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Venture Capital Glossary
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Term Sheet
A non-binding agreement setting forth the basic terms and conditions under which an investment will be made.
Series A
The first significant round of business financing for a company's growth that precedes the seed stage.
Exit Strategy
A VC's plan for liquidating their investment in a company to realize a profit.
IPO
Initial Public Offering, when a company's shares are offered to the public on a stock exchange for the first time.
Burn Rate
The rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow.
Convertible Note
A form of short-term debt that converts into equity, typically in conjunction with a future financing round.
Preferred Stock
A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock.
Equity Financing
The process of raising capital through the sale of shares in a company.
Due Diligence
The process of investigation and evaluation, performed by investors, into the details of a potential investment.
Carried Interest
A share of the profits of an investment paid to the investment manager in excess of the amount that the manager contributes to the partnership.
Down Round
A round of financing where investors purchase stock of a company at a lower valuation than the valuation placed upon the company by earlier investors.
General Partner (GP)
An owner of a partnership who has unlimited liability and is usually involved in the day-to-day management of the business.
Limited Partner (LP)
An investor in a venture capital fund who is not involved in day-to-day operations and whose losses are limited to the amount of their investment.
Mezzanine Financing
A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.
Portfolio Company
A company or entity in which a venture capital firm or private equity firm invests.
Liquidity Event
An event that allows initial investors in a company to cash out some or all of their ownership shares.
Accredited Investor
An individual or entity that is allowed to deal in securities that may not be registered with financial authorities.
Angel Investor
A wealthy individual who provides funding for a start-up, often in exchange for convertible debt or ownership equity.
Cap Table
A table providing an analysis of the founders' and investors' ownership percentages, equity dilution, and value of equity in each round of investment.
Deal Flow
The rate at which investment offers are presented to funding institutions.
Drag-Along Right
A clause in an agreement that enables a majority shareholder to force a minority shareholder to join in the sale of a company.
Dry Powder
Capital reserves set aside for future investment opportunities or to cover unforeseen expenses without raising external funds.
Evergreen Fund
An investment fund that continually reinvests the money that it makes from its underlying investments, instead of returning profits to investors.
Hurdle Rate
The minimum annual rate of return that must be achieved before the fund managers can claim carried interest.
Lead Investor
The entity or individual that organizes a round of financing and usually contributes the largest amount of capital to the deal.
Non-Disclosure Agreement (NDA)
A legally binding contract establishing a confidential relationship and stipulating that any information shared will not be made available to any others.
PIPE
Private Investment in Public Equity, a form of investment in which private investors buy publicly traded stock at a discount to the current market value per share.
Pro-rata Rights
The rights that allow investors to maintain their percentage ownership in subsequent financing rounds.
Sandwich Round
A financing round that takes place between two larger, significant rounds of investment, often to provide a smaller amount of capital to continue operations until the next major financing event.
Valuation Cap
The maximum valuation at which convertible securities can convert into equity in a future financing round.
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