| **Accredited

Investor** 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. Typically, angel investors need to be accredited investors.
Allocation Refers to the amount a given person or fund is able to invest in a given company.
Angel Investor A high net worth individual who funds typically early-stage start-ups often with their own money.
Bootstrapping Strategy to grow a company with personal finances or the operating revenues rather than raising capital from investors. Bootstrapping allows the entrepreneur to maintain control over all decisions and limits ownership dilution; however, limited funds may slow down the rate of progress against key value milestones or make them unaffordable for the company.
Budget A financial plan that lists expected expenses and income during a particular period.
Burn Rate The rate at which a new company uses up its capital to finance all company operations (e.g. overhead, R&D, market research) before generating positive cash flow from operations.
Business-to-Business (B2B) A commerce model between businesses, such as one involving a manufacturer and wholesaler, or a wholesaler and a retailer.
Business-to-Consumer (B2C) A commerce model where products move directly from a business to the end user who has purchased the goods.
Cap Table A document, like a spreadsheet or table, that details who has ownership in a company. It lists all the securities or shares in a company including stock, convertible notes, warrants, and equity grants.
**Chief Executive
Officer (CEO)** The Chief Executive Officer or CEO is responsible for the overall success of the business, including the vision, mission, direction and overall strategy. The CEO answers to the Board of Directors (BoD), a group of individuals who are elected by the company’s shareholders to look after their interests.
Common Stock A type of equity security, contrasted with preferred stock; common stock is most frequently issued to founders, management, and employees. Common stock typically has fewer protections and rights compared to preferred stock. In a liquidation event, common stock
would generally also have lower priority (i.e. get paid out second) to preferred stock on claims of asset distribution.
Convertible Notes A convertible note is a way for early stage investors to invest in a startup that isn’t ready for a valuation. They start as short-term debt and when the company closes a new round of financing, they are converted into equity. As short-term debt, convertible notes have
an interest rate and maturity date. Ideally, investors loan this money as a convertible note and are repaid with equity in the company rather than the principal and interest. If not converted to shares, convertible notes take priority over equity shareholders in a liquidation event.
**Cost of Good Sold
(COGS)** The direct costs attributable to the production of the goods sold in a company. It appears on an income statement and typically includes money spent on raw materials and labor. A simple equation to understand the common use for COGs is Revenue - COGs = Gross
Margin.
Dilution The decrease in ownership percentage for existing shareholders when new shares are issued or reserved. Dilution occurs after material events, such as a fundraise or when an employee option pool is created. It is important to note that although a founder’s ownership percentage will decrease over time, the value of that percentage will ideally increase. The analogy is that founders have a “smaller slice” of a “bigger pizza”.
Due Diligence The process of appraising a company’s current state of affairs and its commercial potential. Due diligence for VCs means getting a deep understanding of the target company, its assets (technological or non-technological), its liabilities, and its management.
Elevator Pitch A concise ~30 second compelling introduction that can be communicated in the amount of time it takes someone to ride an elevator. It can serve you for fundraising purposes, personal introduction or landing a prospective client.
Equity Financing Equity financing is the process of raising capital through the sale of shares. Companies raise money because they have short or long-term goals and related expenses (e.g. salary, offices) that require funds to progress and grow the company. By selling shares, a company is effectively selling ownership in their company in return for cash.
**Exit Event or
Liquidity Event** When an issuer engages in a transaction that allows investors to sell their shares, which generally happens through a tender offer (sale) or an IPO.
**Fiduciary
Responsibility** Fiduciary duty is the requirement that certain professionals work in the best financial interest of their clients or shareholders - in the startup context typically applied to Board Members. When someone has a fiduciary duty to someone else, the person with the duty
must act in a way that will benefit that someone else financially. The person who has a fiduciary duty is called the fiduciary, and the person to whom the duty is owed is called the principal or the beneficiary.
Financial Capital The various routes through which startups or startup ideas are funded which can include funding such as Angel Investors, Corporate (Strategics), SBIRs - Small Business Innovation Research Grants, Customer funding (e.g. NRE, JDA, etc), and Grants.
Fully Diluted Ownership Fully diluted calculations are used to compare the percentage ownership of a company of different classes of securities (shares, convertible notes, options, warrants etc.) by reducing each class to its Common Stock equivalent. It roughly represents the entity’s ownership of the company in the case of a sale of the company at a high valuation. The capitalization is calculated assuming that all plans and obligations (whether outstanding or potential) to issue shares have been fulfilled.
Gross Margin The profit a company makes after accounting for the cost associated with producing their good or providing their service,(i.e. Cost of good sold, COGs). A simple equation to calculate Gross Margin is Gross Margin = Revenue - COGs. Gross margins helps assess a company’s efficiency in using raw materials and labor (i.e. COGs).
Human Capital The individuals involved in building a startup. These can include the founders that are expected to dedicate time to the company (in part-time or full-time capacity) as well as any other additional company hires.
Incubator Incubators aim to provide entrepreneurs with resources to refine and build their company from an idea stage. They heavily focused on regional economic development and funded through a combination of public sources and private grants. Incubators can be fee based and commonly offer technical facilities or physical space as part of their support.
Intellectual Capital The technical or scientific innovations that form the basis of the company’s activities. Intellectual capital can take many forms including patentable innovation or know-how.
Lead Investor An investor that initially sets the key terms of the capital raise, usually by issuing or signing a term sheet. They are the primary investor and negotiate the transaction documents to ensure they reflect the agreed terms. The terms that you negotiate with the lead investor
will apply to all the investors participating in the round. Usually, the lead investor has the highest share of the capital raised in the given round.
Liquidity Describes the ability to exchange an asset for cash. A liquidity event is an event that allows all private investors in a company to cash out some or all of their equity.
Management Fees A fund management fee is an annual fee paid by the fund (LPs) to the GP to compensate the GP for their work and to cover certain expenses related to operating the fund such as salaries, insurance, and travel. A management fee usually ranges from 2% to 2.5% of committed capital and is usually charged every year the fund is in operation.
Milestone Pre-agreed targets or events (e.g. technical or business metrics) that are crucial to increasing the value of the company from the perspective of an investor.
Net Profit The profit a company makes after accounting for COGs and all operating & non-operating expenses such as administrative expenses, taxes and interest. Net profit provides an overarching view of a company’s cash flow and health. The simple equation to calculate Net Profit = Revenue - (COGs + All other expenses).
Option Pool The amount of the company’s equity that is set aside to offer employees in combination with a salary in lieu of solely cash based compensation. This allows a startup company to hire highly talented employees at a reduced cash compensation. This maintains capital reserves that may be needed elsewhere and allows employees to benefit from the company’s success, aligning the incentives of employees and shareholders.
Post-Money Valuation The value of a company after an investment that includes the proceeds of the round. A simple calculation for this is: Post-Money = Pre-money + Investment. Post-money valuations are crucial when assessing the percentage of the company an investor acquires.

For example, a $5M investment on a $15M Pre-Money Valuation results in $20M Post-Money Valuation and acquisition of 25% of a company - $5 / $20 = 25%) | | Preferred Stock | A type of equity security, contrasted with common stock; preferred stock has characteristics that make it attractive to investors when considering investment in a startup. Preferred stock typically has greater protections and rights compared to preferred stock. In a liquidation event, preferred stock would generally also have higher priority (i.e. get paid out first) to common stock on claims of asset distribution. | | Pre-Money Valuation | The value of a company prior to receiving an investment. Investors set the pre-money valuation to reflect an acceptable return profile based on estimated future scenarios. The valuation includes a range of factors such as technological development and differentiation, remaining technical and market risk, total addressable market or strength of the team. | | Pro-rata Rights | A right that is given to an investor that allows them to maintain their initial level of ownership percentage during later financing rounds, by participating in those rounds at the valuation set by the lead investor). | | Simple Agreements for Future Equity (or SAFEs) | Simple agreements for future equity or SAFEs, are an investment format that is neither debt nor equity. Instead, they’re the contractual rights to future equity. These rights are in exchange for early capital contributions invested into the startup. SAFEs allow investors to convert their investments into equity during a priced round at some future point and generally offer slightly better terms compared to that round (such as being priced at a 20% discount). SAFEs may also be capped, setting the minimum amount of equity that the issuer will receive at a future round SAFEs are typically (but not exclusively) used in early stages of a company when setting a full valuation is not practical. | | Startup Accelerator | Accelerators provide resources for scaling up early stage startups, that may include funding, often in exchange for equity, infrastructure and mentorship. Accelerators typically have competitive application processes and are typically time limited with the goal of condensing several years of growth into a short period with various support structures (e.g. education, resources, and mentorship). | | Term Sheet | Also known as “letter of intent,” is a key document in a VC transaction. It is a non-binding offer that establishes and presents a statement of proposed terms and conditions for an investment. By signing the term sheet, the parties agree to work together towards a full financing round. | | Unicorn | A “Unicorn” refers to a startup company that achieves a valuation over $1 billion. | | Valley of Death | The period of time when work needed to advance the technology towards commercialization doesn’t generate scientific value but doesn’t immediately lead to a commercially viable product. Examples often include demonstrating a technology in a real-world setting or scaling up production from lab to a pilot scale. This period can be difficult for startups to raise funds as academic funding dwindles but there remains a significant technology risk for traditional venture investors or other financial institutions. |