Raising money comes with its own vocabulary, and investors tend to use it as if every founder already speaks it. This guide covers 50 fundraising terms and definitions in plain English, grouped in the order you are likely to meet them during a raise, from the first round you announce to the day the money lands in your account.
Each definition is short enough to read in under a minute, and several include a worked example so you can see how the numbers behave. Once the language feels familiar, you can use the Everything Startups New VC Funds Database to find funds that have recently raised capital and filter them by stage, sector, geography and check size.
Why Fundraising Terms Matter for Founders
The fundraising terms in a deal decide how much of the company you keep, who has a say in major decisions and what happens to your payout when the company is sold. A founder who understands the vocabulary can compare two offers properly, ask sharper questions in a partner meeting and spot the clauses that will matter three rounds from now.
The terms below are organized into eight groups: funding rounds, investor types, ownership and valuation, early-stage instruments, term sheet clauses, the fundraising process, the metrics investors ask about and closing.
Funding Rounds and Stages
1. Pre-Seed
Pre-seed is the first outside money a startup raises, usually before it has meaningful revenue. The capital pays for an early product, the first hires and the proof a seed investor will want to see later. According to Carta's State of Pre-Seed report, the average pre-seed instrument reached $276,000 in Q2 2026. If you are raising at this stage, our list of the best pre-seed funds with fresh capital is a good place to start.
2. Seed
A seed round comes once the company has a working product and early evidence that customers want it. Checks are larger than at pre-seed, and investors expect a clear plan for reaching customers and a credible path to a Series A. Our guide to the best seed funds for first-time founders covers firms that focus on this round.
3. Series A
Series A is typically the first large priced round, raised when a company can show that demand for its product is repeatable. It is usually led by an institutional venture firm that sets the valuation and often takes a board seat.
4. Series B
Series B funds the expansion of a business that is already working. Companies use it to grow the team, enter new markets and build out sales, and investors at this stage look closely at revenue growth and efficiency.
5. Bridge Round
A bridge round is a smaller raise between two larger rounds, usually from existing investors. It gives the company extra time to reach the milestones it needs for the next round, and it is often structured as a SAFE or convertible note.
6. Extension Round
An extension round reopens the previous round and adds more capital on the same or very similar terms. A seed extension, for example, lets a company raise more seed money without negotiating a new valuation for a Series A.
Types of Investors
7. Lead Investor
The lead investor negotiates the terms of the round with the founders, usually writes the largest check and often takes a board seat. Other investors in the round accept the price and terms the lead has agreed.
8. Follow-On Investor
A follow-on investor joins a round on the terms the lead has already set. The phrase is also used for an existing investor who puts more money into the company in a later round, which is called a follow-on investment.
9. Angel Investor
An angel investor is an individual who invests personal money in early-stage startups, often before any venture fund is involved. Angel checks are usually smaller than fund checks, and in the United States most angel rounds are sold under the SEC's exempt offering rules. For funds that write similarly sized first checks, see our list of micro VCs writing $100K to $500K checks.
10. Institutional Investor
An institutional investor is an organization that invests money professionally on behalf of others. Venture capital funds are the institutional investors founders meet most often, and those funds are in turn backed by pension funds, endowments and similar institutions.
11. Strategic Investor
A strategic investor is a company, or the venture arm of a company, that invests for business reasons as well as financial return. The relationship can bring distribution, partnerships or a possible acquirer, so it is worth checking whether the investment limits your ability to work with that company's competitors.
12. Family Office
A family office is a private firm that manages the wealth of one or several wealthy families. Family offices invest directly in startups and also back venture funds, and they tend to have more flexible timelines than a traditional fund.
13. Syndicate
A syndicate is a group of investors who pool their money into a single deal. One person usually finds the deal and negotiates it, and the group often invests through one legal vehicle so that it appears as a single line on your cap table.
Ownership and Valuation Terms
14. Cap Table
The cap table, short for capitalization table, is the record of who owns what in your company. It lists every shareholder along with their shares, options, SAFEs and convertible notes, and investors will ask for it early in any serious conversation.
15. Pre-Money Valuation
Pre-money valuation is the value of the company immediately before new investment comes in. It is the number founders and investors negotiate in a priced round.
16. Post-Money Valuation
Post-money valuation is the pre-money valuation plus the new investment. A company raising $2 million at an $8 million pre-money valuation has a $10 million post-money valuation, and the new investors own 20% of it.
17. Dilution
Dilution is the reduction in your ownership percentage that happens when the company issues new shares. In the example above, a founder who owned 60% before the round owns 48% after it, because every existing holder is diluted by 20%.
18. Ownership Percentage
Your ownership percentage is the number of shares you hold divided by the total number of shares in the company. Investors almost always calculate it on a fully diluted basis, which is explained in term 20.
19. Option Pool
The option pool is a block of shares set aside for future employees. Pools commonly sit between 10% and 20% of the company, and investors often ask for the pool to be created or enlarged before they invest, which means the dilution falls on the existing shareholders.
20. Fully Diluted Shares
Fully diluted shares are the total share count assuming every option, warrant and convertible instrument has turned into stock, including options that have not been granted yet. Price per share and ownership percentages in a priced round are calculated from this number.
SAFEs, Convertible Notes and Priced Rounds
21. SAFE
SAFE stands for Simple Agreement for Future Equity. The investor gives the company money today in exchange for the right to receive shares later, usually at the next priced round. A SAFE carries no interest and no maturity date, and Y Combinator publishes the standard SAFE documents for free.
22. Post-Money SAFE
A post-money SAFE has a valuation cap that already includes all the money raised on SAFEs. That makes the ownership you are selling easy to estimate, because it equals the investment divided by the cap. A $500,000 investment on a $10 million post-money cap converts to roughly 5% of the company.
23. Convertible Note
A convertible note is a short-term loan that converts into equity at a later round. It has an interest rate and a maturity date, and it usually includes a valuation cap, a discount or both.
24. Valuation Cap
A valuation cap is the highest valuation at which a SAFE or convertible note will convert into shares. If the next round is priced above the cap, the early investor converts at the cap and receives more shares for the same money.
25. Discount Rate
A discount rate gives SAFE or note holders a percentage off the share price paid by investors in the next round. Discounts usually fall between 15% and 25%, so an early investor with a 20% discount pays 80 cents for a share that new investors buy for a dollar.
26. MFN Clause
MFN stands for most favored nation. If the company later issues SAFEs or notes with better terms, an investor with an MFN clause can swap into those better terms. It appears most often on SAFEs that have no valuation cap.
27. Priced Round
In a priced round, investors buy shares at a set price per share based on a negotiated valuation. Ownership percentages are fixed at closing, and any outstanding SAFEs and convertible notes convert into shares at the same time.
Term Sheet Terms
28. Term Sheet
A term sheet is a short document that summarizes the main terms of an investment before the full legal agreements are drafted. Most of it is non-binding, although confidentiality and exclusivity clauses usually are binding. The NVCA model legal documents show what a standard term sheet looks like, and Decoding VC Speak explains what investors usually mean by the phrases they use in meetings.
29. Preferred Shares
Preferred shares are the class of stock investors receive in a priced round. They come with rights that common shares, held by founders and employees, do not have, including most of the terms in this section.
30. Liquidation Preference
A liquidation preference gives investors the right to get their money back before common shareholders receive anything when the company is sold or wound down. A 1x non-participating preference is the market standard, and it means the investor chooses between taking their investment back and converting to common shares to take their percentage of the proceeds.
31. Pro Rata Rights
Pro rata rights let an investor buy enough shares in future rounds to keep the same ownership percentage. An investor who owns 10% after the seed round can buy 10% of the Series A to avoid being diluted.
32. Participation Rights
Participation rights allow an investor to take their liquidation preference first and then also share in whatever is left alongside common shareholders. This structure is known as participating preferred, it is less founder-friendly than the non-participating standard, and it is sometimes limited by a cap on the total return.
33. Anti-Dilution Provisions
Anti-dilution provisions protect investors if the company later raises money at a lower price per share, which is called a down round. The provisions adjust the price at which the investors' preferred shares convert into common. Broad-based weighted average is the standard formula, and full ratchet is a much harsher version that founders should look out for.
34. Board Seat
A board seat is a position on the company's board of directors, which approves major decisions such as budgets, senior hires, new financing and a sale of the company. Lead investors commonly ask for one seat from Series A onward, and sometimes at seed.
35. Information Rights
Information rights entitle investors to regular updates on the business, usually quarterly and annual financial statements and the annual budget. They are often limited to investors above a certain ownership level.
36. Protective Provisions
Protective provisions are a list of actions the company cannot take without approval from its preferred shareholders. Typical items include selling the company, issuing a more senior class of shares, changing the charter and taking on significant debt.
37. Vesting
Vesting is the process of earning shares or options over time. The standard schedule runs for four years with a one-year cliff, so nothing vests during the first twelve months, a quarter vests on the first anniversary and the rest vests monthly after that.
38. Founder Vesting
Founder vesting applies the same idea to the founders' own shares. Investors usually require it so that a founder who leaves early does not walk away with a full stake, and founders who have already worked on the company for some time often negotiate credit for that time.
The Fundraising Process and Your Pitch
39. Data Room
A data room is a secure online folder that holds the documents investors review before they invest. It usually includes the cap table, incorporation documents, financials, key contracts, intellectual property assignments and the pitch materials.
40. Due Diligence
Due diligence is the process an investor uses to verify what you have told them. It covers customer and founder reference calls, financial and legal review and, for technical products, a closer look at the technology.
41. Investor Memo
An investor memo is a written document that makes the full case for an investment. Venture firms write memos internally before a partner vote, and many founders now write their own narrative memo to send alongside the pitch deck or in place of it.
42. Pitch Deck
A pitch deck is the slide presentation founders use to introduce the company to investors. It should cover the problem, the product, the market, early proof, the team and the amount being raised, and it works best when it stays under 15 slides. Our walkthrough on how to raise money from VCs as a startup founder covers the full process around it.
43. Traction
Traction is the evidence that customers want what you are building. Depending on the stage, it can mean revenue, user growth, retention, signed pilots, letters of intent or a waitlist.
Metrics Investors Ask About
44. Burn Rate
Burn rate is the amount of cash the company spends each month. Gross burn is total monthly spending, and net burn is spending minus the cash coming in from customers.
45. Runway
Runway is the number of months the company can operate before it runs out of cash, calculated by dividing the cash in the bank by the monthly net burn. A company with $1.2 million in the bank and $100,000 of net burn has 12 months of runway, and most founders aim to raise enough for 18 to 24 months.
46. ARR
ARR stands for annual recurring revenue. It is the yearly value of your subscription or contract revenue, usually calculated as monthly recurring revenue multiplied by 12, and it leaves out one-time fees such as setup or consulting work.
47. CAC
CAC stands for customer acquisition cost. It is the total sales and marketing spend in a period divided by the number of new customers won in that period.
48. LTV
LTV stands for lifetime value, the total gross profit you expect to earn from a customer over the whole relationship. Investors compare it with CAC, and an LTV that is at least three times CAC is a commonly used benchmark for a healthy business.
Closing the Round
49. Closing
Closing is the point at which the final documents are signed and the money is wired to the company. Rounds raised on SAFEs often close on a rolling basis as each investor signs, while priced rounds usually have a first close followed by one or more later closes.
50. Dry Powder
Dry powder is the capital a fund has raised from its own investors but has not yet invested. A fund with plenty of dry powder is actively looking for companies, which is why newly announced funds are the most useful place to begin your outreach. The New VC Funds Database tracks those funds every week.
How to Use These Fundraising Terms When You Raise
Knowing the vocabulary is most useful when you apply it before the first investor meeting. Three steps make the biggest difference.
- Model your dilution first. Decide how much you need to raise and how much of the company you are willing to sell, then work out the valuation or cap that follows from those two numbers.
- Prepare your materials. A clean cap table, a short pitch deck and a simple data room show investors that you understand the process and respect their time.
- Target investors with dry powder. Funds that have just closed have money available and a plan for how many companies they want to back. The Everything Startups New VC Funds Database lists newly announced funds with their stage focus, sector, geography, check size, investment thesis and contact details, and it is updated weekly.
This guide is general education, so ask a startup lawyer to review any term sheet or SAFE before you sign it.
Frequently Asked Questions About Fundraising Terms
What are the most important fundraising terms for first-time founders?
Start with the terms that affect ownership and control: pre-money and post-money valuation, dilution, option pool, valuation cap, liquidation preference, pro rata rights and vesting. These decide how much of the company you keep and what you receive in an exit.
What is the difference between pre-money and post-money valuation?
Pre-money valuation is what the company is worth before the new investment, and post-money valuation is the pre-money figure plus the new money. An $8 million pre-money valuation with a $2 million investment gives a $10 million post-money valuation.
What is the difference between a SAFE and a convertible note?
Both convert into equity at a later round. A convertible note is debt, so it carries an interest rate and a maturity date, while a SAFE has neither. SAFEs are now the more common choice for pre-seed and seed rounds in the United States.
How much dilution should founders expect in each round?
It varies by company and market, but founders commonly sell somewhere between 10% and 25% of the company in each early round. Modeling your cap table before you negotiate shows what each offer means for your ownership after the round and after the next one.
What is the difference between a lead investor and a follow-on investor?
The lead investor negotiates the terms, sets the price and usually writes the largest check. Follow-on investors join the round on those same terms and rarely negotiate separately.
Where can founders find investors that are actively writing checks?
Look for funds that have recently raised capital. The Everything Startups New VC Funds Database tracks newly announced venture funds every week, and our lists of the best pre-seed funds that invest at the idea stage and the best solo GP VC firms are pulled from the same data.
Bookmark this list of fundraising terms and definitions and come back to it whenever a term sheet or investor email uses a phrase you want to double-check. For weekly updates on new funds and funding rounds, subscribe to the Everything Startups newsletter.
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