VC Terms

Question 1

Anti-dilution Clause

Answer 1

Contractual clause that protects an investor from having their investment as a percentage of ownership significantly reduced in subsequent rounds of fundraising. Technically the provision increases the number of shares of Common Stock issuable upon conversion of a convertible security or upon exercise of a warrant or option upon the occurrence of specified events, usually the issuance of more shares for a low price.

Question 2

Blended Preferences

Answer 2

When all classes of preferred stock have equal payment rights in the event of a liquidation

Question 3

Bootstrapping

Answer 3

Business strategy by which a startup self-finances, eliminating the need for seed or angel investment. Typically achieved through lean operation and a product that generates revenue early in the companies life cycle.

Question 4

Bridge Loan | Financing

Answer 4

A loan given to a startup by investors that serves to fund the company until the next round of financing. The bridge loan is usually converted into equity at the next equity financing of the company.

Question 5

Burn Rate

Answer 5

Rate at which a company consumes cash to cover expenses. Typically expressed monthly or weekly. Usually applied to a company with no revenues, to give a metric of financial health and fundraising needs. A company with a low burn rate can theoretically operate longer without new injection of capital.

Question 6

Capital Call

Answer 6

When a fund makes an investment and messages the LPs to put capital into the fund account to invest in the portfolio companies.

Question 7

Cap Table

Answer 7

An official document that shows the capital structure of a company, including the specific ownership level by investor. Generally used to view the percentage ownership that each investor or employee owns of a certain company. For great tool check out http://captable.io/.

Question 8

Carried Interest

Answer 8

The share of generated profits that an investment manager is entitled to keep as compensation. Typical venture capital fund incentive fees range from 20% to 30%, depending on the fund. This can also be referred to as an “Incentive Fee” or a “Performance Fee.”

Question 9

Clawback

Answer 9

A clawback or clawback provision is a special contractual clause typically included in employment contracts by financial firms, by which money already paid must be paid back under certain conditions.

Question 10

Cliff

Answer 10

Employee stock vesting agreements generally have a cliff, usually one year, before which no employee stock options vest.