Fundraising Term Sheet Glossary

// Term: definition + example

// PRE-MONEY VALUATION
// The company valuation before new investment is added.
// Example: $4M pre-money + $1M raise = $5M post-money

// POST-MONEY VALUATION
// Pre-money valuation + the new investment amount.
// Investor ownership % = investment / post-money valuation

// DILUTION
// Reduction in existing shareholders' ownership % when new shares are issued.
// Example: You own 60% → company raises at 20% new equity → you own 48%

// SAFE NOTE (Simple Agreement for Future Equity)
// Converts to equity in the next priced round.
// Key terms: valuation cap, discount rate, pro-rata rights
// No interest, no maturity date, no debt — investor-friendly for seed stage

// VALUATION CAP
// The maximum valuation at which a SAFE converts.
// Example: $5M cap SAFE converts at $5M even if company values at $15M in Series A

// DISCOUNT RATE
// % discount on next round price for SAFE holder.
// 20% discount: if Series A is $10/share, SAFE holder pays $8/share

// PRO-RATA RIGHTS
// Right to invest additional capital in future rounds to maintain ownership %.
// Important for early investors to avoid being diluted out of large exits

// LIQUIDATION PREFERENCE
// Investors get paid before founders in a sale.
// 1x non-participating: investor gets investment back OR converts to equity
// 1x participating: investor gets investment back AND a share of remaining proceeds

// ANTI-DILUTION PROTECTION
// Adjusts conversion price if company raises at a lower valuation (down round)
// Full ratchet: worst for founders
// Weighted average: standard and reasonable

// DRAG-ALONG RIGHTS
// Majority shareholders can force minority shareholders to approve a sale.

// TAG-ALONG RIGHTS
// Minority shareholders can join a sale at the same terms as majority.

// BOARD SEAT
// Investor representation on the board of directors.
// Series A: typically 1 investor seat on a 3-5 person board

// INFORMATION RIGHTS
// Investor right to receive financial statements and updates.

// NO-SHOP CLAUSE
// Prevents founders from soliciting other offers during term sheet exclusivity period (30-60 days).

// VESTING (founder)
// 4-year vesting with 1-year cliff — standard for founders in equity rounds.