely in the cloud (as opposed to installed on customer’s premises).

SAFE: Simple Agreement for Future Equity

An alternative to Convertible Notes for seed or bridge rounds. An investor makes a cash investment in a company, but gets company stock at a later date, in connection with a specific event. Unlike a convertible note, it is not a debt instrument and therefore has no maturity date or accrual of interest.

SDR: Sales Development Representative

A sales representative that communicates via phone and email (i.e., an “inside” rep versus meeting face-to-face in the field as an outside rep would) who solely focuses on outbound prospecting of customers, often setting up appointments for outside sales representatives.


Transactions where one investor buys out the ownership position of another equity holder. Typically this is a venture or private equity fund, including some that specialize in secondaries, that will purchase equity from existing investors in a startup prior to an exit or traditional liquidity event. This might include sales by earlier VCs who need to return capital to their LPs or employees of a startup who want to cash out on some of the value the startup created. Secondary Investors are typically passive financial investors only.


A dividend payment based only on a fixed percentage of the original per share price. Additionally, please note that the start/commencement date upon which to calculate dividends is based on when cash is received by the company and not on the close date of the round. See “Compounding Dividend.”


An option that has a single trigger will accelerate its vesting to 100% if the company is acquired.


An economic feature of preferred stock which directs the proceeds from a sale or liquidation to either (a) pay the liquidation preference amount or (b) the preferred shareholder’s percentage of remaining proceeds to the preferred stock holder, but not both. This is also called “non-participating preferred” or “single-dip.” (see “Liquidation Preference” and “Participating Preferred”).


An investor in a round that has strategic value to the company in which it is investing. These often are corporate investors that can assist the company in some way. Examples include introduction to customers, integration with the strategic’s products or sales teams, preferential pricing, etc.


Options are issued with a strike price, which is the price one must pay (it can be per share or total for the entire option grant) to exercise the option and buy the shares. It’s a way for an option to entitle the holder to get the equity upside from a certain point (the strike price and greater). Often in acquisitions, options holders are simply paid the difference between the purchase price of the company per share and the strike price per share.

SPAC: Special Purpose Acquistion Vehicle

A SPAC is an entity that raises capital for the purposes of searching for a company to purchase (and sometimes operate). They are sometimes called “shell companies” because the company is capitalized but it has no operations. SPACs are usually public companies. Companies bought by a SPAC become public without having to go through an IPO process. SPACs usually feature a team that searches and vets companies, and sometimes that team intends to operate the company once acquired.


The earliest round of investment, which typically ranges from $250K to $2M and is generally used to build a proof of concept before the company has a repeatable sales process; sometimes called an “angel round” or “friends and family” round.


A round of investment, which typically ranges from $250K to $5M and is generally used to start or continue building a product and to obtain initial customers.


Round that is between a Seed and Series A round.


A company’s first significant round of professional venture capital financing, which typically ranges from $3M to $30M and generally follows a seed round. Companies in this stage typically have an initial product built and meaningful revenue (in the $1M+ ARR range), and use the capital for marketing, sales, and product development. Series A financing is commonly offered in the form of preferred stock and less likely to be structured using convertible notes.


A company’s second significant round of financing, which typically ranges from $8M to $100M and follows a Series A round. Companies raising a Series B round have demonstrated repeatable sales processes and have improving performance metrics; sometimes called a “growth” round.


Investment vehicles or funds that are created with the purpose to invest in parallel with other funds or vehicles. For example, a fund might make an investment in a company out of its fund, with an additional amount from a sidecar pool of capital raised from founders in its network.

SMB: Small and Medium Business

Segment of the market that includes small businesses (fewer than 100 employees) and medium-sized businesses (100–999 employees); larger businesses are considered the enterprise segment.

SPV/ SPE: Special Purpose Vehicle / Special Purpose Entity

A legally distinct entity created to isolate risk when investing in a deal. SPVs usually make a single investment in one company. Typically used by non-fund investors such as angel groups, an SPV is similar to a fund’s LLC in that it allows investors to put capital into a startup without exposing the remainder of an investor’s assets to the operational and legal risks of a startup. Also used by funds when a fund is out of money, and a firm raises money from LPs for an investment in a single portfolio company.


A studio (or Venture Studio) is an organization that generates business ideas within and then assembles management teams to lead the companies with the most promise. Studios have a shared resource pool to help the companies with product, engineering, finance, sales, etc. Studios often have a pool of capital to invest in the companies as well. The goal of a studio is to spin companies out and get them financed externally, retaining a high ownership position since the studio is considered the founder. This is similar to accelerators in the way that both help with shared resources at early stages, but differs since accelerators do not generate the ideas, management teams are already in place, and therefore the ownership position for accelerators is much less.


A self-organizing group of investors formed to participate in a round of financing for the purpose of sharing the cost and risk associated with the transaction. Often Angel Groups may manifest as a syndicate when one individual investor is unable to supply sufficient capital to cover a round of financing.


Percentage of GMV that a marketplace business retains as revenue.


A brief document used to negotiate key elements of an investment between investors and entrepreneurs. While not a legally binding contract, the term sheet summarizes in brief, clear language what the terms and conditions will be. Once a term sheet is signed, lawyers translate this summary into lengthy legal documents that constitute the financing and that are more detailed and legally binding.


A tranche refers to investments that is done in parts, usually conditioned a company achieving an objective (also called a milestone) or passage of time. For example, a $10M financing might be in two tranches: a $6M investment at close, and $4M when the company reaches $3M in revenue. In French, tranche means “slice.”

TTM: Trailing Twelve Months

A period used for a particular financial metric (for example, revenue) that includes the last twelve months of operations.

TVPI: Total Value to Paid-In

A fund performance measure equal to the current value of remaining investments within a fund, plus the total value of all distributions to date, divided by the total amount of capital paid into the fund to date; also equal to DPI + RVPI.


A company with a valuation at or exceeding $1B. See “Decacorn.”


Unit economics are the direct revenues and costs associated with a particular business model expressed on a per unit basis. For instance: in a consumer internet company, the unit is a user. This analysis verifies the underlying fundamental economics work before considering overhead and infrastructure of the business.

UI/UX: User Interface / User Experience

Terms used to describe the aesthetics, ease of use, and behavior of software. UI/UX is often used to refer to the efficiency of software in encouraging users to take a specific action.


The assessed enterprise value of a startup, inclusive of its tangible and intangible assets. During a fundraise, the valuation determines what percentage ownership of a company an investor is able to buy with a given check size and how much dilution existing investors will suffer. At exit, the terminal valuation defines the value of that investor’s ownership and, thus, their eventual return.


Used with convertible notes and SAFEs, a valuation cap sets a maximum valuation at which the note or SAFE would convert into the next round of equity. While many people presume a valuation cap to be equivalent to a valuation, it is not. If the equity round is done at a lower price than the cap, the conversion occurs at that lower price (this assumes no discounts to the price). Valuation cap can be either pre-money or post-money, and to determine that, look to see what shares are included in the denominator in the legal. See “Discount” and “Pre-Money Valuation” and “Post-Money Valuation.”


Allows a grant of equity or options to be made at a point in time, but ownership of those securities happens gradually over time or on an achievement. This incentivizes top talent to stay with a company or fund and increase equity value. A vesting schedule lays out the time it takes for ownership to accrue. If an employee leaves an organization before they are fully vested, they typically retain ownership of vested securities and forfeit unvested ones.


An option that is typically issued to an investor or service provider or partner outside of an option pool. This is done because option pool grants tend to be relatively uniform and granted to employees, while warrants are usually highly customized — they can feature strike prices unrelated to the company’s current value or can require milestones to be achieved by a partner to be exercisable. Warrants can be used to provide an investor a lower effective valuation while keeping the headline valuation higher.



Jason is a venture capitalist, business school professor and former software engineer. Jason is a Partner at Origin Ventures and he has been in the venture business since 2001. He also teaches the venture capital and private equity lab class at Chicago Booth.

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Jason Heltzer

Dad, venture capitalist at @OriginVentures, @chicagobooth professor, Chicagoan. I was a nerd before it was cool to be a nerd.