Empowering you to speak to investors

Understanding terminology around startup terms and finance lingo will give you confidence when communicating with investors.  Professionals often abbreviate or refer to terms that can confuse the most seasoned innovator.


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This term is used interchangeably with Incubator, the accepted definition is a group that takes < 10% ownership of your venture to drive forward, or “accelerate” an idea brought by an external founder. The founder participates in a 3-4 month program designed to kick start their idea.

Examples of Accelerators include Y-Combinator in the USA and Muru-D in Australia.


These are experienced people who invest in your Company at a very early stage, who have industry knowledge, prior experience or industry connections. They will contribute a significant amount of time and expertise, and sometimes they will also invest a small amount of cash.

They receive a % ownership for this time, known as “sweat equity”, which will be on top of the % ownership they receive for any cash injected.

For example, an advisor with substantial industry connections invests $10,000. They receive 3% of the Company for their cash, and a further 2% for their time and connections, as “sweat equity”.

Angel Investors

These are well off, independently wealthy individuals who will invest in early stage ventures. They are well connected with Incubators and Accelerators as they will often invest in ventures who have completed these programs. They will normally do so for either direct purchase of shares, or via convertible notes. An angel round is normally between $200K and $800K.
Angel networks are appearing to allow several angels to invest in one venture, where they can leverage each other’s research and contacts.

Beneficially Held Shares

Shares can be held in the name of an individual or a company, or in the name of another entity on behalf of an individual.

Those shares held in another entity on behalf of an individual (such as a trust or a pension fund) are beneficially held.

Those shares directly owned by individuals or companies are not beneficially held.


A forecast of individual revenue, expense and other lines (such as capital raised) which will impact the future cash position of a business.

An example is a budget for a 12month period starting from 1 July and forecasting monthly through to 30 June of the following year.

Cap Table, Capital Table or Capitalisation Table

All of these terms refer to the same thing – a table that displays the number of shares as a % for each shareholder, updated after each funding round. Shareholders include founders and investors.

As an example, you may have two founders, a founding investor, an incubator and two advisors. Each of these people will be on your cap table as shareholders, and they will have become owners of your company, based on different valuations and conditions.


Shares issued to either founders or advisors may have a “cliff” attached to them, which means if the founder or advisor leaves within a certain period of time, they will not keep the shares.

An example would be a founder with a one year cliff. If they leave within 12 months they are not entitled to keep any of their shares. These shares then become available for a new founder.

Convertible note

For earlier rounds, when it is often difficult to establish a valuation, investors will invest funds via a convertible note. This is often done for seed investors and Angel investors.

A convertible note is a legal agreement between the lender (the investor) and the Company which outlines the following:

  • The date the note needs to be repaid
  • The process that allows it this date to be extended
  • The interest rate to be applied to the debt (if any)
  • The triggers for the amount of the debt (including interest) to convert to the purchase of shares.
  • Any discount that will be received on a future valuation when the conversion happens.

As an example, an investor lends $100,000 under a convertible note, with 10% per annum interest and a 20% discount to a future valuation on conversion.

A funding round is done 12 months later, at a “pre money” valuation of $4m. The total debt is $110,000.

The debt will convert at a valuation of $4m * 80% = $3.2m. Hence the investor will receive more shares than they would of if they had invested later, based on both the interest accumulated and the discount to future valuation.

ESOP loans

ESOP stands for Employee Share Option Plans. An ESOP Loan is a limited recourse loan between an Employee and the Company, where the Company will lend the employee the funds to buy the shares, at current market price.

This loan is normally repayable on an exit event. The “limited recourse” element means that the most the employee will ever have to pay back is the realised value of the shares, if this is lower than the purchase price the difference is not repayable by the Company.

Founding Investors

These are individuals who provide seed investment at the very beginning of a founders journey. They are often family or friends of the founder or co-founders.

They either invest via a convertible note, or through direct purchase of shares at the time a Company is setup.

Fully paid shares

Shares are received for an amount of money, which would be documented by a shareholder agreement or share subscription agreement.

If the amount of money has been fully received by the company, they are fully paid. If amounts are still owing, then they are not.

Shares issued under an ESOP loan agreement are considered fully paid.


This term is used interchangeably with Accelerators, however in this case an Incubator will provide management expertise and other resources to an internally sourced idea. Their programs often take longer than an Accelerator and they will take a higher % of equity.


The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.

Also referred to as a “public offering.”

Ordinary Shares

This is a share in the Company which has no preferential rights (see preference shares) or pre determined dividends. Voting rights are in proportion to the number of shares held.

Most founders, founding investors, seed investors, Angel investors and Employee share holder’s have Ordinary shares.


In product development, the minimum viable product (MVP) is the product with the highest return on investment versus risk. The term was coined and defined by Frank Robinson, and popularised by Steve Blank, and Eric Ries (for web applications).

Private Company

A private company is one where the shares cannot be offered to the general public for sale. It has substantially less legal and compliance requirements than a company whose shares are available to the general public.

In Australia, a private company will have “Pty Ltd” at the end of the name. In the USA, this is often (but not always) “LLC”, in the UK this is “Ltd”, in Singapore it is “Pte Ltd”.

In Australia, a private company can have no more than 50 shareholders. In the USA a private company can have no more than 500 shareholders.

Share Split or Stock Split

The number of shares in a Company are increased in such a way that all Shareholders still own the same % of the Company. It normally applies equally to Option Holders.

This is done when the share price of a Company is too high and needs to be lowered.

Share Class Clode

There are different share classes, and each class has different rights and conditions attached to owning those shares.

The most common classes are Ordinary Shares (ORD) and preference shares.


A legal term referring to the owners of the company, recorded in the company register and the “ASIC” records, used under law to prove ownership of the company by shareholders.

Shareholders can include founders, founding investors, incubators and accelerators, advisors, seed investors, angel investors, venture capitalists, employees issued with employee shares, and other parties issued with “sweat” equity.

Shareholders do not include option holders, until such time as the options convert into shares.

Sweat Equity

These are either shares or options in a Company allocated to founders, advisors and Board members in payment for time invested in building a startup, especially at the early stage.

They will often have vesting conditions attached to them, based on the achievement of milestones or length of time.


This refers to the value of either the idea or the Company. It is used extensively in funding rounds to determine the share price for incoming investors.

Pre money valuation refers to the value of the Company just before a funding round closes, post money valuation is the value of the Company just after the funding round closes.

Vesting Conditions

These are conditions attached to either Options or Shares, where the right to own the share has to be “earned” based on either the achievement of milestones or passage of time the shareholder has stayed with the venture.

Impacted Shareholders are normally founders, advisors and employees.

As an example, Employee Options or Shares will normally vest over 4 years, at 25% / year. If an employee was allocated 100 shares or options, 25 would vest per year. If they left after 18 months, in the case of Employee Options, the remaining 75 options would lapse. In the case of Employee Shares, the remaining 75 shares may be bought back.


‘Venture Capitalist’ – An investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to public funding. Venture capitalists are willing to invest in such companies because they can earn a massive return on their investments if these companies are a success.

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