Plain-English definitions of every venture capital and startup term — from SAFE notes and cap tables to carry, power law, and burn rate.
Quick Answer
Venture capital terminology covers three domains: fund mechanics (LP, GP, carry, TVPI, DPI, IRR), deal terms (SAFE, cap table, anti-dilution, liquidation preference), and startup metrics (ARR, burn rate, LTV:CAC, NRR). This glossary defines 80+ terms with plain-English explanations and context.
The average annualized revenue from a single customer contract, excluding one-time fees. ACV is used to measure the size and quality of enterprise sales. A $120K/year SaaS contract has an ACV of $120K.
See also: ARR, TCV
An individual who invests their own personal capital into early-stage startups, typically at pre-seed or seed. Angels write smaller checks ($25K–$500K) than VCs, take less equity, and often move faster with fewer conditions.
See also: Pre-seed, Syndicate
A contractual right that protects investors from dilution if a future funding round is raised at a lower valuation (a down round). Broad-based weighted average anti-dilution is most common; full ratchet anti-dilution is more aggressive and investor-friendly.
See also: Down Round, Dilution
The annualized value of all active subscription contracts. ARR = MRR × 12. It is the standard top-line metric for SaaS companies. ARR does not include one-time fees or professional services revenue.
See also: MRR, NRR, Churn
A position on a company's board of directors, granting voting rights on major decisions including executive hiring/firing, fundraising, and exits. Lead investors in Series A+ rounds typically negotiate for a board seat as part of the term sheet.
See also: Term Sheet, Lead Investor
A short-term funding round, often structured as a convertible note or SAFE, designed to extend runway until a larger priced round. Bridge rounds are common when a company is close to a milestone but needs more time. Often a sign of stress, though not always.
See also: Convertible Note, SAFE, Runway
The rate at which a company spends cash each month. Net burn = cash out minus cash in. Gross burn = total cash spent. A company with $500K monthly expenses and $100K revenue has a net burn of $400K/month.
See also: Runway, ARR
A spreadsheet or ledger showing the ownership structure of a company — who owns what percentage of equity, including founders, employees (options), and investors. The cap table determines how proceeds are distributed in a sale or IPO.
See also: Dilution, SAFE, Option Pool
A request from a GP to LPs to contribute a portion of their committed capital for deployment into investments. LPs commit capital upfront but only transfer funds when called. Typically 90–120 days notice.
See also: LP, GP, Drawdown
The GP's share of investment profits, typically 20% of returns above the hurdle rate. Carry is the primary compensation mechanism for VC fund managers. A fund returning $100M on $50M invested would generate $10M in carry (20% of the $50M profit).
See also: GP, LP, Hurdle Rate, Waterfall
The total cost to acquire one new customer, including sales and marketing expenses. CAC = total sales & marketing spend ÷ new customers acquired. A healthy SaaS CAC payback period is typically under 18 months.
See also: LTV, LTV:CAC, Payback Period
The percentage of revenue or customers lost in a given period. Net revenue churn accounts for expansion revenue. A 2% monthly churn means you lose ~22% of revenue per year. Negative churn (expansion > churn) is the gold standard for SaaS.
See also: NRR, ARR, LTV
A provision requiring a GP to return previously distributed carry if the fund ultimately underperforms. Protects LPs from receiving carry on early wins that are offset by later losses. Common in larger, more institutional funds.
See also: Carry, LP, GP
A direct investment by an LP alongside a GP in a specific portfolio company, separate from the main fund. Co-investments typically carry reduced or zero fees and carry, making them highly attractive to institutional LPs.
See also: LP, GP, SPV
A short-term debt instrument that converts into equity at a future priced round, typically at a discount or with a valuation cap. Predates the SAFE but adds interest and a maturity date. Often used for bridge rounds.
See also: SAFE, Bridge Round, Cap Table
The reduction in existing shareholders' ownership percentage when new shares are issued. Each funding round dilutes founders and early investors. Issuing a 10% option pool from a fully-diluted 100-share company means existing holders each own 10% less.
See also: Cap Table, Anti-dilution, Option Pool
A funding round raised at a lower valuation than the previous round. Down rounds trigger anti-dilution protections for earlier investors, often significantly diluting founders. Increasingly common during market corrections.
See also: Anti-dilution, Flat Round, Valuation
The ratio of capital returned to LPs versus capital invested. DPI = cumulative distributions ÷ paid-in capital. A DPI of 1.0x means LPs got their money back. DPI > 1.5x is generally considered good. DPI is the only metric that represents realized returns.
See also: TVPI, RVPI, IRR
A contractual right allowing majority shareholders to force minority shareholders to sell their shares in a transaction. Prevents small shareholders from blocking an acquisition. Standard in most venture-backed company charters.
See also: Tag-along Rights, ROFR
The process of calling committed capital from LPs into the fund for deployment. Also used to describe the total amount of committed capital that has been called and deployed. See also: Capital Call.
See also: Capital Call, LP, GP
The investigative process an investor undertakes before making an investment — reviewing financials, legal documents, product, team, customers, and competitive landscape. Thoroughness varies from light (angel seed) to extensive (Series B+).
See also: Term Sheet, LOI
A reserve of equity set aside for employee compensation. VCs typically require a 10–15% option pool before leading a round. Founders bear the dilution of creating the option pool — a critical negotiating point in term sheets.
See also: Option Pool, Dilution, Cap Table
The event that returns capital to investors — typically an IPO or M&A acquisition. The primary goal of venture capital. Time to exit for VC-backed companies has expanded to 8–12 years on average, up from 4–6 years in the 2000s.
See also: IPO, M&A, DPI
A funding round raised at the same valuation as the previous round. Neither a positive nor negative signal on its own — often reflects stable companies that needed capital but didn't have enough momentum for an up round.
See also: Down Round, Up Round
An additional investment by an existing investor in a subsequent funding round. VCs typically reserve capital (their pro-rata) to follow on in their best performers. Following on is a strong positive signal to other investors.
See also: Pro-rata Rights, Reserve Ratio
An investment vehicle that allocates capital across multiple VC or PE funds rather than directly into companies. Common LP type for institutional allocators seeking diversification. FoFs add another layer of fees and carry on top of the underlying funds.
See also: LP, GP, Carry
The manager of a venture capital or private equity fund. GPs make investment decisions, manage the portfolio, and earn management fees and carry. GPs have unlimited liability in the fund structure, while LPs have limited liability.
See also: LP, Carry, Management Fee
Revenue minus cost of goods sold (COGS), expressed as a percentage. Software companies typically have 70–80%+ gross margins. Hardware and marketplace businesses run lower. Gross margin is a key indicator of business model quality and unit economics.
See also: Unit Economics, ARR
The strategy and plan for bringing a product to market and acquiring customers. Encompasses sales motion (PLG, SLG, top-down, bottom-up), pricing, channels, and positioning. GTM fit is as important as product-market fit for B2B companies.
See also: PLG, PMF, CAC
The minimum return a fund must deliver to LPs before the GP begins receiving carried interest. Typically 8% per year (preferred return). Ensures LPs earn a baseline return before the GP participates in profits.
See also: Carry, Waterfall, LP
Contractual rights granted to investors to receive periodic financial information — typically quarterly and annual financials, plus cap table updates. Standard in most priced rounds. Protect investors' ability to monitor their investment.
See also: Board Seat, Observer Rights
The first sale of a company's shares to the public on a stock exchange. IPOs provide liquidity for early investors and employees, raise new capital, and create a public market for the stock. Average time from founding to IPO for VC-backed companies is 10–12 years.
See also: Exit, Direct Listing, SPAC
The annualized rate of return on an investment, accounting for the time value of money. A key fund performance metric alongside TVPI and DPI. IRR favors early distributions — a fund that returns capital quickly has a higher IRR even if the multiple is the same.
See also: TVPI, DPI, MOIC
The typical pattern of VC fund returns over time — negative early (fees + early write-offs), recovering through the middle years, and positive as exits materialize in years 7–12. The J-curve is why VC fund performance cannot be accurately judged until year 8–10+.
See also: DPI, TVPI, Vintage Year
The investor who sets the terms of a round, writes the largest check, and often takes a board seat. The lead does the most due diligence and is most accountable for the investment thesis. Having a credible lead dramatically increases the probability of a round closing.
See also: Term Sheet, Board Seat, Co-investor
The right of preferred shareholders to receive proceeds before common stockholders in a sale. A 1x non-participating preference means investors get their money back first, then common holders split the rest. Participating preferred lets investors double-dip.
See also: Cap Table, Preferred Stock, Waterfall
An investor in a VC or PE fund. LPs provide the capital that GPs deploy. Common LP types include pension funds, endowments, family offices, foundations, and sovereign wealth funds. LPs have limited liability and limited involvement in fund decisions.
See also: GP, Capital Call, DPI
The total revenue or profit a business expects to generate from a single customer over the entire relationship. LTV = average revenue per customer ÷ churn rate. Used with CAC to evaluate unit economics.
See also: CAC, LTV:CAC, Churn Rate
The ratio of lifetime customer value to customer acquisition cost. An LTV:CAC ratio of 3:1 or higher is considered healthy for SaaS. Below 1:1 means you're spending more to acquire customers than you'll ever earn from them.
See also: LTV, CAC, Unit Economics
The purchase or combination of companies. For VC-backed startups, M&A is the most common exit path — more than 90% of VC exits are acquisitions rather than IPOs. Strategic acquirers pay premiums for product, team, or market access.
See also: Exit, Acqui-hire
An annual fee paid by LPs to GPs to cover fund operating expenses — typically 2% of committed capital during the investment period, stepping down in later years. On a $100M fund, that's $2M/year in management fees.
See also: Carry, GP, LP
A SAFE provision guaranteeing that if the company issues a future SAFE on better terms, the MFN holder's SAFE automatically converts to those better terms. Protects early SAFE investors from being disadvantaged by subsequent investors.
See also: SAFE, Cap Table
The gross return multiple on an investment. MOIC = total value ÷ invested capital. A $1M investment worth $5M has a 5x MOIC. Unlike IRR, MOIC does not account for time. Both metrics matter: 5x in 3 years is very different from 5x in 10 years.
See also: IRR, TVPI, DPI
The predictable monthly revenue from active subscriptions. MRR = ARR ÷ 12. Tracking new MRR, expansion MRR, churned MRR, and net new MRR provides a complete picture of SaaS business health.
See also: ARR, Churn, NRR
When a product becomes more valuable as more people use it. Marketplace network effects (Airbnb), social network effects (LinkedIn), and data network effects (Waze) are different types. True network effects are one of the strongest competitive moats.
See also: Moat, Flywheel
The percentage of revenue retained from existing customers over a period, including expansion, contraction, and churn. NRR > 100% means you're growing revenue from your existing customer base alone. Top SaaS companies target 120%+ NRR.
See also: ARR, Churn, LTV
The right to attend board meetings without voting. Typically granted to smaller investors who don't receive a full board seat. Observers can participate in discussions but cannot vote on board resolutions.
See also: Board Seat, Information Rights
Equity reserved for future employee compensation via stock options. Typically 10–15% of fully diluted shares. Investors require the option pool to be created (and founders diluted) before a round closes — making pool size a key term sheet negotiation point.
See also: ESOP, Dilution, Cap Table
The number of months to recover the cost of acquiring a customer through gross margin contribution. CAC payback = CAC ÷ (MRR × gross margin %). Under 12 months is excellent. 18–24 months is acceptable. Over 36 months is a warning sign.
See also: CAC, LTV:CAC, Gross Margin
A GTM strategy where the product itself drives acquisition, conversion, and expansion — users sign up, get value, and upgrade without a sales team. Slack, Notion, and Figma are canonical examples. PLG typically lowers CAC and speeds adoption.
See also: GTM, CAC, NRR
The degree to which a product satisfies strong market demand. Marc Andreessen's original definition: 'being in a good market with a product that can satisfy that market.' Hard to define precisely, but easy to identify — customer pull, low churn, organic growth.
See also: GTM, Churn, TAM
The strategy a VC fund uses to decide how many investments to make, at what stages, with what check sizes, and how much to reserve for follow-ons. Seed funds might target 20–30 companies; growth funds might target 8–12.
See also: Reserve Ratio, Follow-on Investment
Company valuation immediately after a funding round closes, including the new capital invested. Post-money = pre-money + investment amount. SAFE notes now typically use post-money caps, meaning the dilution math is clearer for investors.
See also: Pre-money Valuation, SAFE, Cap Table
The mathematical distribution where a small number of outcomes account for the vast majority of returns. In VC, the top 10–20 investments in a fund typically generate 90%+ of returns. This is why VCs swing for outliers rather than optimizing for averages.
See also: Portfolio Construction, MOIC
Company valuation before new capital is invested in a round. If a company raises $2M at a $10M pre-money valuation, the post-money is $12M and investors own ~16.7%.
See also: Post-money Valuation, Dilution, Cap Table
The right of an existing investor to participate in future rounds at their proportional ownership level, maintaining their percentage. Pro-rata rights are highly valuable in venture — allowing investors to double down on winners.
See also: Follow-on Investment, Dilution
The portion of a fund's capital set aside for follow-on investments in existing portfolio companies. Typically 40–60% of total fund capital. A $100M fund with 50% reserves has $50M for initial investments and $50M for follow-ons.
See also: Follow-on Investment, Portfolio Construction
The right of a company or existing shareholders to purchase shares before a selling shareholder can sell to a third party. Prevents unwanted parties from entering the cap table. Standard in most venture-backed company shareholder agreements.
See also: Tag-along Rights, Drag-along Rights
A SaaS benchmark: revenue growth rate + profit margin should exceed 40%. A company growing 50% YoY with -15% EBITDA margins passes (50 - 15 = 35... just misses). Used by public market investors to value SaaS companies.
See also: ARR, Gross Margin, NRR
The number of months a company can operate before running out of cash at its current burn rate. Runway = cash balance ÷ net burn rate. Raising capital when you have 12–18 months of runway gives you leverage. Under 6 months puts you in distress mode.
See also: Burn Rate, Bridge Round
The ratio of remaining unrealized portfolio value to paid-in capital. RVPI + DPI = TVPI. High RVPI early in a fund's life is expected. Persistently high RVPI in a mature fund may indicate marking problems or illiquid assets.
See also: TVPI, DPI
A Y Combinator-created instrument that converts into equity at a future priced round. Unlike convertible notes, SAFEs have no interest rate or maturity date. Post-money SAFEs (standard since 2018) include a valuation cap and/or discount, with clearer dilution math.
See also: Convertible Note, Pre-money Valuation, Cap Table
The portion of the TAM your product can realistically target given your current business model, geography, and customer type. SAM is a more honest market sizing metric than TAM for early-stage companies.
See also: TAM, SOM, PMF
The buying and selling of shares in private companies between investors, without the company issuing new shares. Allows early investors and employees to achieve liquidity before an IPO. Volume has grown significantly as companies stay private longer.
See also: Exit, IPO, LP
Priced institutional funding rounds after seed. Series A is typically $8–20M for companies with demonstrated PMF. Series B is $20–60M for scaling. Series C+ for further growth or pre-IPO capital. Each round resets the valuation and dilutes existing shareholders.
See also: Pre-money Valuation, Lead Investor, Term Sheet
The realistic portion of the SAM you can capture in the near term — accounting for competition, sales capacity, and geographic limits. SOM is what your model should actually be built around.
See also: TAM, SAM
A shell company that raises capital through an IPO specifically to acquire a private company, taking it public. An alternative exit path to a traditional IPO. SPAC activity surged 2020–2021 and collapsed by 2022–2023.
See also: IPO, Exit, Direct Listing
A single-purpose fund structure used to pool capital from multiple investors into one check for a specific company. Allows smaller investors to participate in rounds above their individual check size. GPs charge management fees and carry on SPVs.
See also: Co-investment, Syndicate, Carry
A group of investors co-investing together in a deal, typically led by an experienced angel or fund through an SPV. AngelList popularized the online syndicate model. Syndicates allow deal leads to bring in capital from their network.
See also: SPV, Angel Investor, Lead Investor
The right of minority shareholders to participate in a sale on the same terms as majority shareholders. Protects minority investors from being left behind when a controlling shareholder sells. Standard protective provision in most venture term sheets.
See also: Drag-along Rights, ROFR
The total global revenue opportunity for a product or service if it captured 100% market share. TAM is often used (and abused) in pitch decks. A realistic TAM analysis segments from bottom-up, not top-down. 'We're taking 1% of a $10B market' is not a market sizing argument.
See also: SAM, SOM, PMF
The total value of a contract over its full term, including all recurring and one-time fees. A 3-year contract at $50K/year with a $10K setup fee has a TCV of $160K and an ACV of $50K.
See also: ACV, ARR
A non-binding document outlining the key terms of a proposed investment — valuation, investment amount, equity stake, board composition, liquidation preference, anti-dilution, and protective provisions. Negotiating a term sheet is one of the most important skills in startup fundraising.
See also: Lead Investor, Liquidation Preference, Anti-dilution
The ratio of total fund value (realized + unrealized) to capital invested. TVPI = (DPI + RVPI). A TVPI of 2.0x means the fund is worth twice what LPs put in, on paper. TVPI is a current snapshot; DPI is what actually matters at the end.
See also: DPI, RVPI, IRR
A privately held startup valued at $1 billion or more. Coined by Aileen Lee in 2013 when only 39 companies qualified. As of 2025, there are 1,300+ unicorns globally worth $4.5T+ collectively. The term has lost some of its exclusivity.
See also: Valuation, Exit
The revenue and cost associated with a single unit of a business — one customer, one transaction, or one subscription. Healthy unit economics (positive contribution margin, reasonable LTV:CAC) are a prerequisite for scalability.
See also: LTV:CAC, CAC, Gross Margin
A funding round raised at a higher valuation than the previous round. Up rounds are positive signals but not always meaningful — valuation is set by negotiation, not fundamental value. Up rounds dilute founders and earlier investors less than down rounds.
See also: Down Round, Flat Round, Valuation
The maximum valuation at which a SAFE or convertible note converts into equity. If a company raises its Series A at a $20M pre-money valuation and an earlier SAFE had a $10M cap, that SAFE holder converts at $10M — getting 2x the equity per dollar as the new investors.
See also: SAFE, Convertible Note, Post-money Valuation
The year a VC fund began deploying capital. Vintage year is the primary variable for comparing fund performance — a 2009 vintage benefited from one of the best entry environments in VC history, while a 2021 vintage entered at peak valuations.
See also: IRR, TVPI, J-Curve
The order in which proceeds are distributed in a fund exit or company sale. In a VC fund: first to LPs until capital returned (hurdle), then carry to GP. In a company sale: first to preferred shareholders (liquidation preference), then to common.
See also: Liquidation Preference, Carry, Hurdle Rate
A SAFE (Simple Agreement for Future Equity) is a short-term investment instrument that converts into equity at a future priced round. It has no interest rate or maturity date. SAFEs include a valuation cap and/or discount that determines how much equity the investor receives when they convert.
TVPI (Total Value to Paid-In) measures a fund's total value — both realized distributions and unrealized portfolio value — relative to capital invested. A 2.0x TVPI means the fund is worth twice what LPs invested, on paper. TVPI includes unrealized value, so DPI (actual distributions) is the more important metric for fund maturity.
Carried interest (carry) is the GP's share of fund profits, typically 20% of returns above the hurdle rate. It is the primary performance incentive for fund managers. On a $100M fund that returns $300M, the GP earns 20% of the $200M profit — $40M in carry.
Pre-money valuation is the company's value before new investment. Post-money adds the investment amount: post-money = pre-money + investment. Investor ownership = investment ÷ post-money. SAFEs use post-money caps, making dilution math more transparent.
DPI (Distributed to Paid-In) is the ratio of cash actually returned to LPs relative to capital invested. A DPI of 1.5x means LPs received $1.50 for every $1 invested. DPI is the only metric representing real, realized returns — TVPI includes unrealized value that may never materialize.
Burn rate is the amount of cash a company spends each month (net burn = expenses minus revenue). Runway is how many months of cash remain at the current burn rate. With $1M in the bank and $100K net monthly burn, you have 10 months of runway.
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