VC Glossary

The managing partners of a VC fund who make investment decisions, source deals, and sit on boards. GPs have unlimited liability and are responsible for the fund's operations.

The investors who commit capital to a VC fund - pension funds, endowments, family offices, fund-of-funds, and high-net-worth individuals. LPs have limited liability and no say in individual investment decisions.

An annual fee (typically 2% of committed capital) that GPs charge to cover salaries, operations, travel, and overhead. This is how fund managers pay the bills before any returns materialize.

The GP's share of fund profits - typically 20%. Carry only kicks in after LPs receive their capital back (and sometimes a hurdle rate). This is where GPs make real money.

The minimum return (often 8% annually) that LPs must receive before the GP starts earning carry. Also called a preferred return.

An investment fund that invests in other VC funds rather than directly in startups. Often used by institutional LPs to get diversified exposure to venture capital.

The year a fund makes its first investment. Used to compare fund performance against peers that started deploying in the same period.

The total amount LPs have pledged to a fund. Not all drawn at once - capital is called over the investment period as deals are made.

A formal request from the GP to LPs to transfer a portion of their committed capital. Issued when the fund needs money to make an investment or cover fees.

Simple Agreement for Future Equity - a lightweight investment instrument created by Y Combinator. The investor gives money now and receives equity later when a priced round occurs. The standard for early-stage deals.

The maximum company valuation at which a SAFE or convertible note converts to equity. Protects early investors from excessive dilution if the company raises at a much higher valuation.

The value of the company before new investment money comes in. If a company has a $10M pre-money and raises $2M, the post-money valuation is $12M.

The value of the company after the new investment. Post-money = pre-money + new investment. This is the number that determines what percentage the new investors own.

The reduction in an existing shareholder's ownership percentage when new shares are issued. Every new funding round dilutes existing holders - the key is whether the per-share value increases enough to offset it.

The right for an existing investor to participate in future rounds to maintain their ownership percentage. One of the most valuable rights in early-stage investing.

A term that determines the payout order in a liquidation event (sale, shutdown). A 1x non-participating preference means the investor gets their money back before common shareholders receive anything.

A protection clause that adjusts an investor's conversion price if the company raises a future round at a lower valuation (a "down round"). Broad-based weighted average is the most common form.

A non-binding document outlining the key terms of a proposed investment - valuation, investment amount, board seats, liquidation preferences, and other rights. The starting point for negotiation.

A short-term debt instrument that converts into equity at a future priced round. Similar to a SAFE but structured as a loan with an interest rate and maturity date.

A funding round where the company raises at a lower valuation than its previous round. Triggers anti-dilution protections and is generally seen as a negative signal.

A spreadsheet or ledger showing who owns what percentage of a company - founders, investors, employees with options, advisors. Keeping this clean is critical.

Total Value to Paid-In capital - a fund's total value (realized + unrealized) divided by the capital invested. Includes paper gains that haven't been cashed out yet.

Distributions to Paid-In capital - actual cash returned to LPs divided by capital invested. The metric that matters most because it reflects real, realized returns.

Internal Rate of Return - an annualized, time-weighted return metric. A 3x return in 3 years has a much higher IRR than a 3x in 10 years. LPs use IRR to compare across asset classes.

Monthly Recurring Revenue / Annual Recurring Revenue - the predictable revenue a SaaS company generates. ARR = MRR × 12. The single most important metric for most early-stage SaaS companies.

How much cash a startup spends per month (net burn) or total expenses per month (gross burn). Net burn = revenue minus expenses. Determines how long the runway lasts.

How many months a startup can operate before running out of cash. Cash in bank ÷ monthly net burn = runway. VCs want to see 18–24 months of runway after an investment.

The total revenue a company expects to earn from a single customer over the entire relationship. Paired with CAC to determine unit economics.

The total cost of acquiring a new customer - marketing spend, sales salaries, tools, etc., divided by new customers acquired. LTV/CAC ratio of 3:1+ is the general benchmark.

Total Addressable Market / Serviceable Addressable Market / Serviceable Obtainable Market - a framework for sizing market opportunity from broadest to most realistic.

The pattern where a small number of investments generate the vast majority of a fund's returns. One company returning 100x matters more than 20 companies returning 2x.

When a portfolio company raises a subsequent round at a higher valuation, the fund's position is "marked up" on paper. Looks great in TVPI but means nothing until there's an exit.

The stream of investment opportunities a VC sees. Sourced from inbound pitches, referrals from founders and other VCs, outbound research, and ecosystem events. Quality of deal flow is a firm's most important asset.

The investigation process after a VC is interested - reference calls, financial review, market research, legal review, and technical assessment. Can take days to weeks depending on stage.

The investor who sets the terms, writes the largest check, and often takes a board seat. Other investors "follow" the lead's terms. Being the lead requires the most conviction and work.

A group of investors who co-invest in a deal, often alongside a lead. Can also refer to an angel syndicate - a platform where a lead angel brings others into deals.

An introduction to a VC from someone they know and trust - a portfolio founder, fellow investor, or mutual connection. Converts at 5–10x the rate of cold outreach.

The final decision stage at most VC firms. After an individual partner champions a deal, they bring it to the full partnership for approval. Getting to partner meeting is a strong signal.

The formal decision-making body at a VC fund that approves or rejects investments. At some firms this is the full partnership; at others it's a subset of senior partners.

A VC declining to invest. Most passes are polite and vague ("not the right fit for us right now"). A good pass includes specific, actionable feedback.

The negative signal sent when an existing investor (especially a lead) chooses not to follow on in a subsequent round. Other investors read this as a lack of confidence.

How a fund allocates its capital - number of investments, check size, ownership targets, follow-on reserves. Designed to maximize the probability of catching power law winners.

Additional investment in an existing portfolio company in a later round. Funds typically reserve 30–50% of total capital for follow-ons into their best-performing companies.

The percentage of a company a VC aims to own after their initial investment - typically 10–20% at seed, 15–25% at Series A. Drives check size and valuation expectations.

An investment approach where a fund develops a specific view on a market or trend and proactively seeks companies that fit. The opposite of purely reactive, inbound-driven investing.

The non-capital support a VC provides to portfolio companies - talent recruiting, go-to-market help, introductions to customers, operational playbooks. Increasingly a differentiator between funds.

How a VC realizes returns on an investment - typically through acquisition (company is bought) or IPO (company goes public). The only way paper gains become real returns.

A smaller fundraise between major rounds to extend runway - often from existing investors. Can signal either a strong company buying time for the right round, or a struggling one that can't raise a full round.

Uncommitted capital that a fund still has available to invest. A fund with lots of dry powder can be more active and opportunistic; a fund running low may be more selective.