VC Terms Flashcards
Rule 506(b)
A legal “safe harbor” that allows issuers of non-public stock to sell interests to accredited investors without having to register with the SEC. Under this provision, issuers cannot engage in “general solicitation”, such as advertising.
Run Rate
The run rate is how the financial performance (usually revenue) of a company would look like if the current results are extrapolated out over a certain period of time.
SAFE
A SAFE or safe stands for a “simple agreement for future equity”. This document was authored by Y Combinator lawyer Carolynn Levy and open sourced. It was created and published as a simple replacement for convertible notes. In practice a SAFE enables a startup company and an investor to accomplish the same general goal as a convertible note, though a SAFE is not a debt instrument.A SAFE is an agreement that can be used between a company and an investor. The investors invests money in the company using a SAFE. In exchange for the money, with a SAFE, the investor receives the right to purchase stock in a future equity round (when one occurs) subject to certain parameters set in advance in the SAFE.
Super Pro Rata
Super pro-rata right the investor (let’s say in your A round) will ask for more than their pro-rata right.
Side Letter
Agreement between the fund and the individual investor.
Seed Round
The earliest round of fundraising, typically backed by a company’s founders, their friends, family, or Angel investors. The company is generally not generating revenues and is in the process of developing their product.
Senior Liquidation Preference
An entitlement given to a certain class of shareholders that gives them a higher liquidation preference over other shareholders. Also known as Stacked Preference.
Separation Agreement
Not always one document, the “Separation Agreement” refers to the entire package of rights and considerations when an employee amicably leaves a company. In addition to severance pay, separation agreements often include provisions about non-disparagement, non-disclosure, and vesting of equity.
Shareholder Agreement
A contract that sets out how the company will be operated and the shareholders’ obligation and rights. It often provides protection to minority shareholders.
Shareholder Limit
Established by Section 12(g) of the Exchange Act, requires that private companies register with the SEC, depending on certain criteria, including the type of shareholders and the total number of shareholders.
