VC Glossary

Frequently used venture capital terms during various funding stages.

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A
Accredited Investor
An individual or entity meeting certain income/net worth thresholds to invest in private offerings.
Acqui-hire
The acquisition of a company primarily for its talent rather than its products or services.
Allocation
The distribution of investment funds among various assets or securities.
Alternative Investments
Investments beyond traditional asset classes like stocks and bonds (e.g., real estate, commodities).
Angel Investor
A high-net-worth individual who provides financial backing to startups in exchange for equity.
Accelerator
Programs providing mentorship and resources to startups for rapid growth and development.
Accounts Receivable Turnover
A ratio indicating a company’s efficiency in collecting outstanding receivables during a period.
Accretion
The gradual increase in value or size over time.
Acquisition Premium
The excess paid over the fair market value of acquired assets in an acquisition.
Antidilution
Protections for existing shareholders to prevent the decrease in their ownership stake.
Arm’s Length Transaction
A transaction between unrelated parties, typically without conflicts of interest.
Asset Deal
An acquisition in which only specific assets and liabilities of a company are bought or sold.
Assets Under Management
Total value of assets managed by a financial institution or individual.
B
Burn Rate
The rate at which a company spends its capital over a specific period.
BATNA
Best Alternative to a Negotiated Agreement – a negotiator’s alternative if negotiations fail.
Bear Hug
An unsolicited takeover offer made directly to a target company’s shareholders.
Blind Pool
A pool of money or assets with undisclosed specifics or investments.
Board Of Directors
Individuals elected to oversee a company’s management and make major corporate decisions.
Bootstrapped
Building a business without external funding, relying on personal finances or revenues.
Bridge Loan
Short-term financing used until a company secures permanent funding or removes an obligation.
Business Model Canvas
A visual tool representing a company’s business model, outlining key elements and strategies.
C
Cap Table
A table showing the company’s equity ownership, detailing shareholders and their holdings.
Carry
The share of profits that fund managers receive in successful investment funds.
Cap Rate Formula
Capitalization rate formula used in real estate to estimate property value based on income.
Capex
Capital expenditure – money spent by a company to acquire or upgrade physical assets.
Capital Efficiency
Measures how effectively a company utilizes its capital to generate revenue.
CAPM
Capital Asset Pricing Model – a formula used to calculate the expected return on an investment.
Cash Position
The amount of cash and cash equivalents a company holds at a specific point in time.
Common Stock
The basic form of ownership in a company, typically representing voting rights and dividends.
Competitive Positioning
How a company distinguishes its products or services from competitors in the market.
Confidence Interval Excel Function
Excel function used to calculate the range within which a true value is likely to fall.
Confidential Information Memorandum
Document providing detailed information about a company for potential investors or buyers.
Consumer Surplus Formula
Calculation representing the difference between what consumers are willing to pay and what they pay.
Contract Of Adhesion
A contract where terms are set by one party, typically with unequal bargaining power.
Convertible Debt
Debt that can be converted into equity or stock at a predetermined conversion rate.
Convertible Stock
Preferred stock with an option to be converted into a predetermined number of common shares.
Correlation Formula
Statistical measure indicating the relationship between two variables.
Cost Of Equity Formula
Calculation to determine the expected return a company must offer to persuade investors to hold its stock.
Cost Of Goods Manufactured Formula
Formula calculating the total cost of goods produced during a specific period.
Covariance Formula
Statistical measure indicating how two random variables change together.
Crossover Investors
Investors who participate in different types of funding rounds (e.g., from private to public markets).
D
Death Valley Curve
A graphical representation of the startup lifecycle depicting the initial struggle before growth.
Decacorn
A private company valued at over $10 billion.
Dilution
Reduction in the ownership percentage of existing shareholders due to the issuance of new shares.
Diversification
Spreading investments across various assets to mitigate risk.
Down Round
A funding round where a company’s valuation decreases from the previous round.
Dry Powder
Uninvested capital held by an investment firm ready for deployment.
Due Diligence
The investigation and analysis conducted before entering into an agreement or transaction.
Data Room Banking
Secure virtual data storage used during due diligence in financial transactions.
Deal Flow
The rate at which investment opportunities come to a financial investor or firm.
Debt Financing
Raising capital by borrowing funds, typically through loans or bonds.
Debt Service Coverage Ratio
A financial ratio measuring a company’s ability to cover its debt payments.
Debt To Asset Ratio
A financial ratio indicating the proportion of a company’s assets financed by debt.
Debt To Equity Ratio
A financial ratio measuring the relationship between a company’s debt and shareholders’ equity.
Depreciation Methods
Various techniques to allocate the cost of an asset over its useful life for accounting purposes.
Discount For Lack Of Control
Reduction in the value of an ownership interest due to a lack of controlling interest.
Discount For Lack Of Marketability
Reduction in the value of an asset due to its inability to be quickly converted to cash.
Discounted Cash Flow
A valuation method estimating the value of an investment based on its future cash flows.
Divestiture
The sale or disposal of a company’s assets, subsidiaries, or divisions.
Double Declining Balance
An accelerated method of depreciation that applies a fixed percentage to the declining book value.
Drag-Along Rights
Rights allowing majority shareholders to force minority shareholders to join in a sale of the company.
E
Exits
Events where investors can realize their investments (e.g., IPOs, acquisitions).
Ear Formula
A formula used to calculate the equivalent annual rate (EAR) of interest on an investment.
Earnings Per Share Formula
Calculation dividing a company’s net income by its total outstanding shares.
EBITDA
Earnings before interest, taxes, depreciation, and amortization – a measure of a company’s profitability.
Economies Of Scale
Cost advantages resulting from increased production or output.
Economies Of Scope
Cost advantages achieved by producing a variety of goods or services using the same resources.
Engagement Letter
A formal agreement outlining the terms and scope of services between a client and a professional firm.
Entrepreneur In Residence
An individual working within a venture capital firm or startup to offer expertise and guidance.
Environmental Assessment
Evaluation determining the potential environmental impact of a project, plan, or development.
Environmental Scan
Analysis examining external factors affecting a business, including economic, social, and regulatory trends.
Equity
Ownership interest in a company’s assets after liabilities are deducted.
F
Financial Ratios
Metrics used to evaluate a company’s financial performance, liquidity, and solvency.
Financing Contingency
A condition in a contract specifying that a transaction is dependent on securing financing.
First-Mover Advantage
Competitive edge gained by being the first to enter a market or industry.
Forward Integration
A strategy involving a company expanding its operations into downstream activities.
Friendly Takeover
Acquisition where the target company’s management supports the acquisition.
Full Ratchet
Anti-dilution provision ensuring convertible preferred stockholders receive the most favorable conversion ratio.
Fully Diluted Shares Outstanding
The total number of a company’s common shares if all convertible securities were exercised.
Fund Of Funds
An investment strategy involving investing in other investment funds rather than individual securities.
G
General Partner
An individual responsible for managing a partnership and making investment decisions.
Godfather Offer
An offer made to a target company’s management that cannot be refused.
Greenmail
A tactic where a company repurchases its stock from a potential acquirer at a premium to avoid a takeover.
Greenshoe Option
An over-allotment option allowing the sale of additional shares beyond the original offering.
Gross Margin Ratio
A financial metric indicating the percentage of revenue that exceeds the cost of goods sold.
Growth Equity
Investment in established companies aiming for expansion and growth.
H
Horizontal Integration
Merging or acquiring companies within the same industry or at the same stage of production.
Horizontal Mergers
Consolidation of companies operating in the same industry or producing similar products.
Hostile Takeover
Acquisition attempted against the wishes of a target company’s management and board.
I
Identifiable Assets
Assets with a specific value that can be separately identified and measured.
Incubator
A program providing resources and support to startups in their early stages of development.
Indication Of Interest
A non-binding offer or statement indicating a party’s willingness to engage in a transaction.
Infinite Banking
A financial strategy utilizing whole life insurance policies for banking purposes.
Insurance Market
The marketplace where insurers offer various insurance policies to individuals and businesses.
Internal Rate Of Return
The discount rate making the net present value of an investment zero.
Intrinsic Value
The calculated or estimated inherent value of an asset, often used in options trading.
Inventory Turnover Ratio
A financial metric indicating how many times a company sells and replaces its inventory in a period.
J
Joint Venture
A business arrangement where two or more parties collaborate for a specific purpose or project.
K
K-1
A tax document distributed to partners in a partnership, detailing their share of income, deductions, and credits.
Key Man Clause
A provision in a contract or insurance policy identifying a crucial individual whose absence may affect the agreement.
L
Lead Investor
The investor who takes the primary responsibility in a funding round or investment.
Limited Partner
An investor in a partnership who is not involved in its day-to-day operations.
Liquidation
The process of selling off a company’s assets to pay creditors or distribute to shareholders.
Lock-up period
A timeframe after an IPO or other event during which certain shareholders cannot sell their shares.
Leverage Ratio Formula
A financial metric indicating the degree of a company’s debt relative to its equity capital.
Leveraged Buyout
Acquisition of a company using a significant amount of borrowed funds.
Liquidation Preference
A right giving preferred shareholders priority in receiving proceeds in case of liquidation.
Liquidity Event
An occurrence leading to the conversion of an investment into cash or cash equivalents.
M
MOIC
Multiple on Invested Capital – a metric indicating the return on investment in multiples.
MVP
Minimal Viable Product – the most basic version of a product with enough features to satisfy early customers.
Mergers & Acquisitions
Processes involving the combination or purchase of companies.
Margin Of Safety Formula
A calculation determining the difference between actual or expected returns and the break-even point.
Marginal Revenue Formula
A calculation indicating the change in total revenue when the quantity of goods sold changes by one unit.
Market Positioning
Strategies and actions undertaken to influence consumer perception of a brand or product.
Market To Book Ratio
A financial ratio comparing a company’s market value to its book value.
Master Limited Partnership
A business structure combining the tax benefits of a partnership with the liquidity of publicly traded securities.
Mezzanine Debt
Intermediate financing using a combination of debt and equity, often used in acquisitions or expansions.
Mezzanine Financing
Financing employing subordinated debt or preferred equity for companies.
MOU
Memorandum of Understanding – a preliminary agreement outlining the terms of a future deal or relationship.
N
Net Book Value Of Assets
The value of assets on a company’s balance sheet after depreciation, amortization, and impairment.
Net Operating Income Formula
Calculation representing a company’s operating income after subtracting operating expenses.
Nominal Data
Data representing categories or names without a quantitative value.
Novation Contract
A legal agreement transferring rights and obligations from one party to another.
NPV Formula In Excel
Excel formula calculating the net present value of an investment or project.
O
Offering Memorandum
A document presenting information about a company to potential investors during a private offering.
Operating Cash Flow Formula
Calculation measuring a company’s cash generated from its operations.
Operating Profit Margin
A financial metric indicating a company’s profitability from its core operations.
Organizational Design
The structure and arrangement of roles, responsibilities, and processes within an organization.
P
Pivot
A strategic change in a company’s direction or product offering.
Portfolio Company
A company in which an investment firm holds equity.
Post-Money Valuation
The estimated value of a company after a financing round.
Pre-Money Valuation
The estimated value of a company before a financing round.
Private Equity
Investments made into private companies not listed on public stock exchanges.
Pro-Rata Rights
Investors’ rights allowing them to maintain their proportional ownership in future rounds.
Product–Market Fit
The alignment between a product/service and its target market’s needs.
PaaS
Platform as a Service – a cloud computing service providing a platform for software development.
Pac Man Defense
A strategy where a target company attempts to take over its would-be acquirer.
Participating Preferred Stock
Preferred stock granting additional dividends beyond a specified rate if certain conditions are met.
Pay-To-Play
A provision requiring further investment to maintain existing rights or privileges.
Preferred Stock
A type of stock granting priority over common stock in dividends and distribution of assets.
Present Value Formula
Formula calculating the current value of future cash flows discounted at a specific rate.
Profit Margin Formula
Calculation indicating the percentage of profit generated from total revenue.
Purchase Price Allocation
The process of assigning a portion of a purchase price to the acquired company’s tangible and intangible assets.
Q
Quality Of Earnings Report
An analysis evaluating the sustainability and reliability of a company’s earnings.
R
ROI
Return on Investment – a measure of the gain or loss generated relative to the initial investment.
Roadshow
Presentations made by a company to potential investors before a public offering.
Run Rate
Extrapolating current financial performance to estimate future performance over a specific period.
Runway
The time a company has until it exhausts its available capital.
Rate Of Return Formula
Calculation determining the gain or loss on an investment relative to its initial cost.
Recapitalization
A restructuring strategy altering a company’s capital structure through debt and equity adjustments.
Restrictive Covenant
Conditions or limitations imposed in agreements to restrict certain actions by one party.
Restructuring Charges
Costs incurred during the process of reorganizing a company’s operations or financial structure.
Retained Earnings Formula
Calculation representing the accumulated profits retained by a company after dividends.
Return On Assets Formula
Calculation measuring a company’s efficiency in generating profits from its assets.
ROE
Return on Equity – Calculation indicating the profitability of shareholders’ investments.
ROI
Return on Investment – Calculation assessing the profitability of an investment relative to its cost.
S
SAFE
Simple Agreement for Future Equity – an investment contract used in early-stage fundraising.
SPAC
Special Purpose Acquisition Company – a shell company formed to take another company public.
Scalability
A business’s ability to handle growing workloads or expand without a significant increase in costs.
Seed Series
Early-stage funding provided to help a company develop a product or service.
Series A
The first significant round of financing for a startup from venture capitalists.
Series B
The second round of financing for a startup to further develop and grow.
SaaS
Software as a Service – providing software applications through the internet on a subscription basis.
Sale And Purchase Agreements
Legal contracts outlining the terms and conditions of buying or selling assets or a business.
Sandbagging
Withholding certain information or actions to protect one’s interests during a negotiation or deal.
Scorched Earth Policy
A defensive strategy by a target company to deter a hostile takeover by making itself less attractive.
Secondary Offering
The sale of additional shares by a public company after its initial public offering (IPO).
Sensitivity Analysis
Examination of how different values of an independent variable affect a dependent variable.
Shares Outstanding
Total number of a company’s shares held by shareholders, including restricted and publicly traded shares.
Solow Growth Model
An economic model depicting long-term economic growth influenced by technological progress and productivity.
Standard Deviation Formula
Calculation measuring the amount of variation or dispersion of a set of values.
Statement Of Cash Flows
A financial statement showing a company’s cash inflows and outflows over a specific period.
Stockholders Equity Equation
Calculation determining the difference between a company’s assets and liabilities.
Straight Line Depreciation Formula
Method allocating an asset’s cost evenly over its useful life for depreciation.
Strategy Map
A visual representation illustrating a company’s strategy and objectives.
Subsidiary
A company owned or controlled by another company, known as the parent or holding company.
SWOT Analysis
A strategic planning tool evaluating a company’s strengths, weaknesses, opportunities, and threats.
Synergies
Benefits or advantages resulting from the combination of companies or elements.
T
Term Sheet
An outline of the key terms and conditions of a proposed investment.
TAM
Total Addressable Market – the entire potential market demand for a product or service.
Tender Offer
A public solicitation to buy shares of a company at a specified price for a limited period.
Terminal Value Formula
A method used to estimate the value of an investment at a future date beyond a forecasted period.
Times Interest Earned Ratio
A financial metric measuring a company’s ability to meet its interest payments on outstanding debt.
Total Annual Income
The sum of income earned within a year, including various revenue sources.
Treasury Stock
Company-owned stock that was once outstanding and has since been repurchased by the issuing company.
Types Of Synergies
Various advantages gained from the combination of companies or resources in a merger or acquisition.
U
Unicorn
A privately held startup valued at over $1 billion.
Up Round
A funding round where a company’s valuation increases from the previous round.
Unilateral Contract
A legally binding agreement where one party makes an obligation or promise to another party.
Use Of Proceeds
Explanation detailing how funds from a financial transaction will be utilized.
V
Valuation
The process of determining the economic value of a company.
Valuation Methods
Different approaches or techniques used to determine the value of an asset, company, or investment.
Venture Capitalist
An individual or firm providing capital to startups or small businesses in exchange for equity.
Vertical Integration
Strategy where a company extends its operations by acquiring businesses along its supply chain.
Vesting
Gradual process where an individual earns the right to the full benefits of an asset or investment over time.
Voting Rights
The entitlement given to shareholders to exercise voting power in corporate decision-making.
Vulture Fund
An investment fund specializing in distressed securities or companies with high potential returns.
VWAP
Volume Weighted Average Price – a benchmark used by traders to assess market trends.
W
Write-Off
The accounting practice of declaring an asset as having no value.
Waterfall Chart
A visual representation of cumulative data where values are shown incrementally over time.
Weighted Average
A calculation accounting for the varying importance of different elements in a group.
Weighted Average Cost Of Capital
The average rate of return a company is expected to pay its investors and creditors for financing.
White Knight Defense
A strategy where a target company seeks a more favorable acquirer to thwart a hostile takeover.
Working Capital Formula
Calculation determining a company’s short-term liquidity by subtracting current liabilities from current assets.
Z
Zombie Fund
An investment fund that has exceeded its expected lifespan but continues to exist with remaining investments that are difficult to liquidate or wind down.