Startup Fundraising Glossary: 90 Terms, US and Europe

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90 terms. Last reviewed November 2026 by Daniel Faloppa, Managing Director, Equidam. Most definitions link to a related Equidam guide.

This glossary defines the 90 terms founders meet when raising a pre-seed, seed or Series A round, in plain English and in one or two sentences each. It covers valuation, instruments such as SAFEs and convertible loans, term-sheet clauses, legal documents, employee equity and metrics, including European terms such as ASA, BSA AIR, VSOP and STAK.

The few market figures are dated where they appear. Country tags: [US] United States, [UK] United Kingdom, [EU] continental Europe generally, [DE] Germany, [FR] France, [NL] Netherlands.

Definitions are general information, not legal or tax advice. Rules change and depend on your situation; check with a qualified adviser before acting.

Jump to: Valuation terms (19) · Rounds and process (9) · Instruments (17) · Term-sheet terms (16) · Legal documents (7) · Equity and ESOP (13) · Metrics (9)

A–Z: 0-9 A B C D E F G I L M N O P Q R S T U V W

Valuation terms

Valuation

An estimate of what a company is worth, built on stated assumptions about its future. In a funding round it is the starting point for a negotiation; the price investors actually pay can end up above or below it.

Price vs value

Price is what an investor pays in a specific deal, shaped by negotiation, market mood and terms; value is what the business is worth on its fundamentals. Knowing the value first gives founders a reasoned anchor when the price is negotiated.

Pre-money valuation

The value of the company immediately before new money comes in. The new investor’s price per share is set from it, so whatever is counted inside the pre-money (such as a new option pool) is paid for by the existing shareholders.

Post-money valuation

The pre-money valuation plus the new investment. The investor’s stake is the investment divided by the post-money valuation.

Fully diluted basis

Counting every share that exists or could exist: issued shares, granted options, the unallocated option pool and securities that will convert, such as SAFEs. Round prices and ownership percentages are usually quoted on this basis.

Scorecard method

A qualitative method that starts from the average pre-money valuation of recent early-stage rounds in the company’s region and adjusts it up or down by scoring the company against peers on weighted factors such as team, market and product. Equidam’s version uses six factors and a country baseline it publishes and refreshes twice a year.

Checklist method (Berkus)

A qualitative method, derived from Dave Berkus’s approach, that awards a share of a maximum pre-money valuation for each area of risk the company has retired: core team, idea, product and IP, strategic relationships and operating stage. Equidam weights those five areas unequally against a country ceiling.

Venture capital (VC) method

A method that estimates the company’s value at exit, discounts it back to today at the annual return the investor requires at the company’s stage, and subtracts the new investment to reach a pre-money valuation. It is the only one of Equidam’s five methods built around the investor’s required return.

Required return (target ROI)

The annual return an investor needs a single investment to promise, given that most early-stage investments return little or nothing. In the VC method it is the input that moves the result most, so Equidam publishes its stage-by-stage defaults.

DCF with long-term growth

A discounted cash flow method that projects free cash flow to equity, discounts each year by a survival rate and a cost of equity, and assumes the company keeps operating indefinitely at a modest long-term growth rate after the forecast period. Equidam also applies an illiquidity discount.

DCF with multiples

The same projections, survival rates, discount rate and illiquidity discount as the long-term growth version, but the terminal value assumes the company is sold at the end of the forecast at an industry EBITDA multiple. Running both versions keeps the choice between a going concern and an acquisition visible.

Discount rate

The rate used to turn future cash flows into today’s money, reflecting the time value of money and the risk of the investment. For startups it is mainly the cost of equity, because debt plays little role.

Survival rate

The probability that a company is still operating in a given future year. Equidam multiplies each projected cash flow by a country-level survival rate, so failure risk is modelled explicitly rather than hidden in a higher discount rate.

Illiquidity discount

A reduction applied to a private company’s calculated value because its shares cannot be sold quickly on a public market. Equidam applies it in both of its DCF methods.

Revenue multiple and EBITDA multiple

A company’s enterprise value divided by its revenue, or by its EBITDA (earnings before interest, taxes, depreciation and amortisation), usually taken from comparable listed companies. Revenue multiples are used for companies that are not yet profitable; Equidam uses an industry EBITDA multiple in the DCF with multiples, and revenue or EBITDA multiples in the VC method.

Pre-revenue

A company that has not yet earned revenue from customers. Its valuation leans on qualitative evidence (team, market, product) and on projections rather than on historical results.

Valuation report

A document that sets out a company’s valuation together with the methods, inputs and assumptions behind it, so a reader can check and challenge each one. Founders use it in investor talks, option grants and shareholder agreements.

409A valuation and fair market value [US]

A valuation of a US company’s common stock at fair market value (the price a willing buyer and seller with reasonable knowledge would agree), used so that option strike prices are not set below it under Section 409A of the US tax code. Three routes give a presumption that the value is reasonable, including an independent appraisal no older than 12 months (26 CFR 1.409A-1).

In Europe: there is no single equivalent; each country has its own rules for valuing shares under option.

Down round

A financing priced below the previous round’s price per share, as opposed to an up round (priced higher) or a flat round (the same price). A down round usually triggers the anti-dilution clauses of earlier investors.

Rounds and process

Pre-seed

The first outside money a company raises, often from angels, friends and family or accelerators, usually before or around its first product. Instruments at this stage are often SAFEs or convertibles rather than priced rounds.

Seed round

The round that funds the search for product-market fit, typically led by angels or seed funds. It can be a priced round or a set of SAFEs or convertible loans.

Series A

The first large priced round led by a venture capital fund, usually issuing a new class of preferred shares on terms set by the lead investor. It normally comes with a full set of legal documents, a board seat and investor protections.

Friends and family round

Early money from people the founders know personally, usually small and often on simple terms. A valuation and written terms still matter, because these shareholders stay on the cap table through every later round.

Lead investor

The investor who sets the main terms of a round, usually takes the largest ticket and often negotiates the term sheet on behalf of the other investors.

Term sheet

A short, mostly non-binding document that sets out the price and key terms of an investment before the full legal documents are drafted. Clauses such as exclusivity and confidentiality are usually binding.

Data room and due diligence

Due diligence is the investor’s legal, financial, commercial and technical check of a company before closing. The data room is the secure online folder holding the documents reviewed, such as incorporation papers, the cap table, contracts, financials and IP records.

Burn rate and runway

The cash a company spends each month beyond what it brings in (net burn), or its total monthly spending (gross burn). Runway is cash in the bank divided by monthly net burn: the number of months left before the money runs out.

Secondary sale (founder secondary)

A sale of existing shares by a founder, employee or early investor to a new buyer. The money goes to the seller, not to the company, so no new shares are issued.

Instruments

Priced (equity) round

A round in which investors buy newly issued shares at an agreed price per share, so the valuation is fixed at closing.

Preferred shares

Shares that carry extra rights over ordinary shares, typically a liquidation preference, anti-dilution protection and consent rights. Venture investors usually buy preferred shares.

Ordinary (common) shares

Shares without special economic preferences, usually held by founders and employees. “Common stock” is the US term; “ordinary shares” is used in the UK and much of Europe.

SAFE (simple agreement for future equity)

A contract in which an investor pays now and receives shares later, usually at the next priced round, with no interest and no maturity date. Y Combinator publishes the standard US forms (Y Combinator); despite the common nickname “SAFE note”, a SAFE is not debt.

Post-money SAFE

A SAFE whose valuation cap includes all SAFE money raised, so each holder’s stake just before the next priced round is at least the investment divided by the cap, and additional SAFEs dilute the founders rather than the other SAFE holders. It has been Y Combinator’s standard form since 2018 (Y Combinator); the priced round then dilutes SAFE holders like everyone else.

Pre-money SAFE

The older SAFE form, in which the cap is a pre-money figure and the SAFE shares are left out of the capitalisation used to set the conversion price. Each holder’s final stake depends on how many other SAFEs are issued, so SAFE holders dilute one another.

Valuation cap

The highest valuation at which a SAFE or convertible converts into shares. If the next round is priced above the cap, the investor converts at the lower cap price.

Discount (on conversion)

A percentage off the next round’s price per share at which a SAFE or convertible converts. When an instrument has both a cap and a discount, the investor gets whichever price is lower.

MFN (most favoured nation) clause

A clause that lets an investor adopt better terms the company later gives in a SAFE or other convertible issued before the next priced round. An uncapped MFN SAFE has no cap or discount of its own until then.

Convertible note [US]

A loan that converts into shares at the next priced round, usually with a discount, a valuation cap, interest and a maturity date. Unlike a SAFE, it is debt until it converts.

Qualified financing

The priced round, usually above a minimum size set in the contract, that triggers automatic conversion of a convertible note or loan.

Maturity date

The date by which a convertible note or loan must be repaid or converted if no qualified financing has happened. What happens then depends on the contract: repayment, conversion at an agreed price or an extension.

Convertible loan agreement (CLA) [EU]

The European name for a convertible loan, common in the Netherlands, Germany and other countries where a US-style SAFE does not map neatly onto local company and tax law. Interest usually accrues and is converted together with the principal (Noerr, for Germany).

Advance Subscription Agreement (ASA) [UK]

A UK agreement in which the investor pays now for shares issued later, at the next round or at a longstop date. For SEIS and EIS, HMRC’s guidance says the payment must not be refundable, carry interest, or be varied, cancelled or assigned, and that HMRC expects the longstop to be no more than six months after signing (HMRC VCM33025; HMRC VCM12025).

BSA AIR [FR]

A French warrant (bon de souscription d’actions, accord d’investissement rapide): the investor pays now and receives the right to subscribe for shares later, when a trigger event such as the next round occurs. French notaries describe it as the French counterpart of the SAFE (Congrès des notaires, 2022).

Wandeldarlehen [DE]

The German convertible loan, the usual early-stage instrument for a GmbH because issuing new shares needs a notarised capital increase (§ 53 and § 55 GmbHG). Until conversion it is a loan, typically subordinated and with interest that converts along with the principal (Noerr).

EPOS [NL]

A Dutch model agreement published by Capital Waters as the Dutch equivalent of the SAFE: the investor pays in advance for shares to be issued later (Capital Waters). Because shares in a Dutch BV can only be issued by notarial deed (art. 2:196 BW), conversion still needs a notary.

Term-sheet terms

Liquidation preference

The amount preferred shareholders receive before ordinary shareholders when the company is sold or wound up, usually 1x their investment. In Q2 2026, 95.8% of the 166 venture financings handled by the US law firm Cooley had a 1x preference (Cooley, Q2 2026).

Non-participating vs participating preference

With a non-participating preference the investor takes either its preference or its share of the proceeds as if converted, whichever is higher; with a participating preference it takes both. Non-participating is the norm in US-style deals: 96.4% of the financings Cooley handled in Q2 2026 used it (Cooley, Q2 2026).

In Europe: Orrick found a 1x non-participating preference in 77% of the 2025 European financings it reviewed and a participating one in 1% (Orrick Deal Flow 6.0).

Anti-dilution protection

A clause that gives an investor extra shares, usually through a lower conversion price, if the company later issues shares at a lower price than the investor paid. It is triggered by a down round, not by an exit.

Broad-based weighted average

The common form of anti-dilution, which lowers the conversion price to a weighted average of the old and new prices, reflecting both how many new shares are issued and how far below the old price, measured against all shares, options and convertibles outstanding. It moves much less ownership from founders than a full ratchet.

Full ratchet

An anti-dilution clause that resets the investor’s conversion price to the new, lower price, however few shares are sold at it. It is expensive for founders and uncommon: almost all 2025 European financings with anti-dilution protection used broad-based weighted average instead (Orrick Deal Flow 6.0).

Pay-to-play

A clause that penalises existing preferred investors who do not invest their share of a new round, typically by converting some or all of their preferred shares into ordinary shares.

Pro rata rights (pre-emption rights)

An investor’s right to buy enough shares in later rounds to keep its ownership percentage. “Pro rata rights” is the usual US term; in the UK and Europe the closest equivalent is pre-emption rights.

In Europe: UK and Dutch company law give existing shareholders pre-emption rights by default, which the articles or a shareholder resolution can limit or exclude (Companies Act 2006 s.561; art. 2:206a BW).

Protective provisions (consent matters)

A list of decisions the company cannot take without the approval of a set majority of investors, such as issuing new shares, selling the company or changing the articles.

Board seat (and board observer)

The right of an investor to appoint a director to the company’s board, which decides strategy, budgets and senior hires. A board observer may attend meetings and receive board papers but has no vote.

Drag-along

A clause that lets a defined majority of shareholders, often including a majority of the preferred, force the others to sell on the same terms when the company is sold.

Tag-along

A clause that lets minority shareholders join a sale by a majority shareholder on the same terms, so they are not left behind with a new controlling owner.

Right of first refusal (ROFR) and co-sale

ROFR gives the company or investors the right to buy shares a founder wants to sell before an outsider can, at the same price. Co-sale lets investors sell a proportional part of their own shares alongside the founder.

Exclusivity (no-shop)

A binding term-sheet clause that stops the company from negotiating with other investors for a fixed period while the deal is completed.

Warranties (and founder warranties)

Statements of fact about the company in the investment agreement, such as ownership of IP or no undisclosed debts, which give investors a claim if they turn out to be untrue. Founder warranties make the founders personally liable, usually capped.

Founder vesting and reverse vesting

Founder vesting is almost always reverse vesting: the founder owns the shares from day one, but if they leave early the unvested part can be bought back, often at nominal value or cost. In the US this is done with restricted stock and a company repurchase right; in Europe it usually sits in the shareholders’ agreement as leaver clauses.

Good leaver / bad leaver [UK/EU]

Clauses that set the price a departing founder or employee receives for shares they must sell back. A good leaver (for example, through illness) usually receives fair value for vested shares, and a bad leaver (for example, dismissed for cause) receives less.

Legal documents

Subscription agreement (investment agreement) [UK/EU]

The contract in which investors agree to subscribe for new shares at a stated price, with the company’s and founders’ warranties. It is the UK and European counterpart of the US stock purchase agreement.

Stock purchase agreement (SPA) [US]

The US contract for an investor’s purchase of newly issued preferred stock, setting out price, closing conditions and the company’s representations and warranties. NVCA publishes the standard US model documents (NVCA).

Shareholders’ agreement [UK/EU]

A private contract among shareholders that covers governance, transfers, leaver rules, drag- and tag-along and investor consents. In the US these terms are split across the investors’ rights, voting and ROFR/co-sale agreements.

Articles of association / certificate of incorporation

The company’s constitution, filed with the public register, which sets out share classes and their rights. “Certificate of incorporation” (or charter) is the US term; “articles of association” is used in the UK and most of Europe.

Disclosure letter [UK/EU]

A letter from the company and founders listing exceptions to the warranties; anything fairly disclosed in it usually cannot later support a warranty claim, depending on the agreement’s disclosure standard.

Side letter

A separate agreement giving one investor rights the others do not get, such as pro rata rights for a SAFE holder or extra information.

Notarial deed [NL/DE]

A deed executed before a civil-law notary. Issuing shares in a Dutch BV requires one (art. 2:196 BW), and in a German GmbH the subscription for new shares must be notarially recorded or certified (§ 55 GmbHG).

Equity and ESOP

Cap table

The capitalisation table: a list of every shareholder and every share, option and convertible, showing who owns what percentage on an issued and a fully diluted basis.

Dilution

The fall in an existing shareholder’s ownership percentage when new shares are issued. The number of shares they hold stays the same; their slice of the company gets smaller.

Option pool

Shares set aside for future employee options, expressed as a percentage of the company. Investors often ask for it to be created or enlarged before a round.

Option pool shuffle

Creating or enlarging the option pool inside the pre-money valuation, so that existing shareholders alone pay for it and the founders’ effective pre-money valuation is lower than the headline number.

Stock option

The right to buy a set number of shares at a fixed price (the strike price) in the future, usually granted to employees and subject to vesting. Using the option to buy the shares is called exercising it.

Strike price (exercise price)

The price an option holder pays per share when exercising. In several countries the tax treatment depends on how the strike compares with a reference value at grant, for example 409A in the US, EMI in the UK and BSPCE in France.

In Europe: in the Netherlands tax is charged on the share value minus the strike at exercise or, if the shares cannot yet be sold, when they become tradable (the employee can choose to be taxed at exercise instead), so granting options early does not save tax (art. 10a Wet LB 1964). A regime announced for qualifying start-ups and scale-ups would tax 65% of the benefit and defer tax until the shares are sold; it is not yet law (Forvis Mazars, Tax Plan 2027).

Vesting and cliff

Vesting is the schedule over which options or shares are earned, often four years; the cliff is an initial period, often one year, before anything vests.

ESOP (employee stock option plan)

The plan and rules under which a startup grants options to employees, including the size of the pool, vesting and leaver terms. In the US, “ESOP” can also mean an employee stock ownership plan, a retirement trust, which is a different thing.

VSOP / phantom shares [DE]

Virtual options or phantom shares give employees a cash payment linked to the value of the shares, usually on an exit, without making them shareholders. In Germany, payouts are taxed as wages and fall outside the §19a regime (BMF, 2024; Orrick).

Stock appreciation rights (SAR)

A right to a bonus equal to the increase in the value of a share, paid in cash, shares or depositary receipts. The holder does not own part of the company.

STAK (stichting administratiekantoor) [NL]

A Dutch foundation that holds a company’s shares and issues depositary receipts (certificaten) to employees or investors, separating the economic rights, which go to the receipt holders, from the voting rights, which stay with the foundation.

EMI options [UK]

Enterprise Management Incentives: UK tax-advantaged options for qualifying companies, where options granted at market value are normally free of income tax at exercise (GOV.UK). From 6 April 2026 the limits for most companies are £120 million of gross assets and fewer than 500 employees (HMRC ETASSUM50500).

BSPCE [FR]

France’s tax-favoured warrants for employees of qualifying companies, with the strike fixed at grant. If, in the six months before the grant, the company issued shares carrying rights equivalent to those obtained on exercise, the strike cannot be below that issue price, less any loss in value since (BOFiP).

Metrics

ARR and MRR

Annual recurring revenue (ARR) is the yearly value of a company’s recurring subscription contracts, excluding one-off fees; monthly recurring revenue (MRR) is the monthly figure, and MRR × 12 gives a run-rate ARR. ARR is a common basis for revenue multiples in software.

CAC and LTV

Customer acquisition cost (CAC) is sales and marketing spending in a period divided by the new customers won in it; lifetime value (LTV) is the gross profit a customer is expected to bring over the whole relationship. Investors compare the two to judge whether growth pays for itself.

Net revenue retention (NRR, NDR)

Recurring revenue from a group of existing customers at the end of a period divided by their revenue at the start, including expansion and subtracting churn and downgrades. It can exceed 100% when existing customers spend more.

Unit economics

The revenue and costs attributable to one unit of the business, such as one customer or one order, used to show whether each sale is profitable.

TAM (total addressable market)

The total yearly revenue available if every potential customer for the product bought it.

SAM (serviceable addressable market)

The part of the TAM (also called the serviceable available market) that a company can reach with its current product, channels and geography.

SOM (serviceable obtainable market)

The part of the SAM a company can realistically win in the next few years, given competition and its own capacity.

Growth rate

The percentage change in revenue (or another metric) over a period, usually month on month or year on year. In a DCF it drives the projections; the long-term growth rate after the forecast is a separate, much lower figure.

Financial projections

A forecast of revenue, costs, cash flow and headcount, usually for three to five years. They are the main input to the DCF and VC methods.

How to use this glossary with your valuation

Most of the terms above change what a valuation means for you in practice: a liquidation preference or an option pool shuffle can make the same headline number worth less to founders, and survival rates and required returns are inputs you can question. Equidam’s five valuation methods show each assumption openly, and you can run them on your own numbers.

Equidam runs five standard valuation methods on your own numbers, so you can show your investors where the figure comes from. See plans and start your valuation

A–Z index

Last reviewed November 2026 by Daniel Faloppa, Managing Director, Equidam. Corrections to any definition are made on this page with a dated note.