20 Fundraising Terminologies every founder should know

Have you ever attended a startup webinar or listened to an investor discussion and felt completely lost in the conversation? If that sounds familiar, you’re not alone. Many early-stage entrepreneurs find startup funding terminology overwhelming. With so many unfamiliar terms being tossed around, it’s easy to feel like you’re missing something. As a founder, it can be intimidating or even embarrassing when you don’t fully understand the language commonly used in the startup world.

This is why we’ve put together a list of commonly used fundraising terms with clear definitions to prepare you for your next fundraising conversation. Not only will your meetings be more productive but you’ll also know the terminology to take your fundraising efforts to the next level.

• Angel Investor:  These are individuals with significant personal wealth who invest in early-stage companies. Typically, it is their personal money and they get shares or some form of ownership mainly because the startup is at the beginning of its journey and poses a financial risk.
• Blended Finance: This is a strategic approach to mobilizing private capital for sustainable development by combining it with public or philanthropic funds.
• Bootstrapping:  When entrepreneurs fund their own startup using personal savings, revenue, or small loans, instead of seeking outside investors.
• Burn Rate: This term describes how quickly a company is using its cash to cover expenses before it starts generating positive cash flow.
• Convertible Note: This is a short-term loan that will convert into equity at a later date, usually when the company raises its next round of funding (like a Series A).
  

• Dilution: This happens when a company issues more shares, which reduces the percentage of ownership that current shareholders hold. This typically occurs during funding rounds.
• Dividends: Dividends are portions of a company's earnings distributed to shareholders as their share of the profits. These payments are usually made on a quarterly basis and are announced ahead of time, with the amount decided by the board of directors. They can be issued in the form of cash or additional shares. 
• Equity: This represents ownership in a company. Investors receive equity in exchange for their investment.
• Exit: An exit refers to the process in which an investor is eager to sell their company's shares to gain a return on their investment. This can occur through various solutions, such as an initial public offering (IPO), when the company goes public and the investor can sell shares on the open market, or through a merger or acquisition, when another company buys the investor's stake.

Funding Rounds (Seed Funding, Series A, B, C, IPO)

Funding rounds refer to the stages of startup funding, including pre-seed and seed funding, along with series A, B, C, and IPO. 

• Pre-seed funding is the earliest stage, which provides capital for entrepreneurs who are still in the ideation phase. 
• Seed funding which is considered the first real funding stage for startups as it is geared towards raising capital from investors to launch the product and hire people.
• Series A helps startups enter new markets, provided they have a tangible product and steady cash flow. The primary focus is on increasing the market presence and refining the business model. 
• Series B funding allows startups to expand into even larger markets. At this stage, companies are expected to have solid traction and an established user base. 
• Series C can prepare your business for broader market opportunities. Once a company has become profitable and is up for bigger challenges, like creating a new product or diving into new markets.
• An initial public offering (IPO) occurs when a company decides to go public and offers its shares for sale to the general public.

• Revenue sharing is a business model where two or more parties agree to share the revenue generated from a particular product, service, or activity.  It's a collaborative approach where each party contributes something valuable and receives a portion of the resulting profits.
• SAFE Note (Simple Agreement for Future Equity): A simplified version of the convertible note, designed to be faster and more affordable to execute.
• Term Sheet: This is a non-binding document that outlines the key terms and conditions of an investment, such as valuation, equity stake, and investor rights.
• Valuation: The estimated worth of a company. Valuation plays a crucial role in determining how much equity an investor will receive.
• Venture Capital (VC): VCs are firms that manage pooled funds from various sources (such as pension funds or endowments). They usually invest larger amounts into startups with high growth potential, in exchange for equity.

Final thoughts on fundraising terminologies

This glossary serves as a helpful foundation and understanding of these key terms will equip you to confidently navigate the fundraising ecosystem and drive your startup's success.

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