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Venture Capital Terms 101
A List of VC Terms and What they Mean
Term
Meaning
1
General Partner
The top of the VC ladder. General partners or GPs for short run the fund, engage in fundraising and has say in deals the firm does. They make management fees & carry.
2
Limited Partner
Limited Partners or LPs, are the institutional or individual investors that have invested capital in the funds of the VC firm that they are investing off of. LPs include endowments, corporate pension funds, sovereign wealth funds, wealthy families, and funds of funds.
3
Carry
Carry or carried interest is the percentage of profits that goes to the fund managers.
4
2/20 (Two and twenty)
Two and twenty describes the fees charged by managers of VC funds—specifically, the 2% annual fee and 20% performance fee (also called carried interest).
5
CAC (Customer Acquisition Cost)
CAC measures how much it costs a startup in order to acquire a customer.
6
LTV
LTV or life time value, this is how much gross profit you expect an average customer to generate over the course of their relationship with a startup
7
Burn Rate
Burn rate is the amount of money a startup is spending (usually per month)
8
Runway
How much time a startup has left before they go bankrupt
9
SAFE
SAFE is a contract (not a traditional loan) where an investor chooses to make a cash payment to a business in return for the negotiated right to turn that amount into stock if a predetermined trigger event occurs.
10
PreMoney Valuation
The value of a startup before it raises funding
11
Post Money Valuation
The value of a startup after it raises funding
12
Minimum Viable Product
Minimum viable product or MVP is a early concept product that has just enough features to iterate on and find product market fit
13
Churn Rate
Rate of which a customer stop using a startup’s services
14
Term Sheet
A term sheet is a non binding agreement given by VC to startup detailing their interest in investing and laying out the terms of investment
15
Capitalization Table
Or cap table for short, is a list of shareholders of a startup and the percentage of how much they own
16
ARR( Annual Recurring Revenue)
ARR is how much revenue a company makes from reoccurring purchases
17
Convertible Note
A convertible note is a form of short-term debt that converts into equity, typically in conjunction with a future financing round
18
Fund of Funds
A fund that invests in other venture fund
19
Revenue
How much a company makes
20
Unicorn
A company that is valued at $1B or more
21
Lead Investor
Investor who sets the terms of a startup investment and writes the biggest check into a startup’s funding round
22
Portfolio Company
A company that a venture fund invested in
23
Pro-Rata Rights
A pro rata right is a right that is given to an investor that allows them to maintain their initial level of ownership percentage during later financing rounds.
24
IRR
IRR or internal rate of return, it is a metric used in estimated the return of investments
25
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