The Language of Startup Funding: 35 Terms Every Founder Should Know

If you have participated in an investor pitch session, attended a funding workshop, or compared notes with other founders, you know how quickly the language of finance can become challenging. Terms fly by and can leave the most confident of founders feeling lost. For healthcare entrepreneurs, the stakes are even higher.

“Brilliant science on its own isn't enough to get therapies to the patient,” says Karen Harris, Chief Financial Officer and Head of Mission Related Investments for the Alzheimer’s Drug Discovery Foundation (ADDF) “[Founders] need to be able to secure the capital required to move those therapies forward, so it's important that companies understand that investors are looking to make a return.”

Whether you’re pitching an angel, applying for a grant, or preparing to scale with venture capital, knowing the right terms can make the difference between closing a deal and missing an opportunity. Mastering key terms builds credibility with investors, and helps you write smarter proposals, negotiate effectively, and guide your company’s long-term growth.

“Knowing these terms also increases the odds of raising capital if you come [into a pitch] and you're not just talking about the science, but also about commercialization,” says Harris. “It's so important to differentiate yourself in some way and this is one way that you can do that. Also, if you understand the business part when you're negotiating with a venture capitalist, you can also get a better deal for yourself.”

Here are 35 of the most important funding terms every founder should understand before engaging with potential partners.

• Accelerator: Programs that provide startups with advice, training, and mentorship to help entrepreneurs get their companies off the ground. Sometimes they also offer pitch events.

• Angel investor: A person with a significant amount of capital that is interested in investing in startups to help them get off the ground.

• Bootstrapping: This process involves starting a business using your own money or resources and not relying on a lot of help or outside funding sources.

• Bridge financing: A short round of funding that keeps a startup afloat in between larger rounds of funding.

• Burn rate: A term that describes how quickly a company is using its cash reserves to cover overhead and other costs.

• Business model: A plan for how a startup’s product or service will meet the needs of their target market, who will be involved, and what types of resources are needed to do that.

• Convertible note: A form of funding that starts out as short-term debt, but later converts into equity, sometimes when certain milestones are met or the startup gets additional funding.

• Crowdfunding: Funding a startup’s ideas or research using individual donors across an online platform.

• Due diligence: Analysis made by an investor or funding entity that involves examining the facts, research, and science involving a startup before funding is provided or an investment is made.

• EIR: Entrepreneur in residence (EIR) is a business professional who plays an advisory role on investments and entrepreneurship, leveraging their own experiences. EIRs usually can be found in academic and finance settings,

• Equity financing: Funding from investors that gives them equity or partial ownership in the company when they provide capital.

• First refusal: A clause in an agreement requiring investors and founders to offer their shares of the company to an existing early investor before selling them to a third party.

• Grant: Flexible funding awarded to support research and often given by non-profit or philanthropic organizations, versus a contract that is a legal agreement to procure goods or services for the benefit of the funder.

• Incubator: A company, organization, or facility designed to support entrepreneurs with shared resources, expertise, and sometimes even space.

• Initial coin offering: Raising money through crowdfunding using cryptocurrency as capital. Backers buy a percentage of new cryptocurrency (called “coin” or “token”) using another cryptocurrency like bitcoin to make the purchase. The goal is that the new cryptocurrency grows in value.

• Initial public offering (IPO): When a privately-held company decides to go public by offering shares in exchange for capital.

• J-curve: A graph that shows the tendency for private equity funds to show negative returns in the early years and higher returns in later years.

• Key performance indicator (KPI): A measurable value that quantifies the status of specific business objectives.

• Late stage: Description used for well-established companies with proven products or services. These companies usually are focused on sustainable scaling rather than rapid growth.

• Lead investor: An individual or organization that provides the largest amount of funding and frequently sets the parameters of a deal.

• Limited partner: An investor who contributes capital but has no say in a startup’s daily operations or management.

• Milestone: A significant or measurable achievement that illustrates a startup’s progress toward a larger goal like a product launch

• Overhang: The amount of money committed to a startup but not yet invested by a venture capital fund.

• Preferred stock: A type of stock or equity given to investors like venture capitalists that has more rights or privileges than common stock.

• Proof of concept: Demonstration of the feasibility of a product or service, usually from a pilot study.

• Runway: The amount of time a company can operate before it runs out of funds given its current burn rate.

• Scalability: The capacity of a startup to grow and a readiness to increase market demand.

• Seed round: The first round of a startup’s funding, and typically the source of funds to establish proof-of-concept.

• Series A: The first round of a startup’s funding during which preferred stock is issued to investors.

• Series B, C, D, E: Later rounds of funding for startups where preferred stock is issued to investors.

• Unicorn: A privately held startup valued at more than $1 billion.

• Valuation: Determination of a company’s value.

• Value inflection point: A significant milestone that helps increase a startup company’s value or credibility and may help attract investors.

• Venture capital (VC): Funding provided to early stage startups in exchange for equity. VCs can be firms or individuals, who also may provide expertise and strategic advice, that expect a high return on their investment.

• Warrant: A financial instrument that gives the holder the right to purchase shares of a startup’s stock at a predetermined price during a specific timeframe

If you would like more information on startup funding terms, check out the resources from these organizations. CFRE International (Certified Fund Raising Executive)

Grants.gov

House Committee on Small Business

National Institute of Health (NIH) SEED

National Institute of Health (NIH), Grants and Funding

NAWBO (National Association of Women Business Owners)

NIRI (Association for Investor Relations)

Small Business Administration

Founders may also be interested in a 10-week course on venture capital offered by the National Venture Capital Association (NVCA), UC Berkeley, and Venture Forward that can help further build your knowledge base.

“Learning to speak the language of investors helps accelerate funding and broadens the pool of potential backers,” says Harris. “If you start with an articulated story, in investor terms, with clear milestone market potential and value inflection points, it builds confidence and shows that the management team understands both the science and the path to commercial operation.”