Reference

The VC & LP glossary

16 terms, in plain English — the vocabulary you need whether you're negotiating your first SAFE as an angel or diligencing a GP's DPI before becoming an LP.

Angel & startup terms

SAFE

A Simple Agreement for Future Equity — a contract that converts into shares at a future priced round, without setting a valuation today.

Convertible note

A short-term loan that converts into equity at a future round — SAFE's older, debt-based cousin.

Cap table

The ledger of who owns what percentage of a company — every shareholder, option holder and convertible instrument.

Valuation cap

The maximum company valuation at which your SAFE or note converts into equity — it sets a ceiling on the price you pay.

Pro-rata rights

The right to invest in future rounds to maintain your existing ownership percentage, rather than being diluted by new investors.

Term sheet

A short, non-binding document laying out the key terms of an investment before the full legal paperwork gets drafted.

Liquidation preference

A term guaranteeing preferred shareholders get paid back before common shareholders in an acquisition or wind-down.

Accredited investor

A legal status (in the US: income or net-worth thresholds) required to invest in most private equity rounds and venture funds.

Carried interest (carry)

The GP's share of a fund's profits — typically 20% — paid only after LPs get their invested capital back.

Capital call

A request from the GP for LPs to wire a portion of their committed capital, issued as the fund actually deploys it into deals.

GP vs. LP

The general partner runs the fund and picks the investments; the limited partner supplies capital and has no say in individual deals.

Fund of funds

A fund that invests in other venture funds rather than directly in startups — LP exposure to many managers through one commitment.

Secondaries

Buying an existing stake in a startup or fund from a current holder, rather than investing new capital directly into the company or fund.

Emerging manager

A GP typically on their first, second or third fund — newer, smaller and often more accessible to first-time LPs than established mega-funds.

DPI, TVPI & IRR

The three core metrics for judging a fund's performance — realized cash back, total value including paper gains, and annualized return rate.

Power law (returns)

The pattern where a small number of investments produce most of a portfolio's return, while most individual positions lose money or break even.