The Fundraising Glossary

The glossary is grouped thematically by key segments of the fundraising process. 

Founders earn equity over time. The shares allotted initially will vest often over a period of 4 years with a 1 year cliff. This means that nothing vests for the first year and the equity vests equally over 3 years. It is commonplace for founder vesting to be reset in early funding rounds, as investors want to ensure founders are motivated, although a portion of the vested equity is commonly negotiated to be kept by the founders to reflext work done already.

Define what happens to shares when someone leaves. Good and Bad Leaver provisions will be defined in your Founder Agreements.

• Good Leaver: keeps most or all shares.
• Bad Leaver: forefeits most or all shares.

Special shares that participate only above a valuation hurdle. Primarily useful for late-stage incentives.

A funding instrument through which investors agree to provide funding to a startup immediately, in exchange for equity in the future. The terms of the agreement specify the trigger point – usually this is a new funding round. If the trigger conditions are not met, then the agreement converts at a specific date, the Longstop Date, at a pre-agreed valuation. Startups get money quickly through an ASA, while investors get a lower valuation than they would in a later round. An ASA functions very similarly to a SAFE, but is primarily used in the UK. 

An individual who invests personal capital into early-stage startups, usually contributing expertise, networks, and credibility in addition.

A loan that converts into equity at a future round. Usually includes interest and a maturity date. This is a form of debt and can be required to be paid back under certain conditions.

A funding round where valuation, price per share, and ownership are explicitly agreed.

Capital is released in stages, conditional on hitting pre-agreed milestones.

Reduction in ownership percentage when new shares are issued.

Valuation and ownership calculated including all issued and unissued options, warrants, and convertibles.

Value of the company after new capital is invested.

Formula:
Post-Money = Pre-Money + Investment

Value of the company before new capital is invested.

Formula:
Pre-Money = Post-Money − Investment

Held by founders and employees. Residual value; last paid in an exit.

Preferred shares that may convert to common to capture upside.

Dividends accrue if not paid on time. This is rare early-stage and increases exit burden.

Investor shares with enhanced economic and control rights.

Common preferred features: – Liquidation preference – Anti-dilution – Participation rights – Conversion to common

Allows investors to force share buyback (or debt conversion) after a set period. This provides strong investor leverage and is uncommon early.

Defines who gets paid first and how much in an exit or liquidation.

Standard: 1x non-participating

Investor chooses either: 1. Their invested amount × multiple, or 2. Conversion to common to share pro rata upside.

Investor receives: 1. Liquidation preference, and then 2. Pro rata share of remaining proceeds. This is a “double dip” and very investor friendly.

Limits the total return on participating preferred.

Protects investors if shares are later issued at a lower price e.g in a down round.

Adjusts conversion price proportionally, including unissued options. This is standard.

Resets conversion price to the lowest price paid in a down round. This leads to severe founder and employee dilution and should be a red flag to founders.

Adjusts conversion price proportionally but excludes unissued shares; more investor-friendly.

Investor right to appoint board members. A board observer can attend but does not have voting rights.

Right for the investor to receive information on topics such as financials, budgets, commercial and technical progress. Carbon13’s information rights include ESG reporting and sustainability disclosures.

Investor approval required for key actions (fundraising, hiring, spending, charter changes).

Allows investors to sell shares alongside founders.

Right to buy pro rata (proportional to their shareholding) shares in future rounds.

Existing shareholders have first right to buy shares being sold.

Majority shareholders can force minority to sell on equal terms.

Minority shareholders can sell alongside majority holders.

Investor right to demand liquidity after a defined period.