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An angel syndicate is an informal group of individuals who source and invest in startups together. Angel syndicates and angel groups were formed in response to the Jobs Act of 2012, which enabled the creation of special-purpose vehicles (SPVs). Syndicates leverage the SPVs to invest in startups as a single entity.

Annual Recurring Revenue (ARR) is a financial metric that measures the expected recurring revenue or cash flow from a company’s customer base on an annual basis. It represents the predictable and consistent revenue a business can expect from its customers yearly based on their subscriptions, recurring billing agreements and renewals, and add-ons. ARR helps forecast long and short-term future revenue and monitor the company’s growth of its recurring revenue streams.

Anti-dilution protection is a contractual provision included as part of a stock purchase agreement, that protects early shareholders in a company from future dilution from down rounds. Investors typically require anti-dilution protection because they want to maintain their ownership stake and minimize the downside risk associated with their investment. Early-stage investors are more likely to require anti-dilution protection, as the risk (and subsequent need for protection) decreases in future rounds.

An asset-lite business model is a strategy that allows the company to increase operational flexibility, reduce costs and its amount of capital, and increase its speed to market, making it popular in industries such as retail, hospitality, and transportation. In the asset-light approach, the value of intellectual property often plays a critical role in the business's success. Franchising can be considered an asset-light business model, as it allows a company to expand its operations without investing heavily in physical assets.

A bill of exchange is a written order, or financial instrument, used to direct a person or organization to pay a specified sum of money to another person or organization at a future point in time. Bills of exchange are commonly used in international trade to make payments between parties who may be based in different countries. When, a bill of exchange applies to domestic transactions is typically referred to as a “draft” or “draught”.

Bridge loans, also known as “bridge financing” are typically a type of short-term loan taken out for a period of 6 to 12 month for the purpose of “holding-over” a company until they can secure longer-term financing (such as an equity round) or when they expect to receive significant cash inflows from a signed deal. Startups often leverage bridge loans to solve a variety of short-term cash flow and working capital related problems since they can be obtained quickly.

Bullet loans are a unique type of debt financing where rather than making monthly payments that go towards the principal of the loan, the borrower either makes no monthly payments or interest-only monthly payments for the life of the loan. At the end of the loan term, they make a single payment to satisfy the principal and interest repayment.

A company’s burn rate is the difference between its gross revenue collected and operating expenses, and is a term commonly used when referring to companies who have not yet reached profitability. It is typically calculated on a monthly basis. When a company has a burn rate above $0, that means it loses money or is cash flow negative. For example, if a company has a burn rate of $2.5 million, the company is losing $2.5 million per month. 

Convertible notes are one of the most popular forms of startup funding due to their straightforward structure and predefined terms. Convertible notes are debt instruments with a short maturity date (usually between one to three years) that are converted into equity when certain conditions are met. They can be used throughout the lifecycle of a startup, but are typically used when the startup hasn’t raised a price round. They enable founders to raise capital quickly without giving up too much equity upfront, which makes them an attractive option alongside SAFEs.

Startups raise capital for a variety of reasons including runway extension and the acceleration of their growth. The traditional vehicles for capital raising: venture capital and venture debt—have their advantages and drawbacks, the largest being the lack of transparency around the total cost of the capital. While these forms of financing give startups the necessary capital injections to jumpstart their business and they seem relatively inexpensive at the time, they can mean the difference between millions or billions of dollars in the pockets of the founding team. There are a multitude of factors that go into determining the total cost of capital, hence the need for this guide.

Down rounds occur when a company raises capital by selling shares at a price lower than the shares sold in previous rounds. For example, suppose a company sold 1M shares (10% of the company) at $10 per share in its series A. The company then decides to sell another 1M shares for its series B (10% of the company) but at a price of $5 per share. The company has experienced a down round because the valuation has dropped from $10M to $5M.

Drag along rights are a type of contractual provision that enable majority shareholders to force minority shareholders to sell their shares in a company. This can happen in a liquidation event, such as the sale of the company or the company filing to go “public”. While triggering these rights can force minority shareholders out of a company, the minority shareholders will get the same price, conditions, and terms as the majority shareholders.

The duty of care is the ethical and legal responsibility of a company's executive leadership to act and make decisions in line with the reasonable standard of care. It requires executives to make decisions reasonably, in good faith, and while taking the utmost care to fulfill their fiduciary duties. To ensure they comply, executives must be involved in all legal, financial, and personnel developments.

The duty of loyalty is the fiduciary responsibility of the Officers and executives of a corporation, which requires them to act in the best interests of the corporation and its shareholders and avoid putting their own interests ahead of the company. A breach of the duty of loyalty occurs when a director or executive uses their position of power for personal gain or for personal benefit at the expense of the company. 

Equity dilution is a decrease in the ownership percentage of a shareholder in a company, particularly in the venture capital industry. This occurs for various reasons, such as the issuance of new shares, the conversion of preferred shares into common shares, or the exercising of stock options (though technically this dilution is already accounted for in the pool of total outstanding shares, even if not exercised).

Equity financing is a form of fundraising in which an investor provides capital to a company in exchange for an ownership stake in the entity. The capital is typically used to hire employees, attract new customers and fund the day-day operations of the business. Venture capitalists, angel investors, private equity groups and more all invest in companies via equity financing. 

Founders equity, like common or preferred stock, is a form of ownership in a company. As the name suggests, it is typically only issued to the founders (and first employees) of a startup. Individuals who own this form of stock are granted special rights and privileges that are not available to common shareholders, such as the ability to vote on the company's executive team, strategy, operations, and future fundraising efforts as the company grows.

Friends and family rounds are a type of fundraising used by founders to grow their businesses. Founders ask their closest friends, family, and connections for investments in their business, in exchange for equity in the company. It’s typically the first outside capital that founders raise when starting their business, as it is typically not subject to the rigors of traditional venture capital.

Fully diluted shares refer to the total number of shares a company would have if all its outstanding convertible securities, such as convertible notes, stock options, and warrants, were exercised. This number is important because it provides a comprehensive view of a company's outstanding shares and their total potential dilution.

A funding round occurs when a startup seeks to raise capital from either new or existing investors; it concludes when said transaction is complete. Typically funding rounds grow in terms of both size and scope as the startup scales its operations and boosts its valuation. However, sometimes a new funding round may be lower than a previous round, when this happens it's referred to as a down round.

Growth capital, as the name suggests is used to fuel a startup's next phase of growth. Typically it’s deployed directly into the go-to-market function, more specifically into direct outbound ad campaigns, events, or field marketing and the hiring of sales staff. Growth capital comes from various sources, including private equity firms, investment banks, institutional investors, and later IPOs if the startup goes public.

Invoice financing allows startups to get cash quickly by selling their outstanding invoices to a third-party financing provider, or lender, typically at a discount. The lender then advances a percentage of the invoice value, often between 70% and 90%, providing startups with immediate working capital. Invoice financing is useful for startups looking to improve cash flow, smooth seasonal demand, or take advantage of growth opportunities without taking on additional debt.

A liquidation preference is a key term in any investment or lending agreement. It gives the investor or creditor the right to have their investment repaid before any other creditors in the event of a company's bankruptcy or liquidation. This protection can be vital for investors and creditors, as it ensures that they will not lose out if the company goes under.

A liquidation waterfall outlines the order in which the company's funds will be paid out to holders of its various classes of shares in a “liquidation event”, such as a merger, acquisition or public listing. It also outlines the order in which debt holders will be paid out in a “liquidation event”. The liquidation waterfall is typically set forth in a company's articles of incorporation or bylaws.

Merchant cash advances are designed for businesses that have a need for immediate capital and don’t have time to go through the typical 2-3 month process of venture capital or venture debt. Funding from merchant cash advances is often used to manage cash-flow shortages, cover a variety of short-term expenses, and accelerate a startup's growth to improve their business fundamentals.

Mezzanine financing is a hybrid form of debt and equity financing, similar to a SAFE or convertible note, except that it gives the lender the right to convert its debt position into an equity interest in the event of default (unlike a SAFE, where the trigger for equity conversion is not a default). The equity component is in the form of warrants, which enable the lender to achieve a greater level of flexibility when dealing with bondholders.

The most-favored-nation clause — also referred to as the MFN clause — enables early investors to receive the same terms as later investors, if the later investor received “better” terms than the earlier investor did. MFN clauses are most common in venture capital, particularly in early-stage investments, where a Simple Agreement for Future Equity (SAFE) or Convertible Note is used.

Negative cash flow (also known as negative operating cash flow) occurs when the cash outflows from a business exceed its cash inflows during a period. It is shown on either a cash flow statement, an income statement, or both and is the opposite of positive cash flow. In essence, this means that the startup is spending more money than it’s bringing in, leading to burn and a net loss of cash on its balance sheet.

Non-dilutive funding is a financing tool businesses can deploy to fund their operations. Non-dilutive funding differs from dilutive financing options in that the business is not giving up equity (diluting their ownership) in exchange for capital.

The post-money valuation is the dollar figure that describes what a company is worth following a capital injection in the business. When negotiating term sheets, a company’s post-money valuation is used by all the major types of investors including individual investors, angels, angel syndicates, angel groups, and venture capitalists.

Pre seed funding is often the first formal round of capital raised by a startup. This form of startup funding is often provided by angel investors, angel syndicates, or even the founders themselves and is typically proceeded by friends and family rounds. It’s a great way for startups to jumpstart the development of their product or service and build a foundation for future rounds of funding.

Pre money valuation describes the value of a startup, not including the capital that is being raised as part of the current round. The pre money valuation of a startup is used by angel investors, angel groups, angel syndicates and venture capitalists alike. While there are no hard and fast rules surrounding the use of pre or post valuation, generally speaking, as a founder you should push for pre money valuation.

Pro rata rights (also known as “participating rights”) are a contractual provision that give investors the right to maintain their percentage ownership (and their voting power) even when new shares are issued in future equity raises. One important note is that the investor needs to put in additional capital in future rounds to maintain their equity percentage—if they choose not to invest, they get diluted.

Protective provisions are the set of terms that ‘protect’ an investor's rights such as their ability to veto a decision or action that they do not agree with—e.g. the issuance of more stock, the liquidation of the company, or the acquisition of the company. Protective provisions mitigate risk for investors and help protect the interests of minority shareholders in the event that there is a disagreement regarding the best course of action for the company.

Receivables factoring, also known as accounts receivable factoring, is a type of business financing in which a company sells its receivables (invoices) to a third party at a discount to raise capital. The recipient of the funding then pays back the financier over the following six to nine months.

Accounts receivable financing is a financing option available to business owners who want to use their accounts receivables as collateral for a loan. This type of financing can be used to free up working capital, which can be used for expansion or other business needs.

Recurring revenue is revenue that a company can reasonably expect to receive regularly, which could be daily, weekly, monthly, or annual. Recurring revenue is also sometimes called subscription revenue because it is often associated with companies that offer subscriptions to their products or services.

Redemption rights, also known as redemption provisions, are a type of contractual agreement between investors and the startups they have backed. These provisions are included in term sheets and enable investors to redeem their shares if certain circumstances occur, such as 1) a startup fails to meet performance targets or 2) a startup experiences an “adverse change” to its business.

Revenue-based financing (RBF) is a type of business funding in which a company secures capital by selling rights to their future projected revenue streams at a discount. This is a win-win for both parties, as the startup receiving the capital can eliminate the time gap between customer-go-live and the eventual bump to their top-line revenue, and the financer generates a return. 

The right of first refusal is a contractual provision that gives venture capitalists and other investors in a startup the right to match or exceed competing offers within a specified period. If the investor decides to invoke their rights and match or exceed the current offer, the startup must accept the terms of said offer. If the investor declines to invoke their rights, the startup is then free to accept the competing offer.

A company’s run rate is a measure of its financial performance based on its current rate of revenue generation. It’s also sometimes used when there is a shift in the fundamental business operations, such as launching a new product, or shutting down another. Typically, run rates are calculated based on a period of no less than three months, and are extrapolated to one year.

SAFE stands for “Simple Agreement for Future Equity.” SAFEs are a form of convertible financing used by startups to raise money from investors. In exchange for future equity in the startup, investors agree to provide financing today. SAFEs are similar to convertible notes, but they are not debt instruments, they’re simpler and are typically executed more quickly.

Seed funding is a form of startup funding that is used by early-stage companies to get off the ground, e.g. develop the product, and hire a team. Typically startups raise seed funding following a friends and family round, SAFE, or another initial round of funding. Seed funding is usually raised from venture capitalists, angel groups, and angel syndicates following the completion of an accelerator or incubator, but it may also be raised from individual angel investors or accredited investors.

Senior debt, also known as senior notes or senior loans, is a form of debt financing that allows startups to raise capital from lenders such as banks, private equity funds, venture capital firms, and other financial institutions. The financing can be securitized or unsecured and is typically issued in the form of notes or bonds. The most important thing to acknowledge about this form of startup financing is that it is considered “senior” to other forms of debt, meaning that it is given the highest priority when it comes to repayment.

A startup incubator, also known as a ‘business incubator’, is a program that provides resources and support to new small businesses and first-time founders. Incubators typically provide access to mentorship, discounted technology, physical workspaces, and networking opportunities. It is designed to help startups test their ideas, hone their business plans, and secure their first customers—which is helpful for getting a new initiative off the ground and securing funding from venture capitalists down the line.

Sweat equity is a type of compensation that startup founders and early employees receive in exchange for their hard work and dedication to the company. It is a way for these individuals to receive compensation in addition to or in replacement of a salary, which is especially helpful for cash-strapped startups. Sweat equity is usually given in the form of stock options or restricted stock units in a company.

The term ‘409A Valuation’ refers to the process that startups undergo to determine the fair market value of their common stock.  This process is often conducted by a valuation professional or a Certified Public Accountant (CPA) using a variety of methods and techniques including: discounted cash flow analysis, trading multiples, and the guideline public company method.

Total addressable market (TAM) is the total potential market size of a product or service. It is the sum of all the potential consumers, users, and revenue that a company can capture, which makes it useful for understanding the long-term potential of a product or service. TAM is a combination of both the “total available market” (also known as “TAM”) and the “serviceable addressable market” (SAM).

Venture debt is a form of debt financing used by startups and early-stage companies to cover short-term operating expenses, support market expansions, and bridge the gap between venture rounds. It is provided to companies that have high growth potential and are deemed to have a high reward. The principal borrowed must be repaid, along with the accrued interest over a specified period, and this form of financing is typically provided by venture capital firms, banks, or other specialized lending institutions.

Warrant coverage is a contractual provision where a company issues a warrant to an investor that allows them to purchase shares equal to some % of the amount of capital invested, allowing them to acquire shares at a predetermined price in the future. The holder of the warrant has the right, but not obligation to purchase the shares of stock.

Working capital, also known as net working capital (NWC), is a dollar figure calculated by subtracting a company’s current liabilities, such as accounts payable and debts, from their current assets—such as cash, and accounts receivable. It is used to satisfy short-term debts, and fund the day-to-day operating expenses.