Venture Capital Terms Glossary: 70 Definitions, A to Z

Venture capital terms fall into two families: deal terms, which set how a startup raises money and who gets paid at exit, and fund terms, which describe how a venture firm raises, invests, and returns capital. This VC glossary defines 70 terms you are likely to meet in a term sheet, a fund document, or a VC interview.

Venture has a lot of jargon, and some of it exists mainly to make simple ideas sound expensive. Most of the deal terms answer one of three questions: who owns what, who gets paid first, and who gets a say.

Each definition is written to stand on its own, and most link to a full guide in the 1752vc library. If you are new to the industry, start with what venture capital is and how venture capital works.

Definition: Venture capital terms are the standard legal, financial, and structural words used to describe investments in startups and the funds that make them.

An illustrative worked example: five venture capital terms in one deal

Say a hypothetical startup raises $2M on SAFEs with a $10M post-money valuation cap. Under Y Combinator's post-money SAFE, the investors' ownership is $2M divided by $10M, or 20 percent, measured just before the next priced round.

A year later the company raises a $5M Series A at a $20M pre-money valuation. The post-money valuation is $25M, so the new lead investor owns 20 percent, and the SAFE holders are diluted from 20 percent to 16 percent (20 percent times 0.8). That assumes no new option pool: if the Series A also creates a pool equal to 10 percent of the post-money, YC's post-money SAFE excludes that pool from the conversion math, so the SAFE holders end at 14 percent (20 percent times 0.7).

The Series A stock carries a 1x non-participating liquidation preference. If the company later sells for $15M, the Series A investor chooses the larger of its $5M preference or its 20 percent share ($3M), so it takes $5M first and the remaining $10M goes to everyone else. Five terms, one story: SAFE, valuation cap, pre-money, post-money, and liquidation preference. Notice that most of the drama happens later: at conversion, and again at exit.

Venture capital terms from A to D

409A valuation. A 409A valuation is an independent appraisal of a private company's common stock, refreshed at least every 12 months or after a material event, so the company can grant options at fair market value without Section 409A penalty taxes.

506(b) and 506(c). Rules 506(b) and 506(c) are SEC Regulation D exemptions for private offerings: 506(b) bans general solicitation, while 506(c) allows it but only for accredited buyers whose status the issuer verifies. Under the SEC staff's March 2025 no-action letter, a minimum investment of $200,000 for individuals or $1 million for entities, plus written representations, can support that verification.

Accredited investor. An accredited investor, under SEC Rule 501(a), is an individual with net worth over $1 million excluding a primary residence (alone or with a spouse or spousal equivalent), income over $200,000 ($300,000 jointly) in each of the prior two years, or a Series 7, 65, or 82 license in good standing. Entities generally qualify with more than $5 million in assets or investments.

Advisory shares. Advisory shares are grants of common stock or non-qualified stock options to non-employee advisors, usually a fraction of a percent up to about 1 percent of the company, often vesting over 12 to 24 months under a written advisor agreement.

Angel investor. An angel investor is an individual, usually accredited, who invests personal money in early-stage startups, typically before or alongside venture funds. Founders can see the other side in our guide to raising from angel investors.

Anti-dilution provision. An anti-dilution provision is a charter term that lowers preferred investors' conversion price if the company later sells shares below the price they paid. Broad-based weighted average is the US standard; full ratchet is rare.

Blue sky laws. Blue sky laws are state securities statutes that require each offering to be registered or exempt in the state; for Rule 506 offerings, states cannot require registration but usually require a notice filing and fee.

Board observer. A board observer is a person, usually appointed by an investor, with a contractual right to attend board meetings and receive board materials, but with no vote and none of a director's legal duties.

Bridge round. A bridge round is interim financing, most often a SAFE or convertible note from existing investors, that carries a company to its next priced round.

Burn multiple. Burn multiple is net burn divided by net new ARR over the same period, a capital-efficiency measure popularized by David Sacks of Craft Ventures, who rates under 1x as amazing, 1x to 1.5x great, 1.5x to 2x good, 2x to 3x suspect, and over 3x bad.

Cap table. A cap table (capitalization table) is the record of who owns a company's shares, options, and convertible securities, shown on an outstanding, fully diluted, and pro forma basis. It is also, in our view, the document worth reading before the deck.

Capital call. A capital call, also called a drawdown, is a fund's formal notice asking limited partners to send part of their committed capital by a set date, usually to fund investments, fees, or expenses.

Carried interest. Carried interest, or carry, is the general partner's share of a fund's profits, paid only after limited partners get back their contributed capital (and any preferred return). Carta's Fund Economics Report 2025 puts the median at 20 percent.

Convertible note. A convertible note is short-term debt, with a principal amount, interest rate, and maturity date, that converts into equity at a later priced round, usually at the lower of a discounted round price and a price set by a valuation cap.

Corporate venture capital. Corporate venture capital is startup investing by an operating company, or a fund it controls, that pursues strategic goals alongside financial returns.

Deal flow. Deal flow is the volume and quality of investment opportunities an investor sees, usually tracked as companies reviewed per period and the share that advance at each stage.

Definitive documents. Definitive documents are the binding agreements that close a priced round after the term sheet: in the US, typically the stock purchase agreement, restated charter, investors' rights agreement, voting agreement, and right of first refusal and co-sale agreement, usually based on NVCA model forms.

Discount. A discount is a percentage reduction from the priced round's share price at which a SAFE or convertible note converts; with a 20 percent discount, the holder converts at 80 percent of the price new investors pay.

Down round. A down round is an equity financing priced below the company's previous round, so the new price per share and the new pre-money valuation are lower than before.

DPI (distributions to paid-in capital). DPI is the cash a fund has actually returned to limited partners divided by the capital they have paid in; a DPI of 1.0x means investors have their money back. See fund performance metrics.

Drag-along rights. Drag-along rights require minority stockholders to approve and join a sale of the company once the required holders (commonly the board, a set share of the preferred, and often a majority of the common) have agreed, on the same per-share terms.

Due diligence. Due diligence is the investigation an investor runs on a company's team, market, product, financials, and legal status before investing; founders prepare for it with a data room.

Venture capital terms from E to L

Entrepreneur in residence. An entrepreneur in residence (EIR) is an experienced operator who spends a period at a venture firm, often to develop, evaluate, or lead a new company.

Exit multiple. An exit multiple is either a valuation multiple (such as price to revenue) applied at exit to estimate a company's sale value, or the gross return on an investment at exit: proceeds divided by capital invested.

First Chicago method. The First Chicago method values a startup by weighting separate downside, base, and upside scenario valuations by their probabilities, which must add to 100 percent.

Follow-on investment. A follow-on investment is any money a fund puts into an existing portfolio company after its first check, whether in a priced round, a bridge, or a secondary purchase.

Form ADV. Form ADV is the SEC's registration and reporting form for investment advisers, including exempt reporting advisers such as many venture fund managers, updated at least annually within 90 days of fiscal year end.

Fund lifecycle. A fund lifecycle is the sequence a closed-end venture fund moves through: fundraising, an investment period of roughly 3 to 5 years, portfolio building, exits, and wind-down, within a term most limited partnership agreements set at 10 years plus extensions.

General partner. A general partner (GP) is the person or entity that manages a venture fund, makes its investment decisions, bears management responsibility, and earns carried interest.

Growth equity. Growth equity is a minority, mostly unlevered investment in an established, fast-growing private company, made to fund expansion rather than to find product-market fit.

Holding period. A holding period is the time between buying a security and selling it; in venture it often runs most of a decade, and it drives IRR, long-term capital gains treatment, and QSBS eligibility.

Investment committee. An investment committee is the group of partners at a fund who review and vote on whether the fund makes a new investment.

Investment thesis. An investment thesis is a firm's stated, testable view of which stages, sectors, and company types will produce above-market returns, and why the firm has an edge in them.

IRR (internal rate of return). IRR is the annualized return on an investment that accounts for the timing of every cash flow in and out.

Lead investor. A lead investor is the investor in a round who sets the valuation and terms, usually invests the most, runs the main diligence, and often takes the board seat, with others joining on the same terms.

Limited partner. A limited partner (LP) is a passive investor in a venture fund, such as a pension, endowment, foundation, or family office, whose liability is capped at its commitment.

Limited partnership agreement. A limited partnership agreement (LPA) is the contract between a fund's GP and LPs that sets the fund's term, investment period, management fee, carried interest, and governance.

Liquidation preference. A liquidation preference is a preferred stockholder's right to receive a set multiple of its investment, most often 1x, from sale or wind-down proceeds before common stockholders are paid.

Liquidity event. A liquidity event is a transaction, such as an acquisition, IPO, or secondary sale, in which private company shares are exchanged for cash or publicly tradable stock.

Venture capital terms from M to R

Management fee. A management fee is the annual percentage a fund charges its limited partners to cover operating costs; Carta's Fund Economics Report 2025 puts the median at 2 percent of committed capital during the investment period, and about 82 percent of venture funds on Carta step it down afterward.

Mezzanine financing. Mezzanine financing is subordinated debt that ranks below senior loans and above equity, carries a high interest rate, and usually includes warrants or conversion rights.

Most favored nation (MFN). An MFN clause lets an investor adopt better terms the company later gives similar investors; YC's uncapped MFN SAFE uses one in place of a cap or discount, without cherry-picking individual terms.

Option pool. An option pool is the block of shares reserved for future employee equity grants; when a priced round creates or enlarges it, investors usually require it in the pre-money valuation, so existing holders, including post-money SAFE holders, bear the dilution.

Pay-to-play. A pay-to-play provision converts a preferred investor that does not buy its pro rata share of a designated future round into common stock or a weaker class, stripping rights such as its liquidation preference.

Portfolio construction. Portfolio construction is an investor's plan for how many companies to back, how large each first check should be, how much to reserve for follow-ons, and which stages and sectors to focus on.

Post-money SAFE. A post-money SAFE, which Y Combinator adopted in September 2018, is a SAFE whose valuation cap is a post-money figure, so the holder's ownership equals the purchase amount divided by the cap and later SAFEs dilute the founders rather than earlier SAFE holders.

Post-money valuation. Post-money valuation is the company's value immediately after a round: pre-money valuation plus the new money raised. Each new investor's ownership equals its investment divided by the post-money valuation.

Pre-money valuation. Pre-money valuation is the value assigned to a company's existing fully diluted equity before new investment, and it sets the price per share for the round.

Pre-seed round. A pre-seed round is a startup's earliest outside financing, usually raised on post-money SAFEs before any priced round, to build an initial product and reach seed milestones.

Preferred stock. Preferred stock is the share class venture investors usually buy, carrying rights that common stock lacks, such as a liquidation preference, anti-dilution protection, and protective provisions.

Preemptive rights. A preemptive right is a stockholder's right, granted by the charter or by contract, to buy a proportionate part of a new stock issuance before outsiders; Delaware stockholders have none unless the charter grants it, so US venture investors usually get it by contract.

Pro rata rights. A pro rata right is an investor's contractual right to buy enough of a future round to keep its percentage ownership, on the same terms as new investors. "Preemptive" describes the legal nature of the right; "pro rata" describes the amount.

Protective provisions. Protective provisions are charter-based consent rights that stop a company from taking listed actions, such as selling itself, amending the charter, or issuing senior stock, without approval from a set percentage of the preferred.

Qualified small business stock (QSBS). QSBS is qualifying C corporation stock whose gains can be excluded from federal tax under Section 1202. For stock issued after July 4, 2025, the exclusion is 50 percent after three years, 75 percent after four, and 100 percent after five, up to $15 million (or 10 times basis) per issuer, with a $75 million gross assets limit.

Redemption rights. Redemption rights let preferred holders, after a stated date, require the company to buy back their shares for cash at a set price, subject to the company having funds legally available.

Right of first refusal. A right of first refusal (ROFR) requires a stockholder who receives an outside offer to first offer those shares, at the same price and terms, to the company and then to designated investors.

Venture capital terms from S to Z

SAFE. A SAFE (simple agreement for future equity) is a contract, created at Y Combinator in 2013, that converts into preferred stock at the next priced round and has no interest rate or maturity date. YC now offers three US post-money forms (cap only, discount only, and uncapped MFN) plus a pro rata side letter.

Scout. A scout is a part-time sourcer who refers or invests in startups on a firm's behalf in exchange for a finder's payment or a share of the carry on those deals.

Seed round. A seed round is usually a startup's first institutional financing, raised on SAFEs or as a small priced round, to find product-market fit and reach Series A milestones.

Series A. A Series A is typically a startup's first priced preferred stock round led by a venture fund, raised to scale a business that has shown early product-market fit; it usually sets the board structure and investor rights that later rounds build on.

SPV. An SPV (special purpose vehicle) is a pass-through entity, usually a Delaware LLC or limited partnership, formed to pool several investors into a single investment.

Strategic investor. A strategic investor is an operating company that buys equity in a startup to advance its own business goals as well as for financial return.

Term sheet. A term sheet is a mostly non-binding summary of an investment's key economic and control terms; NVCA lists no general-purpose model term sheet, so formats vary. Founders can start with our founder's guide to term sheets.

TVPI (total value to paid-in capital). TVPI is distributions plus remaining portfolio value, divided by capital paid in, so it measures a fund's total performance, realized and unrealized; it is covered in the same fund performance metrics guide.

Valuation cap. A valuation cap is the maximum valuation used to set the conversion price of a SAFE or convertible note, protecting early investors if the next round is priced high; in YC's post-money SAFE, the cap is a post-money valuation.

Venture capital method. The venture capital method values a startup by estimating its exit value, discounting it by a target return multiple, and adjusting for expected dilution to find the ownership an investor needs today.

Venture debt. Venture debt is a term loan or credit line to a venture-backed company, underwritten mainly on the strength of its equity investors and runway, and usually priced with interest, fees, and warrants.

Venture partner. A venture partner is a usually part-time investor at a firm who sources and supports deals and is paid mainly through a share of carry on those deals.

Venture studio. A venture studio is an organization that creates startups in-house, supplying the idea, team, and early capital in exchange for a large equity stake.

Vesting. Vesting is the schedule over which founders, employees, or advisors earn their equity; employee grants commonly vest over four years with a one-year cliff.

For the complete library, browse the venture capital section.

Learn these venture capital terms on real deals

A glossary gets you through the meeting. It won't get you through the term sheet. In our view, definitions stick when you have to use one under deadline. Fellows in 1752vc's Venture Fellow program, an 8-week course of live virtual sessions, work through case studies and real pitch materials where terms like pro rata and participating preferred turn up inside documents rather than inside lists, and they finish with a certification and a network of 400+ trained Fellows.

The bottom line

You don't need all 70 terms on day one. Learn the handful that decide ownership and payout order first, then pick up the rest as they show up in real documents.

The vocabulary gets you in the room.

The math behind it decides what you walk out with.

Key takeaways

Venture capital terms divide into deal terms, which shape a financing, and fund terms, which shape how a firm operates.
Valuation terms (pre-money, post-money, valuation cap) largely determine ownership, and preference terms determine who is paid first.
Under YC's post-money SAFE, ownership is the purchase amount divided by the cap, but a new option pool created in the priced round still dilutes SAFE holders.
Fund terms such as management fee, carried interest, DPI, and TVPI explain how investors and partners make money; Carta's 2025 data puts the medians at 2 percent and 20 percent.
Many rights, including pro rata, drag-along, and protective provisions, mostly matter at a later round or exit, which is why many investors negotiate them early.
In our view, a fast way to learn the vocabulary is to use it on a real cap table and term sheet.

Frequently asked questions

What are the most important venture capital terms?

In our view, the terms that matter most for founders are pre-money and post-money valuation, valuation cap, liquidation preference, option pool, pro rata rights, and board composition, because they shape ownership and control. For people entering VC, we would add carried interest, management fee, DPI, and TVPI, which explain how a fund and its partners make money.

What is the difference between deal terms and fund terms in venture capital?

Deal terms describe how a startup raises money and who gets paid at exit, such as valuation cap, pre-money valuation, liquidation preference, and pro rata rights. Fund terms describe how a venture firm raises, invests, and returns capital, such as management fee, carried interest, DPI, and TVPI. Founders mostly negotiate deal terms, while fund terms shape how investors behave.

What does carry mean in venture capital?

Carry, or carried interest, is the share of fund profits the general partners keep after limited partners get their contributed capital back, and sometimes a preferred return. Carta's Fund Economics Report 2025 puts the median at 20 percent. Carry is usually paid only when exits turn into cash, so it can take a decade to reach partners.

Where can I find standard venture capital deal documents?

The NVCA publishes free model legal documents for priced rounds, including the stock purchase agreement, charter, investors' rights agreement, voting agreement, and right of first refusal and co-sale agreement, but its site currently lists no general-purpose venture term sheet. Y Combinator publishes its post-money SAFE forms and a pro rata side letter for free.

Sources

Disclaimer: This guide is for general education only and is not legal, tax or investment advice. Laws, market data and program terms change, so it may not reflect the latest developments or fit your situation. Treat it as a starting point, not a source of truth, and talk to a qualified lawyer, accountant or financial adviser before you make decisions.