California and Idaho startups should be aware of key terminology associated with venture deals. 

Below is a list of the most common words and terms used by founders, startups, and venture capitalists – and their definition or common meaning:


A term that provides price protection for investors. This is accomplished by effectively repricing an investor’s shares to a lower price per share in the event a company completes a financing at a lower valuation than a previous financing round 


Valuation ceiling that exist in a convertible note deal 


A spreadsheet that defines the economics of a deal. It contains a detailed description of all the owners’ stock of a company. Captables are usually excel spreadsheets, and should have the capabilities to “model” different financing and exit scenario  

Common stock

The type of stock which has the least amount of rights, privileges, and preferences. Normally held by employees and founders. Value less than preferred stock 

Conversion & Convertible Debt

A debt or loan instrument that an investor gives to a company with the intent that it will convert later to equity and not be paid back as a standard bank loan would be 


Provision which entitles investors to convert their debt lent to the company into equity at a % lower than what the next investors pay for equity

Double trigger acceleration

Acceleration of the vesting of founder stock when both 1) acquisition and 2) termination of employment occurs

Due diligence

An audit of a company performed in order to disclose possible business liabilities or deficiencies. 


Ownership in a company 

Exercise and Exercise Price

Exercise- act of purchasing stock option or warrant. Exercise price- Price at which a stock option can be exercised ( and subsequently the price per share the employee pays for the stock option). 

Founder’s stock

Common stock issued to founders at a very low price at the formation of the company 

Fully diluted

A term explicitly defining that all rights to purchase equity should be in the valuation calculation 


Legal instrument called Keep It Simple Security used as an alternative to convertible debt. Also delays the need for valuation. Allows participation rights for any future rounds

Lead Investor

Investor leading the round and representing other investors. The Lead will negotiate the term sheet and the legal documents on behalf of the other investors 

Liquidity event

When a company is sold in an acquisition 

Liquidation preference

Right given to preferred class of stock to receive proceeds in a liquidation in advance of other classes of stock (Ex: 1x vs 2X; Participating vs Non-Participating)  

Most Favored Nation (MFN)

The right to get the equivalent terms to any future investors who may receive better terms in the future. Common in seed-investments. 

Negative Covenants

Behaviors and actions that the company may not engage in without the lender’s consent

Non participating preferred

Investor receives their liquidation preference OR the value of their converted common stock 

Option Pool

The shares set aside by a company to provide stock options to employees 

Pari Passu

When all classes of preferred stock have equivalent payout rights in a liquidation. For examples, Series A and Series B are paid out pro-rata rather than being “stacked” with the latest round being paid out first. 

Participating preferred

Investor receives their liquidation preference AND the value of their converted common stock 

Post Money

Value of the company after an investor has put money into company


Value ascribed to a company by an investor before investing in the company 

Pre-seed round

The round before a seed round. The first financing round in a company. Usually friends and family or Angels. Range of 50-500k 

Protective provisions

Contractual rights that allow the holders of preferred stock to vote on certain important matters pertaining to a company used as an alternative to convertible debt. Also delays the need for valuation


Legal Instrument called Simple Agreement for Future Equity Legal instrument used as an alternative to convertible debt. Also delays the need for valuation. 


Financial instrument that demonstrates ownership in a company

Single Trigger Acceleration

Acceleration of the vesting of founder stock when either 1) acquisition or  2) termination of employment occurs


A single unit of stock ownership 

Stock option

A right to purchase shares of stock in a company 


Form of asset representing the holder’s equity

Term sheet

A memorandum of understanding of the terms of an investment


The value ascribed to a company by an investor


The schedule upon which rights to equity convert to equity for founders and employees 

Voting rights

The specific rights of how preferred stock and common stock vote 


A right to purchase shares of stock in a company