Glossary
Fundraising terms, in plain English.
100 terms UK founders meet when they raise. Tax relief limits change with each Budget, so for figures follow the link to a guide or check HMRC.
The glossary last updated .
A
- Accelerator
- A fixed-length programme, often a few months, where a cohort of startups gets mentoring, introductions and sometimes a small investment in return for equity or a fee. Terms differ a lot between programmes, so read them before you apply.
- Advance assurance
- A view that HMRC gives before you raise on whether your planned share issue looks likely to qualify for SEIS or EIS. It rests on the information you supply and does not settle the relief, which depends on what actually happens after the shares are issued. Read the guide
- Advance subscription agreement (ASA)
- A contract where an investor pays money now and receives shares later, at a future funding round or on a set date. It is a common UK alternative to a convertible loan note, because it is not a loan and usually carries no interest. Read the guide
- Angel investor
- A wealthy individual who invests their own money in an early-stage company, usually before venture funds will. Angels often bring experience and contacts as well as cash. Read the guide
- Angel network
- A group of angel investors who meet, hear pitches together and sometimes invest as a syndicate. Joining a network gives an angel more deals to see and shared checking of each one. Read the guide
- Annual recurring revenue (ARR)
- The value of your subscription or contract revenue over a year, worked out from what customers pay on a recurring basis. Count only revenue that repeats. One-off fees and set-up charges stay out.
- Anti-dilution
- A term that protects an investor if the company later sells shares at a lower price than they paid. The usual forms adjust the investor's conversion price, either on a weighted average basis or, more harshly for founders, by resetting it in full.
- Articles of association
- The rulebook of a company, filed at Companies House. It sets out how shares work, how directors are appointed and what rights each class of share carries. Investors often ask for the articles to be rewritten to match the deal.
B
- Bootstrapping
- Growing a company from its own revenue and the founders' savings, with no outside investment. It keeps ownership with the founders and sets the pace by what the business can pay for. Read the guide
- Bridge round
- A smaller raise that carries a company from one round to the next, often as a convertible loan note or ASA from existing investors. It buys time to hit a milestone or close a bigger round.
- Burn rate
- The amount of cash a company spends each month, either gross (all spending) or net (spending less revenue received). Investors use net burn to work out how long the money lasts.
C
- Cap table
- Short for capitalisation table. It lists every shareholder, option holder and convertible instrument, with the number of shares and the percentage each represents. You will update it for every round and share it with investors. Read the guide
- Cheque size
- The amount an investor usually puts into one company. Each investor has a typical range, so it is worth knowing it before you ask for money. Read the guide
- Churn
- The share of customers, or of revenue, lost over a period. A monthly churn figure of 2% means about one customer in fifty left that month.
- Cliff
- A period at the start of vesting during which nothing vests. If a founder or employee leaves before the cliff ends, they keep none of the shares or options. A one year cliff is common.
- Closing
- The point where the legal documents are signed and the money arrives. A round can have a first close with some investors and a later close for others.
- Co-investor
- An investor who puts money into the same round as another investor. A round with a lead investor and several co-investors is the usual shape.
- Companies House
- The UK registrar of companies. Companies file their accounts, officers, shareholder details and share allotments there, and the register is open to the public, which makes it a source for tracking funding rounds.
- Conversion discount
- The reduction to the price of a later round that a convertible investor receives when their note or ASA turns into shares. A 20% discount means they pay 80% of the price the new investors pay. Read the guide
- Convertible loan note (CLN)
- A loan to the company that is repaid in shares at a later funding round, usually at a discount or under a valuation cap, and often with interest. Tax reliefs such as SEIS and EIS apply to shares, so the note itself does not qualify. Read the guide
- Corporation Tax
- The tax a UK company pays on its profits. Early-stage startups often pay little or none while they make losses, and some reliefs, such as R&D tax relief, work through this tax.
- Crowdfunding
- Raising money from many people through an online platform. In equity crowdfunding each backer gets shares in the company, and the raise is usually open to the public for a set period. Read the guide
- Customer acquisition cost (CAC)
- What you spend, on average, to win one new customer. Work it out by dividing your sales and marketing spend over a period by the new customers won in that period.
D
- Data room
- A secure folder, physical or online, where a company puts the documents an investor needs for due diligence, such as accounts, contracts, the cap table and key policies. A tidy one speeds up a round. Read the guide
- Deal flow
- The stream of investment opportunities an investor sees. A fund with strong deal flow gets pitched by many companies and can pick among them.
- Deck
- Short for pitch deck. A set of slides, often about ten, that tells investors who you are, what you do, why now, how you make money and what you are asking for. Read the guide
- Dilution
- The fall in each existing shareholder's percentage when new shares are issued. Selling 20% of a company to a new investor leaves each existing holder with 80% of what they held before. Read the guide
- Down round
- A funding round at a lower valuation than the round before it. It can trigger anti-dilution rights and is harder on founders and early investors.
- Drag-along right
- A right that lets a majority of shareholders force the rest to join in selling the company on the same terms. It makes it possible to sell the whole company when a buyer wants all of it. Read the guide
- Due diligence
- The checks an investor makes before putting money in. They look at the company's legal position, finances, product, customers and team, and compare what they find with what you told them. Read the guide
E
- Enterprise Investment Scheme (EIS)
- A UK tax relief scheme that gives investors income tax relief and other tax benefits when they buy new shares in qualifying early-stage companies. It is aimed at companies that are somewhat larger than those that use SEIS. Read the guide
- Enterprise Management Incentives (EMI)
- A tax-advantaged share option scheme for employees of qualifying UK companies, run under HMRC rules. Options granted under it can carry favourable tax treatment for the employee, and startups use it widely. Read the guide
- Equity
- Ownership in a company, held as shares. When a founder says they are raising equity, they mean selling a share of the company.
- Exclusivity
- A period, set out in heads of terms or a term sheet, when a company agrees to negotiate only with one investor. It stops the company shopping the deal while the investor spends money on checks.
- Exit
- The way investors and founders turn their shares into cash or other assets, usually through a sale of the company or a stock market listing.
F
- Family office
- A private company that manages the wealth of one or more wealthy families, and may invest in startups directly or through funds. Each one sets its own rules, so mandates vary widely.
- Follow-on investment
- Further money an investor puts into a company they already back, usually in a later round. Funds often keep a reserve for this.
- Fully diluted
- A way of counting shares that includes everything that could become a share, such as options, warrants and convertibles. Valuations and ownership percentages are often quoted on this basis.
- Fund
- A pool of money raised from investors and managed by a firm that invests it in companies. Most venture funds run for around ten years, which shapes how and when they invest.
G
- General partner (GP)
- The firm or person that runs an investment fund and makes the investment decisions. The GP raises the fund from limited partners and usually earns a management fee and a share of the profits.
- Good leaver and bad leaver
- Terms that decide what happens to a founder's or employee's shares when they leave. A good leaver, for example someone who leaves because of illness, usually keeps more of their shares than a bad leaver, who may have to sell back at a low price. Read the guide
- Grant
- Money from a government body, charity or other funder that does not have to be repaid and does not take equity. Grants usually come with conditions about how the money is spent. Read the guide
- Gross assets test
- A condition for SEIS and EIS under which the company's gross assets must stay under a set limit before the shares are issued, and sometimes immediately after. The limit is in HMRC's guidance and changes from time to time. Read the guide
- Gross margin
- Revenue less the direct cost of delivering the product or service, shown as a percentage of revenue. It tells an investor how much of each pound of sales is left to pay for everything else.
- Growth stage
- The point at which a company has a proven product and is spending to scale it, often at Series B and later. Cheques at this stage are far larger than at seed.
H
- Heads of terms
- A short document that sets out the main points of a deal before the full legal documents are drawn up. Most of it is not legally binding, though confidentiality and exclusivity sections often are.
- HMRC
- His Majesty's Revenue and Customs, the UK tax authority. It runs the SEIS, EIS, EMI and R&D tax relief schemes and handles advance assurance requests.
I
- Incubator
- A programme that supports very early companies, often before they have a product, with space, advice and sometimes funding. It can run for longer than an accelerator and may be linked to a university.
- Information rights
- A right for an investor to receive regular information about the company, such as management accounts, budgets and annual accounts. It is usually written into the shareholders' agreement.
- Innovate UK
- The UK government's innovation agency, part of UK Research and Innovation. It runs competitions that fund research and development projects, and many startups apply for its grants. Read the guide
- Investment mandate
- The set of rules an investor works to, such as stage, sector, geography and cheque size. A company outside the mandate is unlikely to get funded however good it is.
- Investor update
- A regular message, often monthly or quarterly, sent to investors with progress, key numbers, problems and requests for help. Founders who send them build trust before they need to raise again. Read the guide
K
- Knowledge-intensive company (KIC)
- A category under EIS for companies that spend heavily on research and development or innovation and meet other tests. It gets higher investment limits than other EIS companies. Read the guide
L
- Lead investor
- The investor who sets the main terms of a round and usually puts in the largest share. Other investors tend to follow the lead's judgement and terms. Read the guide
- Lifetime value (LTV)
- The total gross profit you expect from a customer over the whole time they stay with you. Compared with the cost of winning them, it shows whether each customer is worth having.
- Limited partner (LP)
- An investor in a fund, such as a pension scheme, a family office or a wealthy individual. LPs supply the money and leave the investment decisions to the general partner.
- Liquidation preference
- A right that lets an investor be paid back before other shareholders when the company is sold or wound up. A one times preference returns the investor's money first and then shares the rest according to ownership. Read the guide
M
- Monthly recurring revenue (MRR)
- The revenue you can expect each month from subscriptions and ongoing contracts. It is the monthly counterpart of annual recurring revenue.
N
- Non-disclosure agreement (NDA)
- A contract that stops one side sharing confidential information. Many investors decline to sign one at the first meeting because they see a great many companies, so share what you can without it.
O
- Option pool
- A block of shares set aside to give to future employees as options. Investors often want the pool sized in advance, and it reduces the founders' share before the new money comes in. Read the guide
P
- Pari passu
- A Latin phrase meaning on equal footing. Shares or debts that rank pari passu are treated the same, with no one paid ahead of the others.
- Pitch
- The presentation or conversation in which you set out your company to an investor. It can be a short email, a call, a meeting or a formal pitching event. Read the guide
- Post-money valuation
- What the company is worth immediately after the new investment, which is the pre-money valuation plus the money raised. An investor's percentage is their cheque divided by this figure. Read the guide
- Pre-emption rights
- The right of existing shareholders to be offered new shares first, in proportion to what they hold, before they are offered to anyone else. UK company law gives this right on many cash share issues unless the articles remove it.
- Pre-money valuation
- What the company is worth before the new investment goes in. The new investor's share is worked out from this figure and the size of the cheque. Read the guide
- Pre-seed
- The earliest funding stage, when a company may have only an idea, a prototype or a few early users. Rounds are small and often come from angels, friends and family, or an accelerator. Read the guide
- Pro rata right
- A right for an investor to put money into later rounds in proportion to their current holding, so they can keep the same percentage. It is often negotiated in the investment documents.
- Product-market fit
- The point where a product meets a real need for a defined group of customers, shown by customers who keep using and paying for it. Investors look for early signs of it at seed.
Q
- Qualifying company
- A company that meets the conditions in the SEIS or EIS rules, covering things like its age, size, trade and where it operates. Only investments in qualifying companies earn the reliefs. Read the guide
R
- R&D tax relief
- A UK tax relief for companies that spend money on qualifying research and development. It can reduce a company's Corporation Tax bill or, in some cases, bring a cash payment, and HMRC sets the current rules. Read the guide
- Revenue-based finance
- Funding that is repaid as a percentage of monthly revenue until a fixed total has been paid back. It does not take equity, and it suits companies with steady sales.
- Round
- One instance of raising money from investors, such as a pre-seed round or a Series A. Each round normally has its own price, terms and set of investors.
- Runway
- How many months the company can operate before cash runs out, found by dividing cash in the bank by monthly net burn. Most founders aim to start raising with well over six months in hand.
S
- SAFE
- Short for Simple Agreement for Future Equity, a standard contract created by the US accelerator Y Combinator. The investor pays now and gets shares at a later round. It is used less often in the UK, where ASAs and convertible loan notes are more common. Read the guide
- Seed
- The funding stage that follows pre-seed, when a company has an early product and some evidence of demand. Seed rounds fund the first real push on product and customers. Read the guide
- Seed Enterprise Investment Scheme (SEIS)
- A UK tax relief scheme for investors in very early-stage companies. It offers more generous income tax relief than EIS, with tighter limits on the size and age of the company. Read the guide
- Series A
- A funding round that usually follows seed, when a company has a working product and early repeatable revenue. It is typically led by a venture fund and is larger than a seed round.
- Series B
- A round after Series A, used to grow a company that has shown it can win customers. The money usually goes into sales, hiring and expansion into new markets.
- Soft commitment
- An investor's non-binding statement that they intend to invest a given amount. It helps you plan a round but binds no one, so treat the money as real only when it arrives.
- Subscription agreement
- The contract in which an investor agrees to subscribe for new shares at a set price. It records the amount, the price and the promises each side makes.
- Syndicate
- A group of investors who back a company together, often led by one experienced investor who negotiates for the others. Syndicates let each member write a smaller cheque. Read the guide
T
- Tag-along right
- A right that lets minority shareholders join a sale on the same terms when the majority sells. It stops the majority selling its shares and leaving the rest behind. Read the guide
- Term sheet
- A summary of the main terms of an investment, such as price, amount, board seats and investor rights. Most of it is not binding, and it is followed by the full legal documents. Read the guide
- Total addressable market (TAM)
- The total yearly revenue available if every possible customer bought your product. Investors prefer a figure built from the number of buyers and the price per buyer over a top-down figure from a report.
- Traction
- Evidence that customers want what you are building, such as revenue, active users, signed pilots or a growing waitlist. At pre-seed it can be small, as long as it is real.
- Trade sale
- The sale of a company to another business, often a larger company in the same industry. It is the most common way for a startup investor to exit.
U
- Unit economics
- The revenue and cost of one unit of your business, such as one customer or one order. If each unit loses money, growth makes the losses larger, which is why investors ask for these figures.
V
- Valuation
- The price put on a company, which sets how much of it an investor gets for their money. At early stages it is a negotiated figure and has little to do with a precise calculation. Read the guide
- Valuation cap
- A ceiling on the price at which a convertible note or ASA converts into shares. It protects the early investor if the company's value rises sharply before the next round. Read the guide
- Venture capital
- Money invested by specialist funds into young companies with high growth potential, in return for shares. Venture funds expect many investments to fail and a few to return the whole fund.
- Venture capital trust (VCT)
- A company listed on the London Stock Exchange that invests in small, early-stage companies. Private individuals who buy its shares can receive tax benefits, and a VCT is a source of money for qualifying companies. Read the guide
- Venture debt
- A loan to a company that has already raised equity from venture investors. It extends runway without selling more shares, and it often comes with warrants for the lender.
- Vesting
- The process by which a founder or employee earns their shares or options over time. A common pattern is four years with a one year cliff, and unvested shares can be bought back if the person leaves. Read the guide
W
- Warm introduction
- An introduction to an investor made by someone they know and trust, such as another founder or an investor in their portfolio. Investors tend to reply to these more readily than to cold emails. Read the guide
- Warranties
- Statements of fact the company and its founders give in the investment documents, for example that the accounts are accurate and the company owns its intellectual property. If a warranty turns out to be false, the investor may have a claim.
I write these for founders and keep them short. They explain terms and give no legal or tax advice, so check anything that affects a deal with a solicitor or accountant. Missing a term? Tell me through the help centre.