Startup Funding Glossary¶
175+ terms explained in plain English - from anti-dilution to zombie rounds.
Startup funding has its own language. Term sheets, shareholder agreements, and investor conversations are filled with jargon that can confuse even experienced entrepreneurs. This glossary demystifies the terminology, helping founders negotiate from a position of knowledge.
How to Use This Glossary¶
Each term includes:
- Plain English definition - No legal jargon
- Why it matters - Practical impact on founders
- Example - Real-world illustration
- Related terms - Connected concepts
- Chapter reference - Deep dive in the guide
View Complete Glossary (175+ Terms)
Glossary Categories¶
Funding Terms¶
Core concepts related to raising capital:
| Term | Quick Definition |
|---|---|
| Pre-money Valuation | Company value before new investment |
| Post-money Valuation | Company value after new investment |
| Dilution | Reduction in ownership percentage |
| Pro-rata Rights | Right to maintain ownership in future rounds |
| Bridge Round | Short-term funding between major rounds |
| Down Round | Funding at lower valuation than previous round |
Legal Terms¶
Agreement and document terminology:
| Term | Quick Definition |
|---|---|
| Term Sheet | Non-binding summary of proposed investment terms |
| SHA (Shareholders Agreement) | Binding contract governing shareholder rights |
| AoA (Articles of Association) | Company constitutional document |
| Drag-Along Rights | Force minority to sell with majority |
| Tag-Along Rights | Right to join a sale on same terms |
| ROFR (Right of First Refusal) | Right to match third-party offers |
Financial Terms¶
Numbers, calculations, and economics:
| Term | Quick Definition |
|---|---|
| Cap Table | Spreadsheet showing company ownership |
| Liquidation Waterfall | Order of payment in exit/liquidation |
| Fully Diluted | Ownership including all potential shares |
| IRR (Internal Rate of Return) | Investor return metric |
| MOIC (Multiple on Invested Capital) | Total return multiple |
| Runway | Months of operation at current burn rate |
Governance Terms¶
Control and decision-making concepts:
| Term | Quick Definition |
|---|---|
| Board Seat | Position on company board of directors |
| Protective Provisions | Investor veto rights on major decisions |
| Reserved Matters | Decisions requiring special approval |
| Voting Rights | Power to vote on shareholder matters |
| Observer Rights | Board attendance without voting power |
| Information Rights | Access to company financials and data |
Indian-Specific Terms¶
Terminology unique to India's startup ecosystem:
| Term | Quick Definition |
|---|---|
| CCPS | Compulsorily Convertible Preference Shares |
| FEMA | Foreign Exchange Management Act |
| DPIIT Recognition | Startup India registration status |
| Angel Tax | Tax on premium over fair market value |
| MCA Compliance | Ministry of Corporate Affairs filings |
| RBI Pricing Guidelines | Rules for pricing shares to foreign investors |
Deal Structure Terms¶
How investments are structured:
| Term | Quick Definition |
|---|---|
| Liquidation Preference | Priority payment in exit scenarios |
| Anti-Dilution | Protection against down-round dilution |
| Participating Preferred | Preference plus pro-rata common share |
| Vesting | Gradual earning of equity over time |
| Cliff | Minimum period before any vesting |
| Acceleration | Immediate vesting on trigger events |
Most Searched Terms¶
Based on founder questions, these terms cause the most confusion:
1. Liquidation Preference¶
What founders need to know: Determines who gets paid first (and how much) when your company is sold. A 1x non-participating preference is standard and fair. Watch out for 2x+ preferences or participating preferred - these can mean founders get nothing in moderate exits.
2. Anti-Dilution Protection¶
What founders need to know: Protects investors if you raise a down round. "Weighted average broad-based" is founder-friendly. "Full ratchet" is predatory - it can devastate founder ownership. Always negotiate for weighted average.
3. CCPS (Compulsorily Convertible Preference Shares)¶
What founders need to know: The standard instrument for VC investment in India. Unlike US SAFEs or convertible notes, CCPS must be used for foreign investment due to FEMA regulations. Understand conversion triggers and ratios.
Full explanation in Chapter 22
4. Drag-Along Rights¶
What founders need to know: Allows majority shareholders to force minorities to sell. Protects against holdouts blocking exits. Reasonable threshold: 75% approval. Watch for lower thresholds that reduce founder control.
5. Protective Provisions¶
What founders need to know: Investor veto rights over major decisions (new fundraising, acquisitions, hiring). Some protection is reasonable, but excessive provisions can paralyze company operations. Negotiate scope and duration.
Full explanation in Chapter 12
Quick Reference: Term Sheet Red Flags¶
| Term | Standard | Red Flag |
|---|---|---|
| Liquidation Preference | 1x Non-participating | 2x+ or Participating |
| Anti-Dilution | Weighted Average (Broad) | Full Ratchet |
| Board Control | Balanced (2-1-2) | Investor Majority |
| Vesting | 4 years, 1-year cliff | No acceleration |
| Founder Vesting | Credit for time served | Restart from zero |
| Protective Provisions | Standard list | Operational veto rights |
Browse the Complete Glossary¶
The full glossary in Appendix D includes:
- 175+ terms with comprehensive definitions
- Cross-references to relevant chapters
- Examples from real deals
- Indian context where applicable
- Warning indicators for problematic terms
Related Resources¶
- Term Sheet Analysis (Chapter 7)
- Dark Patterns to Avoid (Chapter 11)
- Indian Regulatory Framework (Chapter 22)
- Templates Library
