Key Terms Associated with Venture Capital

1. Investment Metrics

IRR (Internal Rate of Return): The annualized return on an investment, accounting for the timing of cash flows.
MOIC (Multiple on Invested Capital): Total value of investments (realized and unrealized) divided by the capital invested.
DPI (Distributions to Paid-In): The ratio of cash returned to investors compared to the total capital invested.
TVPI (Total Value to Paid-In): Combines DPI and the unrealized value of the portfolio to measure overall performance.
Markup Rate: The percentage of portfolio companies that have increased in valuation since the initial investment.
Write-Off Rate: The percentage of portfolio companies deemed unsuccessful or written off.

LP (Limited Partner): An investor in a VC fund who provides capital but does not participate in management.
GP (General Partner): The manager of a VC fund responsible for investments and operations.
Committed Capital: The total amount of capital pledged by limited partners to a VC fund.
Called Capital: The portion of committed capital that the VC has requested from limited partners.
Dry Powder: Unused, available capital that the fund has yet to invest.
Carry (Carried Interest): The share of profits that GPs receive after a fund achieves a minimum return for LPs.
Management Fee: The annual fee (typically 2%) that GPs charge to manage the fund.

Seed Round: Initial funding to support early-stage product development and market entry.
Series A/B/C, etc.: Successive rounds of funding used for scaling and growth.
Pre-Seed: Very early funding, often from friends, family, or angel investors, before the seed round.
Bridge Round: Interim financing to extend the runway until a larger funding round or liquidity event.
Convertible Note: A loan that converts into equity during a future financing round.
SAFE (Simple Agreement for Future Equity): An agreement for future equity without immediate valuation.

Angel Investor: An individual who invests personal funds in early-stage startups.
Institutional Investor: Large entities (e.g., pension funds, endowments) that invest in VC funds.
Family Office: Private investment firms managing wealth for high-net-worth families.
Corporate VC: Investment arms of large corporations targeting strategic or financial returns.

Pre-Money Valuation: The valuation of a company before new capital is invested.
Post-Money Valuation: The valuation of a company after new capital has been invested.
Cap Table (Capitalization Table): A spreadsheet that outlines ownership stakes, equity dilution, and the distribution of shares.

Runway: The length of time a startup can operate before running out of cash.
Burn Rate: The rate at which a startup spends its cash reserves.
CAC (Customer Acquisition Cost): The cost of acquiring a new customer.
LTV (Lifetime Value): The total revenue a company expects from a customer over their lifetime.
ARR (Annual Recurring Revenue): Revenue from subscriptions or contracts, annualized.
Churn Rate: The percentage of customers lost over a given time period.

Fund Lifecycle: The typical 10-year duration of a VC fund, divided into investment and harvest periods.
Liquidity Event: An event (e.g., IPO, acquisition) where investors realize their returns.
IPO (Initial Public Offering): When a company offers its shares to the public for the first time.
Acquisition: When one company purchases another, often resulting in an exit for investors.
Secondary Sale: When an investor sells their stake in a company to another investor before an exit.

Term Sheet: A non-binding document outlining the terms of an investment deal.
Equity Dilution: The reduction of ownership percentages when new shares are issued.
Pro-Rata Rights: The right of an investor to maintain their ownership percentage by participating in future funding rounds.
Liquidation Preference: The order and amount investors are paid in the event of a liquidity event.
Anti-Dilution Clause: Protects investors by adjusting their ownership percentage if new shares are issued at a lower valuation.
Drag-Along Rights: Allows majority shareholders to force minority shareholders to participate in a sale.
Tag-Along Rights: Protects minority shareholders by allowing them to join a sale initiated by majority shareholders.

Unicorn: A privately held startup valued at $1 billion or more.
Decacorn: A privately held startup valued at $10 billion or more.
Zebra: A sustainable, profitable startup (as opposed to high-growth unicorns).
Run Rate: A projection of future financial performance based on current revenue.
Down Round: A funding round where the valuation is lower than the previous round.
Up Round: A funding round where the valuation is higher than the previous round.
Pivot: A significant shift in a startup's business model or strategy.

EBITDA Multiple: A valuation metric based on a company's earnings before interest, taxes, depreciation, and amortization.
Revenue Multiple: Valuation based on a multiple of a company’s revenue.
P/E Ratio (Price-to-Earnings): A valuation metric comparing market price to earnings per share.