The words investors and founders use, defined plainly.
- pitch deck
- A pitch deck is the short slide document a company shares with investors — usually 10 to 15 slides. It walks through the problem being solved, the solution, how big the market is, what traction exists so far, who the team is, and how much money is being raised and why. Investors read decks quickly and share the good ones internally, so it is often the first thing that decides whether a company gets a real conversation.
- traction
- Traction is proof that people actually want what a company is building. It can be paying customers, active users, revenue, signed contracts, or usage that grows week over week. Early on, even small numbers matter: "12 paying customers" is real evidence, while "strong demand" is just a claim. Traction is what turns a story into something an investor can believe.
- valuation
- A valuation is the agreed-upon worth of a company at the moment it raises money. If a company is valued at $10M and raises $2M, the investors together own about 20% afterward. Early-stage valuations are negotiated more on the team, market, and traction than on profit, because most young companies do not have profit yet.
- pre-seed
- A pre-seed round is often the first outside money a company raises, before it has a finished product or revenue. It funds building an early version and testing whether the idea works. Amounts are typically small, and investors are betting mostly on the founders and the problem.
- seed round
- A seed round is early financing meant to turn an idea into a working product and find the first real customers. It usually comes before a company has steady, predictable revenue. Investors at this stage are still betting largely on the team and the size of the problem, but they expect to see early signs of traction.
- series a
- A Series A is typically the round after seed. By this point investors expect a working product, real customers, and evidence that growth can be repeated — not just a promising idea. The money usually funds scaling the team and the go-to-market engine that is already showing signs of working.
- market size
- Market size estimates how big the opportunity is, usually measured as the total amount spent every year in the market a company serves (sometimes called TAM, "total addressable market"). Investors care because even a great company is limited by a small market. A credible market-size story explains who the customers are and what they already spend today.
- cap table
- A cap table (capitalization table) is the record of who owns how much of a company: founders, employees with stock options, and investors from each round. It matters because every new round changes these percentages, and a messy or unusual cap table can make future investment harder.
- runway
- Runway is how long a company can keep operating before it runs out of money, given how fast it is spending. If a company has $600k in the bank and spends $50k a month, it has about 12 months of runway. Founders raise their next round well before runway ends, because raising while nearly out of cash is far harder.
- moat
- A moat is whatever makes a company's advantage hard for competitors to copy. It might be proprietary technology, a network that gets more valuable as more people join, unique data, regulatory approval, or a trusted brand. Investors look for a moat because a good idea with no moat can be quickly imitated by better-funded rivals.
- burn rate
- Burn rate is how much money a company loses each month — the gap between what it spends and what it earns. A high burn rate is not automatically bad if it is buying fast growth, but paired with short runway it is a warning sign. Burn rate and runway together tell you how much time a company has to prove itself.
- lead investor
- The lead investor in a funding round is the one who negotiates the price and terms and typically puts in the largest amount. Other investors often follow the lead's judgment. A strong, well-known lead can make a round easier to fill and signals credibility to the market.
- term sheet
- A term sheet is the one-to-three page summary of a proposed investment: how much money, at what valuation, and what rights the investor gets. It is mostly not legally binding, but in practice it decides everything — the final contracts follow it closely. Read every line before signing; changing terms after a signed term sheet is much harder.
- dilution
- Dilution is what happens to your ownership percentage when the company issues new shares — in a funding round, for an employee option pool, or to an advisor. If you own 50% and the company sells new shares equal to a quarter of the company, you now own 37.5%. Dilution is normal and expected; what matters is whether what you gave up bought something worth more than it cost.
- liquidation preference
- A liquidation preference says that when the company is sold or wound down, investors get their money back (usually 1x what they invested) before founders and employees receive anything. A "1x non-participating" preference is the standard. Multiples above 1x, or "participating" preferences, mean investors take more off the top — sometimes leaving founders with little even in a decent sale.
- participating preferred
- Participating preferred stock lets an investor take their money back first (the liquidation preference) and then ALSO take their percentage of everything left over. In a modest sale this can consume most of the proceeds. Standard early-stage deals use non-participating preferred — the investor chooses either their money back or their share, not both.
- anti-dilution
- Anti-dilution provisions protect investors if the company later raises money at a lower valuation (a "down round") by giving them extra shares. The standard version, broad-based weighted average, adjusts modestly. "Full ratchet" reprices their entire investment at the new lower price and can transfer a large slice of the company from founders to earlier investors in one stroke.
- option pool
- An option pool is the block of shares set aside to hire and reward employees. Investors usually require one before they invest — created from the founders' ownership, not theirs (the "option pool shuffle"). A demand for an unusually large pool pre-investment is effectively a lower price wearing a disguise. Pools of 10–15% are common; interrogate anything bigger.
- safe
- A SAFE (Simple Agreement for Future Equity) is a short standard document where an investor pays now and receives shares later, when the company raises a priced round. There is no interest or maturity date, which makes it simpler than a convertible note. The valuation cap and discount are the terms that matter — they set what the investor effectively paid. Stacking many SAFEs without tracking the combined dilution is a common and painful surprise at the next round.
- convertible note
- A convertible note is legally a loan that is intended to convert into shares at the next priced round, usually with a valuation cap and discount. Unlike a SAFE it accrues interest and has a maturity date — if the round never comes, the note can technically come due as debt. Know the cap, the discount, the interest rate, and what happens at maturity before signing.
- pro rata rights
- Pro rata rights let an investor put more money into later rounds to maintain their ownership percentage. They are standard and usually harmless. What deserves attention are super pro rata rights (the right to a LARGER share of the next round) — they can crowd out new investors and complicate future fundraising.
- board seat
- The board of directors approves major decisions: raising money, selling the company, replacing the CEO. Whoever controls the board controls the company, regardless of ownership percentages. At the earliest stages a founder-controlled board is normal; giving away board control in a small early round is one of the most expensive mistakes a founder can make, because it cannot be easily undone.
- no-shop clause
- A no-shop (exclusivity) clause in a term sheet commits the company to stop talking to other investors while the deal is finalized. Thirty to forty-five days is customary. A long or open-ended no-shop takes away your leverage: if the investor slows down or retrades the terms, you have nowhere to go and a shrinking runway.
- due diligence
- Due diligence is the investigation before an investment closes: financials, contracts, code, team, references. Serious investors always do some. It works both ways — call founders the investor has previously backed, including ones whose companies failed, and ask how the investor behaved when things went badly. That answer tells you more than any pitch meeting.