97 Startup Investing Terms You Need To Know

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Written By Chris Graebe

Startup investing comes with its own language. Terms like “burn rate,” “runway,” and “pivoting” describe how much cash a young company has and how fast it’s growing.

Learning these terms helps investors make smart funding choices and get the most out of their startup investments. Knowing the lingo lets investors spot good opportunities and avoid risky bets.

What you’ll find below is an extensive list of terms used in different aspects of the startup investing world.

I’ve organized them by category to make it easier to navigate:

Funding & Investment Stages

Understanding the different stages of funding and investment is crucial for both entrepreneurs and investors. This section will delve into the various types of financial backing that startups may seek or receive as they grow and develop. Knowing these terms can help investors make informed decisions and allow entrepreneurs to better navigate the fundraising process.

Seed Capital

Seed capital is the initial funding used to start a business. This money often comes from the founders themselves, as well as from friends and family. Seed capital is usually used to prove a business concept and to lay down the initial building blocks for the company.

Venture Capital (VC)

Venture capital is a form of investment where venture capital firms or funds invest large sums of money in exchange for equity, and possibly places on the board. These investments are usually high-risk but offer the potential for high reward. VC funding is often essential for startups looking to scale quickly.

Angel Investor

An angel investor is a wealthy individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. Angel investors often provide not just funds but valuable management advice and important contacts as well.

Series A, B, C… Funding

These terms refer to the different rounds of funding that a startup goes through as it grows. Series A is generally the first significant round of venture capital financing. Subsequent rounds (Series B, C, etc.) provide additional capital for growth, often at higher valuations, and may involve different types of investors.

Follow-on Investment

This is an additional investment made by investors who have already invested in a company. Follow-on investments are generally made when a company meets or exceeds performance expectations and requires more capital to continue growing.

Growth Capital

Growth capital is investment in a more mature company that is looking to scale operations, enter new markets, or otherwise grow, but not start from scratch. Unlike venture capital, growth capital is less risky and usually involves larger, more established companies.

Mezzanine Financing

This is a hybrid form of financing that combines debt and equity. Mezzanine financing is often used as a bridge between initial venture capital and an IPO or acquisition. It provides companies with the capital they need to grow while offering investors the security of debt.


Crowdfunding is a way to raise small amounts of money from a large number of people (the crowd), typically via the internet on platforms like Wefunder and Republic that allow startups to create campaigns to raise capital to grow their business.


Bootstrapping refers to the practice of funding a startup without external investment. Entrepreneurs rely on personal savings, revenues, or other non-traditional means to grow the business. This approach is slower but allows the founders to maintain full control over the company.

Evergreen Fund

An evergreen fund is a venture capital fund that continually reinvests the profits it makes from successful exits into new startups, rather than returning the profits to the fund’s investors. This allows the fund to exist indefinitely, providing a constant source of capital for new ventures.

Valuation & Equity

The valuation and equity of a startup are foundational concepts in the world of investing. They determine the worth of a company and the stake that each investor holds. Grasping these terms is essential for both entrepreneurs and investors to understand the financial dynamics of a startup.


Equity refers to the ownership interest in a company. When an investor provides capital to a startup, they receive a portion of the company’s equity in return. This equity is often represented by shares of stock, which denote ownership.


Valuation is the process of determining the current worth of a startup or company. It can be based on various factors, including assets, revenues, projected growth, and more. A company’s valuation is crucial during funding rounds as it dictates the price of shares and the amount of equity given to investors.


Dilution occurs when a company issues new shares, leading to a reduction in the ownership percentage of existing shareholders. While dilution can decrease an individual’s percentage of ownership, it might be beneficial if the company’s overall value increases.

Convertible Note

A convertible note is a form of short-term debt that converts into equity, typically in conjunction with a future financing round. It’s a flexible instrument that benefits both startups (by delaying valuation) and investors (by providing potential upside through conversion).

Preferred Stock

Preferred stock is a class of ownership in a corporation that has a higher claim on assets and earnings than common stock. Investors often receive preferred stock, which might come with additional rights, such as dividend preferences or more significant voting power.

Fully Diluted

Fully diluted refers to all shares that are issued, plus any shares that could be issued if all existing options, warrants, and other securities were exercised. It provides a comprehensive picture of a company’s equity structure.

Par Value

Par value is the face value of a bond or stock as indicated on the certificate. For startups, the par value of shares is often set at a minimal amount.

409A Valuation

A 409A valuation is an independent appraisal of the fair market value of a company’s common stock. It’s used to set the strike price for stock options and ensures that stock options are issued in compliance with tax regulations.

Financial Metrics & Ratios

Financial metrics and ratios are essential tools for assessing the health, profitability, and growth potential of a startup. Both investors and entrepreneurs rely on these metrics to make informed decisions about the company’s direction and potential for success.

Burn Rate

The burn rate is the rate at which a startup is spending its capital. It’s a measure of negative cash flow and is especially crucial for startups that haven’t yet become profitable. A high burn rate may indicate that a company needs additional funding soon.

Run Rate

Run rate is an estimation of a company’s future financial data based on current performance. It’s often used to forecast annual earnings based on monthly or quarterly data.

Churn Rate

Churn rate measures the number of customers or subscribers who stop using a company’s product or service during a specific time frame. A high churn rate can indicate dissatisfaction with a product or service, while a low churn rate suggests customer loyalty.

Lifetime Value (LTV)

LTV represents the projected revenue that a customer will generate during their lifetime with a business. It helps companies determine the long-term value of a customer and how much they can afford to spend on acquiring new ones.

Customer Acquisition Cost (CAC)

CAC is the cost associated with acquiring a new customer. It includes expenses like advertising, marketing, and sales. A healthy business model will have a CAC that is significantly lower than the LTV of a customer.


This ratio compares the cost of acquiring a customer (CAC) to the lifetime value of that customer (LTV). A ratio greater than 1 indicates that a company is spending less to acquire a customer than the revenue that customer will generate, suggesting a sustainable business model.

ROI (Return on Investment)

ROI measures the profitability of an investment. It’s calculated by dividing the net profit from the investment by the initial cost. A high ROI indicates that the investment has gained value, while a negative ROI suggests a loss.


Yield refers to the income return on an investment, such as the interest or dividends received. It’s a measure of the income generated by an investment compared to its cost.

Agreements & Documents

Legal Foundations of Startup Investing

Agreements and documents form the backbone of the legal and operational aspects of startups and their relationships with investors. These written instruments define rights, responsibilities, and the framework within which the business operates and grows.

Term Sheet

A term sheet is a non-binding agreement that outlines the basic terms and conditions of an investment. It serves as a template for the parties to negotiate and finalize the details before drafting a more detailed, legally binding document.

Cap Table (Capitalization Table)

A cap table provides a detailed breakdown of a company’s ownership structure, showing the equity ownership percentages for each stakeholder, including founders, investors, and employees with stock options.

SAFE (Simple Agreement for Future Equity)

SAFE is a contract between an investor and a company that provides rights to the investor for future equity in the company. Unlike convertible notes, a SAFE is not a debt instrument, making it simpler and more flexible.

Non-disclosure Agreement (NDA)

An NDA is a legally binding contract that establishes a confidential relationship between parties. It ensures that certain information shared between them remains confidential and is not disclosed to unauthorized third parties.

Operating Agreement

An operating agreement outlines the internal management procedures of a Limited Liability Company (LLC). It defines the roles and responsibilities of members, the distribution of profits and losses, and other operational details.

Heads of Terms

Also known as a “letter of intent” or “memorandum of understanding,” heads of terms is a non-binding document that outlines the main issues relevant to a tentative partnership agreement or other negotiation.

Company Structure & Strategy

The structure and strategy of a startup play pivotal roles in its journey from inception to potential industry dominance. These terms provide insights into how startups are organized, their growth trajectories, and the strategic decisions they make along the way.


A unicorn is a startup company valued at over $1 billion. The term highlights the rarity of such successful ventures in the startup ecosystem.


A decacorn is a step above the unicorn, referring to startups valued at over $10 billion. These are even rarer and represent a significant achievement in the business world.

Board of Directors

The board of directors is a group of individuals elected to represent shareholders and oversee the management of an organization. They make critical decisions and ensure the company adheres to its mission and objectives.

Advisory Board

Unlike the board of directors, an advisory board is a group of external experts who provide non-binding strategic advice to the management of a company. They offer insights, connections, and expertise without the formal responsibilities of directors.

MVP (Minimum Viable Product)

An MVP is a product version with just enough features to be usable by early customers, providing feedback for future product development. It’s a strategy to quickly test and iterate product ideas.


A pivot refers to a fundamental shift in business strategy. Startups pivot when they realize their current approach isn’t working and decide to change direction, often based on feedback or market research.


Blitzscaling is a growth strategy that prioritizes speed over efficiency in the face of uncertainty. It’s about scaling rapidly and capturing the market before competitors.


Scalability refers to the ability of a startup to handle increased demand and grow without compromising performance or revenue.

Hockey Stick Growth

This term describes a growth pattern that starts with a flat or slow growth period (the handle of the hockey stick) followed by a sudden and steep uptick in growth (the blade).

First Mover Advantage

This advantage is gained by the initial significant occupant of a market segment. Being the first to market allows a company to establish strong brand recognition and customer loyalty before competitors enter the arena.


A vertical market is one that meets the needs of a specific industry or demographic rather than offering a broad solution that could apply to many industries.


In contrast to vertical markets, horizontal markets span industries, offering solutions that can be applied across various sectors and demographics.


An acqui-hire is when a company is acquired primarily for its talent rather than its product or existing business operations.


A roll-up strategy involves the acquisition of multiple smaller companies in the same industry, combining them to form a larger entity.

Zombie Company

A zombie company is one that’s neither failing nor succeeding. It might just cover its operating expenses and meet service debt requirements but doesn’t show significant growth or innovation.

Market & Growth Metrics

Market and growth metrics provide insights into a startup’s performance, potential, and position in the market. These metrics are vital for both entrepreneurs and investors to gauge the company’s traction and its ability to capture and retain customers.


Traction refers to the progress of a startup, indicating its momentum and potential for growth. It can be measured through various indicators, such as user engagement, revenue, customer testimonials, or partnerships.

Market Fit

Market fit is the degree to which a product satisfies a strong market demand. A startup that has achieved market fit has identified a clear need in the market and successfully addressed it with its product or service.

Product-Market Fit

Product-market fit is when a company’s product satisfies the needs and desires of its target market. Achieving this fit means that the product has found its place in the market, and there’s a clear demand for it.

Viral Coefficient

The viral coefficient measures the number of new users an existing user can bring to a product or service. A viral coefficient greater than 1 indicates exponential growth, as each user, on average, brings in more than one additional user.

Growth Hacking

Growth hacking is a set of tactics and strategies specifically aimed at growing a business rapidly. It often involves unconventional marketing strategies and a focus on low-cost solutions to drive user acquisition and retention.

Lead Generation

Lead generation is the process of attracting and converting potential customers or clients to a business’s products or services. It’s the initiation of consumer interest or inquiry into products or services of a business.

Investor Rights & Provisions

Investor rights and provisions are essential components of investment agreements that safeguard the interests of investors. They define the privileges and protections afforded to investors, ensuring that their capital and rights are protected throughout the startup’s journey.

Pro-rata Rights

Pro-rata rights allow investors to maintain their percentage ownership in a company by buying a proportional number of shares in any future investment rounds. This right ensures that their stake isn’t diluted as the company raises more capital.


Vesting refers to the process by which an employee or founder earns ownership over shares or stock options over time. It’s a mechanism to incentivize long-term commitment to a company.

Drag-along Rights

Drag-along rights enable majority shareholders to force minority shareholders to join in the sale of a company. This provision ensures that a few minority shareholders can’t block a potential acquisition or sale.

Tag-along Rights

Conversely, tag-along rights allow minority shareholders to join a transaction initiated by majority shareholders. This ensures that if the majority sells their shares, the minority has the right to join the deal and sell their shares under the same terms.

Anti-dilution Provisions

These provisions protect investors from dilution when new shares are issued in a future funding round at a lower valuation. If a company issues shares at a price lower than what previous investors paid, anti-dilution provisions can adjust the price or number of shares to protect early investors.

Redemption Rights

Redemption rights give investors the right to require the company to repurchase their shares after a certain period, typically providing an exit if the company hasn’t gone public or been acquired.


A ratchet is a type of anti-dilution provision that protects an investor’s percentage ownership. If shares are issued at a lower price in a future round, the investor’s share price is adjusted downward to the new price.

Waterfall Structure

In the context of startup exits, a waterfall structure dictates the order in which different classes of shareholders get paid. It ensures that certain investors receive their returns before others, based on the agreed-upon hierarchy.

Exit & Liquidity

Exit strategies and liquidity events are pivotal moments in a startup’s lifecycle, often marking the culmination of years of hard work and dedication. For investors, these events provide an opportunity to realize returns on their investments.

Exit Strategy

An exit strategy outlines how investors or entrepreneurs intend to withdraw or “exit” their investment in a company. Common exit strategies include selling the company (either to another business or to the public) or merging with another entity.

IPO (Initial Public Offering)

An IPO is the process by which a private company becomes publicly traded on a stock exchange. It allows companies to raise capital from public investors and provides liquidity for early investors and founders.

Liquidity Event

A liquidity event is any event that allows founders, investors, and other stakeholders to cash out some or all of their ownership in a company. This can include IPOs, acquisitions, or secondary market sales.

Exit Multiple

The exit multiple is a metric that measures the return on an investment. It’s calculated by dividing the exit value by the initial investment. For instance, an exit multiple of 5x indicates that an investor received five times their original investment upon exit.

Lock-up Period

After an IPO, there’s often a lock-up period during which insiders and early investors are prohibited from selling their shares. This period, typically lasting 90 to 180 days, helps stabilize the stock price post-IPO.

SPAC (Special Purpose Acquisition Company)

A SPAC is a company with no commercial operations, formed strictly to raise capital through an IPO to acquire another company. Recently, SPACs have become a popular alternative to traditional IPOs for companies looking to go public.

Types of Businesses & Models

The business model a startup adopts can significantly influence its growth trajectory, revenue streams, and overall success. Understanding the different types of businesses and models provides clarity on how companies generate value and revenue.

B2B (Business-to-Business)

B2B companies sell products or services directly to other businesses. This model often involves larger contract values and longer sales cycles compared to consumer-focused models. Examples include enterprise software companies and wholesale suppliers.

B2C (Business-to-Consumer)

B2C companies sell products or services directly to individual consumers. This model typically involves a broader audience, faster sales cycles, and more emphasis on branding. Retailers and direct-to-consumer brands are examples.

SaaS (Software as a Service)

SaaS companies provide software solutions that are hosted in the cloud and accessed by users over the internet. Customers typically pay a recurring subscription fee. Examples include CRM systems, cloud-based accounting software, and collaboration tools.

P2P (Peer-to-Peer)

P2P platforms facilitate transactions between individuals without the need for traditional intermediaries. This model can be seen in sectors like lending (peer-to-peer lending platforms) or e-commerce (peer-to-peer selling platforms).


The freemium model offers basic services for free while charging a premium for advanced features or functionalities. This strategy is common in software and digital services, where users can access a base version at no cost but must pay for additional features.

Investor Types & Structures

The startup investment landscape is diverse, with various types of investors bringing different resources, expertise, and expectations to the table. Recognizing the roles and structures of these investors is crucial for startups seeking funding and for understanding the dynamics of the investment ecosystem.

Angel Investors

Angel investors are affluent individuals who provide capital to startups in exchange for ownership equity or convertible debt. They often invest their own money and can provide not just funds but also valuable management advice and important contacts.

Venture Capitalists (VCs)

Venture capitalists are professional groups that manage pooled funds from many investors to invest in startups and small businesses. They usually come in when you have a proven business model and are looking to scale, not in the early stages of your business.

Private Equity Firms

Private equity firms invest in mature companies, often taking a majority stake, with the aim of improving efficiencies and driving growth before potentially selling the company at a profit.

Corporate Investors

Also known as corporate venture capitalists, these are subsidiaries of larger corporations that invest in smaller startups. They often seek strategic opportunities that align with the parent company’s long-term goals.

The Crowd

You’ll sometimes hear the community of every day, non-accredited investors referred to as “The Crowd”. These are those investors participating in various Equity Crowdfunding campaigns on platforms like Wefunder and StartEngine.

Accelerators & Incubators

Accelerators and incubators offer funding, mentorship, office space, and other resources in exchange for equity in startups. They often culminate in a “demo day” where startups pitch their business to a large audience of investors.


Syndicates are groups of investors that pool their resources to invest in startups. They’re often led by one experienced investor, with others joining the syndicate to access deals and share the risk.

Family Offices

Family offices manage the wealth of high-net-worth families or individuals. They can be significant sources of capital for startups, often with a longer-term investment horizon than traditional VCs.

Micro VCs

Micro VCs are smaller venture capital firms that manage smaller pools of capital and often invest in the earlier stages of startups compared to traditional VCs.

Sovereign Wealth Funds

These are state-owned investment funds that invest in a range of assets, including stocks, real estate, and startups. They manage a country’s reserves and aim to achieve long-term returns.

Risks & Challenges

Every startup faces a myriad of risks and challenges as it seeks to establish itself, grow, and achieve its objectives. Understanding these potential pitfalls is crucial for both entrepreneurs and investors to make informed decisions and prepare for unforeseen circumstances.

Market Risk

Market risk refers to the potential that a startup’s offering won’t gain traction in the market due to lack of demand or strong competition. It’s the risk that the market size for the product or service is overestimated or that the market dynamics change unfavorably.

Financial Risk

Financial risk encompasses the challenges related to a startup’s capital structure, including its ability to secure funding, manage cash flow, and achieve profitability. It also considers the risk of insolvency or bankruptcy.

Operational Risk

Operational risk involves the potential for failures in a company’s day-to-day operations. This can arise from issues like supply chain disruptions, system breakdowns, or human errors.

Regulatory Risk

Startups, especially those in heavily regulated industries, face the risk of non-compliance with local, national, or international regulations. Regulatory risk can result in penalties, legal challenges, or the need to significantly alter the business model.

Reputational Risk

Reputational risk pertains to potential damage to a company’s reputation, which can arise from negative publicity, product failures, or controversies. A tarnished reputation can lead to lost trust, decreased customer loyalty, and reduced revenue.

Talent Risk

Talent risk revolves around challenges related to attracting, retaining, and developing skilled employees. A startup’s success often hinges on its team, and the inability to secure or keep top talent can hinder growth.

Technology Risk

For tech startups, there’s the risk that the technology they develop becomes obsolete, faces security breaches, or doesn’t function as intended. Rapid technological advancements can also lead to increased competition.

Exit Risk

Exit risk refers to the possibility that investors won’t have an opportunity to liquidate their investment profitably. This can happen if the startup doesn’t go public, isn’t acquired, or fails to grow as anticipated.

Miscellaneous Terms

The startup world is huge, with lots of moving parts. That means there are tons of terms that don’t fall neatly into any one category. These terms might be a bit scattered, but they’re still super important to know.

Deck (or Pitch Deck)

A deck, often called a pitch deck, is a presentation that startups use to provide investors with a quick overview of their business, typically during face-to-face meetings.

Elevator Pitch

An elevator pitch is a brief, persuasive speech that you can use to spark interest in what you and your organization do. It’s concise and can be delivered in the time span of an elevator ride.


The runway refers to the amount of time a startup can continue to operate before it runs out of money, given its current burn rate.

TAM (Total Addressable Market)

TAM represents the total revenue opportunity available for a product or service, assuming 100% market share.

SAM (Serviceable Available Market)

SAM is the segment of the TAM targeted and served by a company’s products or services.

SOM (Serviceable Obtainable Market)

SOM represents the portion of SAM that can realistically be captured and served by a startup in the near term.

Value Proposition

A value proposition is a clear statement that explains how a product solves a pain point, delivers specific benefits, and tells the customer why they should buy from you over your competitors.

Pain Point

A pain point is a specific problem that prospective customers of your business are experiencing. Identifying and addressing these pain points is crucial for product development and marketing.

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