Reference

Angel investing glossary

34 terms, plain-language definitions. Search to filter, or scroll to browse everything.

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Accredited investor: A legal qualification (income, net-worth or knowledge-based, depending on jurisdiction) required to participate in many private securities offerings, including most angel deals.
Angel investor: An individual who invests their own money into an early-stage company, typically at pre-seed or seed stage, in exchange for equity or a convertible instrument.
Anti-dilution protection: A clause protecting investors if the company later raises at a lower valuation, by adjusting their conversion price. See our anti-dilution deep dive.
Board observer: A right to attend board meetings without a vote — the realistic ask for most angel-sized checks, as opposed to a full board seat. See our board rights deep dive.
Burn rate: How much cash a company spends per month net of revenue — the key input, along with cash on hand, for calculating runway.
Cap table: A capitalization table listing every owner of a company’s equity and how much each holds. See our full cap tables guide.
Carried interest (carry): The share of profit — commonly 10–20% — that an SPV lead or fund manager keeps if a deal succeeds, with nothing owed if it fails. See our SPVs guide.
Convertible note: A loan that converts into equity at a later round, with an interest rate and maturity date — legally debt, unlike a SAFE.
Co-founder vesting: Founder shares earned gradually over time (commonly 4 years with a 1-year cliff) rather than owned outright at founding, protecting the company if a founder leaves early.
Dilution: The reduction in an existing shareholder’s ownership percentage that happens whenever a company issues new shares, such as in a new funding round.
Down round: A funding round raised at a lower valuation than the company’s previous round — usually a signal the company has not grown into its prior valuation.
Due diligence: The research an investor does on a company — team, market, traction, legal structure — before committing capital. See our due diligence checklist.
Exit: An event that lets investors convert their equity into cash — most commonly an acquisition or an IPO, and increasingly a secondary sale.
Follow-on investment: Additional capital an investor puts into a company in a later round, often exercised through pro-rata rights to maintain their ownership percentage.
Fully diluted shares: The total share count including every option, warrant and convertible instrument as if converted — the denominator used to calculate real ownership percentage.
Lead investor: The investor who sets the terms of a round and does the bulk of the negotiation and diligence, which other investors (including most angels) then follow.
Liquidation preference: The right to be paid first, and how much, before common shareholders when a company is sold or wound down. See our liquidation preference deep dive.
MOIC (multiple on invested capital): How many times an investment returned relative to what was put in — a $50,000 exit on a $10,000 check is a 5x MOIC.
Option pool: Shares reserved for future employee hires, usually 10–20% of the fully diluted cap table. See our cap tables guide.
Post-money valuation: What a company is worth immediately after a round closes — pre-money valuation plus the amount raised. See our valuation guide.
Pre-money valuation: What a company is worth immediately before a round’s new capital is added. See our valuation guide.
Pro-rata rights: The right, not the obligation, to invest more in future rounds to maintain your ownership percentage as the company raises additional capital. See our pro-rata rights deep dive.
Return / IRR: Internal rate of return — the annualized growth rate of an investment, accounting for how long the money was tied up, not just the total multiple.
Runway: How many months a company can keep operating at its current burn rate before running out of cash.
SAFE (Simple Agreement for Future Equity): An investment instrument, popularized by Y Combinator, that converts into equity at a future priced round, usually with a discount and/or valuation cap.
Secondary sale: An early investor selling part of their stake to another investor before the company exits, rather than waiting for an acquisition or IPO.
Seed round: Typically the first institutional-style round after pre-seed, used to reach meaningful traction ahead of a Series A.
Series A: Usually the first round led by an institutional venture capital fund at a priced valuation, following pre-seed and seed.
SPV (Special Purpose Vehicle): A simple legal entity created to hold a single investment, letting a group of backers pool capital into one line on a startup’s cap table. See our SPVs guide.
TAM (Total Addressable Market): The total revenue opportunity if a company captured 100% of its target market — a figure best built from a specific, winnable customer segment rather than a huge top-down number.
Term sheet: A short, mostly non-binding document setting out the terms of a proposed investment before lawyers draft the full agreements. See our term sheets guide.
Unicorn: A privately held startup valued at US$1 billion or more — a milestone several Latin American companies, including Nubank and Rappi, have passed.
Valuation cap: The maximum company valuation at which a SAFE or convertible note converts into shares, protecting early investors from being diluted at an unlimited future price.
Vesting schedule / cliff: The timeline over which founder or employee equity is earned — commonly 4 years with a 1-year "cliff" before any shares vest at all. See our vesting deep dive.