Venture Capital Glossary: Startup Fundraising Terms Explained

This venture capital glossary defines the core terms founders encounter when raising startup funding.

Understanding venture capital terminology is essential for institutional fundraising readiness, capital stack design, and structured venture capital fundraising.

Each definition below is written for founders preparing to raise angel, seed, and Series A venture capital.

Angel Investor

An angel investor is an individual who invests personal capital into early-stage startups, typically at pre-seed or seed stage. Angel investors often invest before institutional venture capital funds and may invest through direct equity, SAFEs, or convertible notes.

Board of Directors

The board of directors is the governing body responsible for strategic oversight of a company. In venture-backed startups, board composition evolves across funding rounds and is closely evaluated during institutional fundraising.

Burn Rate

Burn rate refers to the monthly net cash expenditure of a startup. Venture capital investors analyse burn rate relative to runway and growth to assess capital efficiency.

Cap Table (Capitalisation Table)

A cap table is a record of company ownership, including founders, employees, investors, and option holders. Institutional investors review cap tables to evaluate dilution, ownership distribution, and structural clarity.

Capital Stack

The capital stack is the layered structure of equity, convertible instruments, debt, and institutional financing within a startup. Capital stack design determines how funding instruments convert and how ownership evolves across rounds.

Convertible Note

A convertible note is a short-term debt instrument that converts into equity at a later financing round. It typically includes an interest rate and maturity date. Improper use can complicate Series A fundraising if multiple notes accumulate.

Data Room

A data room is a secure repository containing financial, legal, operational, and governance documentation prepared for investor due diligence. Institutional fundraising readiness requires a complete and organised data room.

Dilution

Dilution refers to the reduction in ownership percentage that occurs when new shares are issued. Dilution management is a core element of capital stack design and Series A preparation.

Due Diligence

Due diligence is the investigative review process conducted by venture capital investors prior to investment. It examines financial integrity, legal documentation, governance structure, and operational risk.

Equity

Equity represents ownership in a company. Venture capital investments typically exchange capital for equity ownership, governance rights, and economic participation.

Founder Vesting

Founder vesting determines how founder equity is earned over time. Institutional investors review vesting schedules to ensure long-term commitment and incentive alignment.

Institutional Fundraising Readiness

Institutional fundraising readiness is the structural maturity required to withstand venture capital scrutiny, including valuation discipline, governance alignment, diligence completeness, financial model integrity, and capital stack coherence.

Institutional Investor

An institutional investor is a professional investment firm managing pooled capital from limited partners. Venture capital funds are institutional investors operating under fiduciary responsibility.

Liquidation Preference

Liquidation preference determines how proceeds are distributed to investors in the event of an exit. Multiple overlapping preferences can complicate capital stack design.

Option Pool

An option pool is a reserved allocation of shares for employees and future hires. Institutional investors evaluate option pool size relative to dilution and hiring plans.

Post-Money Valuation

Post-money valuation is the value of a company after investment capital has been added. It determines ownership percentages following a financing round.

Pre-Money Valuation

Pre-money valuation is the valuation of a company before new investment capital is added. It is central to negotiation during venture capital fundraising.

SAFE (Simple Agreement for Future Equity)

A SAFE is a convertible instrument that converts into equity during a priced financing round. While designed for speed, excessive SAFE stacking can complicate capital stack structure.

Seed Round

A seed round is an early-stage equity financing round that formalises valuation and governance expectations prior to larger institutional rounds.

Series A

Series A is the first significant institutional venture capital round. Investors at this stage evaluate financial performance, governance integrity, cap table clarity, and scalability.

SPV (Special Purpose Vehicle)

An SPV is a legal entity created to pool capital from multiple investors into a single investment. SPVs are commonly used in syndicate structures.

Structured Venture Capital Fundraising

Structured venture capital fundraising is a disciplined framework for raising institutional capital through valuation discipline, governance alignment, diligence architecture, capital stack design, and controlled investor execution.

Term Sheet

A term sheet is a non-binding agreement outlining the key terms of an investment, including valuation, governance rights, liquidation preferences, and investor protections.

Unit Economics

Unit economics measure the profitability of a single customer or transaction. Venture capital investors evaluate unit economics to assess scalability and sustainability.

Valuation Discipline

Valuation discipline refers to the development of defensible, stress-tested valuation logic before institutional investor engagement.

Venture Capital (VC)

Venture capital is institutional equity financing provided to high-growth startups in exchange for ownership and governance rights.

Mastery of venture capital terminology is foundational to institutional fundraising readiness.

Understanding these terms improves negotiation clarity, capital stack design, and venture capital execution discipline.

Founders who understand the structure behind the terminology are better positioned to raise institutional capital.