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Week 1 · The Founder Archetype Matrix36 terms

Affordable loss: Committing only what one can afford to lose rather than projecting an expected return.
Aspiring Founder: Constrained + Novice resource profile: limited financial resources and limited domain experience. The highest-risk quadrant; most vulnerable to predatory schemes and bad advice.
Bankrolled Builder: Growth archetype (Capitalized + Novice): has funding but no domain expertise, and wants to scale. Coaching: hire domain experts, set validation milestones before scaling.
Big Five (OCEAN): Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism; the personality layer of the diagnosis.
Bootstrap Expert: Constrained + Expert resource profile: deep domain experience but limited financial resources. The primary risk is financial, and the E-Myth gap is acute here.
Bootstrapping: Starting and growing a venture with modest personal funds rather than outside equity.
Capitalized: The high-financial-capital row of the resource matrix; founders able to self-fund and absorb losses.
Career Changer: Capitalized + Novice resource profile: financial resources from a successful career but limited experience in the new industry. Deceptively dangerous, because the financial cushion can mask poor decisions.
Causation: Reasoning from a fixed goal backward to the means required to reach it.
Constrained: The low-financial-capital row of the resource matrix; founders with limited financial resources who typically rely on bootstrapping.
Domain experience: Venture-relevant industry knowledge and the ability to execute the core work; the horizontal input to the matrix.
E-Myth gap: The gap between technical or domain skill and the separate skill of building and running a business (Gerber).
Effectuation: Sarasvathy's pattern in which expert founders start from available means and act within affordable loss.
Entrepreneurial seizure: Gerber's term for a technician impulsively starting a business around the work they do well.
Expert: The high-domain-experience column of the resource matrix; founders with deep venture-relevant knowledge and the ability to execute the core work.
Financial capital: A founder's personal wealth and ability to self-fund and absorb losses; the vertical input to the resource matrix.
Founder identity: Fauchart and Gruber's three founder motivations: Darwinian, Communitarian, and Missionary.
Goal orientation: Whether a founder prioritizes lifestyle or growth outcomes; the third dimension of the matrix.
Growth orientation: Prioritizing scale, valuation, and exit; success is revenue growth, market share, and team size.
Hungry Expert: Growth archetype (Constrained + Expert): knows the industry cold and wants to scale, but needs funding. Coaching: fundraising strategy in which domain expertise is the pitch; build investor materials.
Independent Professional: Lifestyle archetype (Constrained + Expert): a skilled professional going solo for autonomy. Coaching: price correctly, build business skills, plan cash flow.
Lifestyle orientation: Prioritizing autonomy, flexibility, and fulfilling work; success is income sufficiency plus balance.
Moonshot Dreamer: Growth archetype (Constrained + Novice): big ambitions but lacking resources and expertise. Coaching: honest assessment, build a track record, start small to prove the concept.
Novice: The low-domain-experience column of the resource matrix; founders with limited venture-relevant industry knowledge.
Passion Project: Lifestyle archetype (Capitalized + Novice): has money to pursue a dream but lacks industry knowledge. Coaching: slow them down, immerse before investing, set budget guardrails.
Portfolio Professional: Lifestyle archetype (Capitalized + Expert): left a successful career for self-directed, fulfilling work. Coaching: right-size the business, resist pressure to scale, design around life. Over-investing is the risk.
Primed Disruptor: Growth archetype (Capitalized + Expert): best positioned for a significant outcome, with capital, knowledge, and networks. Coaching: move fast, build the team, focus on competitive positioning.
Primed Founder: Capitalized + Expert resource profile: strong financial resources and deep domain experience. The best-resourced quadrant; primary risks are complacency, overconfidence, and opportunity cost.
Resource matrix: The matrix that maps financial capital (vertical) against domain experience (horizontal) to produce four resource profiles, which goal orientation then splits into eight archetypes.
Rich vs. King: Wasserman's tradeoff between optimizing for wealth (Rich) and retaining control (King); an overlay on goal orientation.
Risk perception: How much risk a person believes is present; biases or expertise can lower it, with different implications.
Risk tolerance: How much risk a person is willing to accept.
Side Hustler: Lifestyle archetype (Constrained + Novice): seeking income and flexibility but lacking resources and expertise. Coaching: reality-check, build skills first, keep the day job, validate before investing.
Social capital: The value a founder draws from their network; a modifier rather than a fourth axis.
Structural hole: A gap between two disconnected networks; bridging it yields information and referral advantages (Burt).
Weak ties: Acquaintances and distant contacts that often supply novel information (Granovetter).

Week 2 · Venture Economics Framework40 terms

Adoption Friction: The switching costs, procurement, training, integration, compliance, and internal politics that can block a superior product from being bought.
Annual Contract Value (ACV): The annualized revenue from a single customer contract. ACV constrains which sales motion a business can afford.
Beachhead Strategy: Winning a narrow, high-pain segment decisively, then using it as a wedge into adjacent segments.
Blue Ocean Strategy: Creating uncontested market space through value innovation, pursuing differentiation and low cost together (Kim and Mauborgne, 2005).
Burn Multiple: Net burn divided by net new ARR (Sacks, 2020). Below 1x is exceptional; above 3x signals inefficient growth.
Burn Rate: Net monthly cash consumed. Gross burn is total spend; net burn is spend minus revenue.
CAC Payback Period: Months to recover acquisition cost through per-customer contribution. Under 12 months is strong; over 18 months is a cash-flow risk.
Cash Conversion Cycle (startup): The time between spending to acquire a customer and recovering that cost through cumulative contribution margin.
Churn: The rate at which customers or revenue are lost. A few points of monthly churn can halve customer lifetime.
Cohort Analysis: Tracking the economics of customers grouped by acquisition period to reveal trends that blended averages hide.
Competition-Based Pricing: Setting price relative to competitors. Prone to price wars and does not reward differentiation.
Contribution Margin (CM1): Revenue per unit minus all direct delivery costs (COGS, payment fees, onboarding, support). It tests whether the product itself is viable.
Contribution Margin (CM2): CM1 minus variable sales and marketing cost per unit. It tests whether the go-to-market motion is viable.
Cost-Plus Pricing: Setting price as cost plus a target markup. Simple, but blind to willingness to pay.
Crossing the Chasm: Moore's observation that the gap between early adopters and the pragmatist early majority kills startups that cannot cross it.
Customer Acquisition Cost (CAC): Fully loaded sales and marketing spend divided by new customers acquired in the period.
Customer Lifetime Value (LTV): Average revenue per customer times gross margin times average lifespan (or divided by churn). The economic value of a customer.
Default Alive / Default Dead: Graham's test of whether current growth and burn reach profitability before cash runs out (alive) or not (dead).
Evidence Ladder: A seven-level scale of validation strength, from gut-feel assumption (Level 1) to profitable unit economics at modest scale (Level 7). Level 4, a paid pilot, is the first credible signal.
Fatal Pinch: Graham's trap of short runway, slow growth, and locked-in costs, where neither cutting nor spending fixes the problem in time.
Gross Bookings / GMV: The total transaction value flowing through a marketplace before the platform's take rate is applied.
Gross Retention: Revenue kept from existing customers, ignoring expansion. By definition it does not exceed 100%, and it exposes churn that NRR can mask.
Jobs to Be Done: Christensen's lens that customers hire a product to do a job. The job, not the product, is the unit of analysis.
LTV:CAC Ratio: Lifetime value divided by acquisition cost. About 3:1 is a common healthy benchmark; below 1:1 loses money; above 5:1 may signal underinvestment in growth.
Minimum Viable Product (MVP): The smallest build that tests whether customers will pay for a solution.
Net Revenue Retention (NRR): Revenue kept and expanded from existing customers over a period. Above 100% means the base grows without new customers; top SaaS reaches 120 to 140%.
Network Effects: Value that rises for each user as more users join. Direct effects are same-side; indirect effects are cross-side. Scale alone is not a network effect.
Operating Leverage: The degree to which a cost structure is fixed rather than variable. High operating leverage lets revenue scale faster than cost once fixed costs are covered.
Porter's Five Forces: A test of industry attractiveness through rivalry, new entrants, substitutes, and supplier and buyer power (Porter, 1979).
Price Metric: The unit a price is attached to (per seat, per transaction, per usage, percentage of value). The ideal metric scales with the value the customer receives.
Problem-Solution Fit: Confirmation that a real problem exists and the proposed solution is viable. It precedes Product-Market Fit.
Product-Market Fit: The state in which a specific market actively pulls a specific product, shown by organic referrals, low churn, deepening usage, and expansion revenue.
Revenue Model: The primary way a business captures value: Product, Services, Intellectual Property/Licensing, Marketplace/Commission, Advertising, or Financial Intermediation/Risk Transfer (many businesses combine several as hybrids).
Runway: Cash on hand divided by monthly net burn. Below 6 months is a crisis; 12 to 18 months is a healthy fundraising window.
Take Rate: A marketplace's commission expressed as a percentage of gross bookings. Revenue equals GMV times take rate.
TAM / SAM / SOM: Total Addressable Market (the full ceiling), Serviceable Addressable Market (what the model can serve), and Serviceable Obtainable Market (the realistic near-term share).
Unit Economics: The revenue and cost of a single unit or customer, used to test whether each transaction creates economic value.
Validated Learning: Ries's principle of testing the problem-solution hypothesis with a minimum viable product before committing significant capital.
Value-Based Pricing: Setting price from the economic value delivered to the customer rather than from cost or competitor prices.
VRIO: Barney's test of whether a resource yields sustained advantage: Valuable, Rare, costly to Imitate, and the firm Organized to capture it (Barney, 1995, evolving from the 1991 VRIN test).

Week 3 · Financial Statement Analysis39 terms

Accrual accounting: Records revenue when earned and expenses when incurred, regardless of cash timing. The GAAP basis startups mature into.
Agent (ASC 606): An entity that arranges for another party to provide the good or service. Reports revenue net, its fee or commission only.
ARPU: Average revenue per user: revenue divided by active users, common in consumer subscription models.
ARR / MRR: Annual and monthly recurring revenue: the annualized or monthly run-rate of subscription revenue.
Billings: The amount invoiced to customers in a period. Indicates invoicing cadence.
Bookings: The total value of signed contracts in a period, regardless of billing or recognition. Indicates demand.
Cap table: The ledger of who owns what: every share class, option, warrant, SAFE, and note, on a fully diluted basis.
Cash collections: The cash actually received from customers in a period. Indicates whether the money is real.
Cash-basis accounting: Records revenue and expenses only when cash moves. Common in early startups; simple but blind to obligations and matching.
Convertible note: Debt that converts to equity at a future round, typically with a discount or cap; accrues interest and has a maturity date.
Customer deposits: Upfront cash collected to fund future delivery or production. Strengthens cash now but grows a balance-sheet liability.
Data room: The set of documents a startup provides in a fundraise or acquisition. Its completeness is itself a maturity signal.
Deferred revenue: Cash received before delivery, recorded as a liability until the obligation is met. A growing balance signals demand but also an obligation to deliver.
Driver-based forecasting: Tying every forecast line to an operational driver (for example, salespeople times quota) rather than extrapolating past trends.
Earnout: Additional purchase price paid only if the business hits agreed future performance targets.
Escrow / holdback: Funds set aside at closing that can be clawed back if representations prove false during a post-closing true-up.
FCFE: Free cash flow to equity: net income + D&A - CapEx - increase in net working capital + net borrowing. Cash available to equity after debt (Damodaran, 2012).
FCFF: Free cash flow to the firm: EBIT x (1 - tax) + D&A - CapEx - increase in net working capital. Cash to all capital providers, pre-debt (Damodaran, 2012).
Gross vs. net revenue: Whether the top line shows the full transaction amount (gross, principal) or only the retained fee (net, agent). Net income is the same either way; scale is not.
Horizontal analysis: Tracking each line item's change over time, period over period. Reveals trend and trajectory.
Inventory turns: How many times inventory is sold and replaced in a period. A hardware and product efficiency measure.
Liquidation preference: A preferred investor's right to a set return (for example, 1x) before common shareholders receive anything.
Liquidation waterfall: The order in which exit proceeds are paid out, given the rights attached to each instrument.
Liquidity (match rate): In a marketplace, the share of demand successfully matched to supply. A core measure of marketplace health.
Logo retention: The percentage of customers (logos) retained over a period, independent of how much each spends.
Net working capital: Current assets minus current liabilities. An increase ties up cash (a use); a decrease releases cash (a source).
P/E ratio: Market price per share divided by earnings per share. A high P/E implies expectations of future growth.
Participating vs. non-participating: Participating preferred takes its preference and then shares the remainder; non-participating takes the preference or converts, whichever is greater.
Peer analysis: Benchmarking a company's metrics against comparable firms. For startups, use similar-stage peers, not incumbent-dominated averages.
PEG ratio: P/E divided by the earnings growth rate. Below 1.0 is a heuristic for potentially undervalued relative to growth.
Preferred equity: Equity with protective terms such as liquidation preference, stated dividends, conversion, anti-dilution, and governance rights.
Principal (ASC 606): An entity that controls a good or service before transferring it to the customer. Reports revenue gross.
Quality of earnings (QoE): A diligence analysis of whether reported earnings reflect sustainable, recurring operating performance.
Recognized revenue: The amount recognized under ASC 606 as the performance obligation is satisfied. Indicates delivery.
SAFE: Simple Agreement for Future Equity (Y Combinator, 2013): a deferred equity contract that converts at the next priced round, with no interest or maturity, and is not classified as debt.
Terminal value: The value of all cash flows beyond the explicit forecast. For startups it is usually the majority of value, and it is applied in Week 5 via the Gordon Growth Model (Gordon, 1962).
Utilization rate: In services, the share of a professional's available hours billed to clients. The primary services profit lever.
Vertical analysis: Expressing each statement line item as a percentage of a base, usually revenue. Reveals proportional structure.
Working capital peg: The normalized working capital level set in an acquisition agreement so neither party is helped or hurt by timing around closing.

Week 4 · Financial Forecasting30 terms

Assumptions section: A dedicated, labeled area holding every input, so one change flows through the whole model. A core modeling guideline.
Bottom-up vs top-down: Bottom-up builds revenue from specific activities (reps, units, price); top-down assumes a share of a market. Operating plans are bottom-up.
Cash flow model: The model that shows whether the business survives. Revenue is not cash; a company can be profitable on paper and still run out of money.
Compound Annual Growth Rate (CAGR): The constant annual rate that links a beginning and ending value over n years: (Ending / Beginning) to the 1/n power, minus 1.
Financing need: Cumulative net burn to the target milestone + minimum cash − cash on hand. The amount a pre-profit company needs to raise.
Forecast: A structured hypothesis about what could happen and a framework for responding when reality diverges, not a point prediction.
Fully loaded cost: Salary plus benefits, payroll taxes, equipment, and recruiting. A common multiplier is 1.25 to 1.4 times base salary.
Gross burn: Total monthly cash outflows across payroll, rent, hosting, marketing, and everything else.
Gross margin: (Revenue − COGS) / Revenue. The share of each revenue dollar available to fund operations, sales, and growth.
Linear vs compound growth: Linear adds a fixed amount each period; compound applies a fixed rate, so early absolute gains are small and later years accelerate on a larger base.
Logo churn: The percentage of customers who cancel in a period, counting customers regardless of their contract size.
MARCS framework: A practitioner forecasting loop: Measurable (clean data), Aspirational (build the baseline), Realistic (stress test), Controllable (isolate drivers), Sequenced (layer strategy and track).
Minimum cash balance: The floor below which the company generally cannot operate safely, often 3 to 4 months of gross burn.
Net burn: Monthly cash outflows minus monthly cash inflows. It determines how fast capital is consumed.
Next Twelve Months (NTM): The forward 12 months based on forecast or consensus estimates. It depends heavily on management assumptions.
Permanent variance: The result did not happen or the assumption was wrong. Update the model to the new reality immediately.
Pipeline conversion: The share of qualified opportunities that close. Working back from a target sets the opportunities, and thus the marketing and SDR need.
Required opportunities: Revenue target / (average deal size × pipeline conversion rate). The pipeline the team needs to generate to hit plan.
Revenue churn: The percentage of MRR lost from cancellations and downgrades. It can differ from logo churn when customers have different values.
Rolling forecast: A forecast that continuously covers a fixed forward window, dropping the completed period and adding a new one, so assumptions stay fresh.
Run-rate revenue: The most recent month or quarter annualized. Current but prone to overstating when a spike or seasonality is present.
Sales cycle: The average days from first contact to closed deal. Ignoring the lag front-loads revenue relative to reality.
Sales team headcount model: A revenue model driven by productive reps: headcount by hire date, productivity after a ramp, times units per productive rep.
Scenario analysis: Changing many variables at once to build distinct futures: bull (best), base (most likely), and bear (worst).
Sensitivity analysis: Moving one variable to measure its impact and find single points of failure. It reveals which assumption matters most.
Static budget: A fixed annual plan set once and measured against all year, which grows stale as reality diverges.
Time to productivity (ramp): The delay before a new hire is fully effective, typically 60 to 90 days for sales reps. Cost lands on the start date; revenue lags.
Timing variance: The result happened in a different period than planned. Revise the timing assumption, not the strategy.
Trailing Twelve Months (TTM): The most recent 12 consecutive months of a metric: last full fiscal year + current YTD − prior-year same YTD. Also called LTM.
Variance analysis (FvA): Forecast versus actuals: Variance = actual − forecast, then classify each variance to decide the response.

Week 5 · Valuation Methods44 terms

Adjusted net asset method: Restates all assets and liabilities to fair market value; equity equals adjusted assets minus adjusted liabilities.
Adjusted Present Value (APV): Myers (1974): value the firm unlevered, then add the present value of the tax shield. Avoids WACC and its circularity.
After-tax cost of debt: The stated interest rate times (1 − tax rate). The interest tax shield lowers the true cost.
Anti-dilution: Protection in a down round. Full-ratchet reprices the whole prior round; weighted-average adjusts proportionally.
Beta: Sensitivity to market movements. For private firms, use unlevered betas of comparable public firms, then re-lever.
CAPM: Capital Asset Pricing Model (Sharpe, 1964; Lintner, 1965): cost of equity = risk-free rate + beta × equity risk premium.
Circularity problem: WACC needs the market value of equity, which the DCF is solving for. Resolved by iteration, a target structure, or APV.
Control premium: The extra a buyer pays for control of strategy and operations, embedded in precedent transactions.
Cost approach: Values a business at the cost to reproduce or replace its net assets. A floor for operating companies.
Cost of equity: The return equity investors require. Estimated with CAPM or a multi-factor model.
Discounted cash flow (DCF): Projects free cash flows, discounts them at a risk-adjusted rate, and sums them to a present value.
Enterprise value: The value of the whole firm, debt and equity. FCFF discounted at WACC yields it.
Equity risk premium (ERP): The excess return investors demand over the risk-free rate. Damodaran's implied ERP was 4.23% as of January 2026.
Equity value: The value to shareholders. Enterprise value minus net debt, or FCFE discounted at the cost of equity.
EV / EBITDA: Enterprise value over EBITDA. The workhorse multiple for profitable firms; neutralizes capital structure and tax.
EV / Revenue: Enterprise value over revenue. Preferred for high-growth, not-yet-profitable firms.
Exit multiple method: Estimates terminal value by applying a market multiple (EBITDA or revenue) to the final-year metric.
Fama-French three-factor model: Fama and French (1993) added a size factor (SMB) and value factor (HML) to CAPM's market factor, improving explanatory power.
Football field chart: A horizontal bar chart of the value range from each method. The negotiated price usually sits in the overlap zone.
Gordon Growth Model: Gordon (1962): terminal value = FCF_n × (1 + g) / (WACC − g), treating cash flows as a growing perpetuity. Requires g < WACC.
Income approach: Values a business as the present value of expected future cash flows. DCF and the VC method are the primary tools.
Internal rate of return (IRR): The discount rate that sets NPV to zero. Intuitive, but assumes interim cash reinvests at the IRR.
Liquidation value: What assets fetch in a quick, distressed sale, often 50 to 70% of fair value for tangibles, near zero for intangibles.
Market approach: Values a business by reference to what similar firms sell for, via trading comps or precedent transactions.
Modified IRR (MIRR): Compounds inflows at a reinvestment rate and discounts outflows at a finance rate, giving one unique, realistic return.
Multiple-IRR problem: When cash flows change sign more than once, the IRR equation can have several valid solutions.
Net debt: Total debt minus cash. Subtracted from enterprise value to reach equity value.
NOPAT: Net operating profit after tax: EBIT × (1 − tax rate). Strips out interest, since FCFF is pre-financing.
Option pool: Shares reserved for employees, often 10 to 20%, frequently created pre-money and diluting existing holders.
Perpetuity growth rate (g): The forever growth rate in the Gordon model, near long-run nominal GDP, 2 to 3%. Above 4% is indefensible.
Post-money valuation: Terminal value divided by (1 + target return) to the n. Company value including the new investment.
Pre-money valuation: Post-money minus the investment amount. Company value before the new money.
Precedent transactions: Multiples paid in completed acquisitions. Include a control premium of roughly 20 to 40%.
Pro-rata rights: The right to invest in future rounds to maintain ownership, improving the retention ratio at the cost of more capital.
Probability-weighted valuation: Assigns probabilities to multiple scenario values and takes the expected value, including a failure scenario at zero.
Retention ratio: The fraction of ownership expected to survive future dilution. Required current ownership = final ownership / retention ratio.
Risk-free rate: The yield on a government bond matching the cash-flow horizon, often the 10-year Treasury.
Size premium: The extra return small firms have historically earned. Add roughly 2 to 6% for a small private company.
Stage-adjusted discount rate: A different rate for each year, reflecting that risk resolves as milestones are reached (Bhagat, 2014).
Target return: The VC's required annual return, which embeds portfolio failure probability. Used instead of WACC.
Trading comparables: Valuation multiples of similar public companies. Price minority stakes; exclude the control premium.
Triangulation: Computing value by several methods and presenting a range. Tight convergence signals confidence; wide divergence signals a wrong assumption.
VC method: Sahlman (1987): work backward from a target exit value at the investor's required return to derive today's price.
WACC: Weighted average cost of capital: (E/V) × cost of equity + (D/V) × cost of debt × (1 − tax rate).

Week 6 · Cap Tables & Dilution31 terms

83(b) election: A filing within 30 days of a restricted-stock grant electing to be taxed at grant, so later appreciation is capital gain.
Authorized shares: The maximum number of shares a corporation may issue under its charter. A ceiling, not ownership, until issued.
Broad-based weighted average: The market-standard, most founder-friendly antidilution, adjusting the conversion price by the size of the down round relative to total capitalization.
Capped participating preferred: Participating up to a cap, typically 2 to 4x, above which the investor converts to common instead.
Cliff: An initial period, usually one year, before any vesting occurs.
Common stock: The simplest equity security, held by founders and employees, last in the liquidation stack.
Conversion discount: A percentage reduction to the priced-round share price at which a note or SAFE converts, rewarding early risk.
Conversion point: The exit value at which nonparticipating preferred converts to common: preference divided by ownership percentage.
Convertible preferred: The dominant venture instrument, which lets investors allocate cash flow, voting, board, and liquidation rights separately.
Dilution: The reduction in an existing holder's ownership percentage when new shares are issued.
Double-trigger acceleration: Vesting that completes only on both an acquisition and a termination without cause.
Down round: A financing priced below the prior round's price per share.
Drag-along rights: A term requiring shareholders to vote for an approved sale, preventing a minority from blocking an exit.
Early exercise: Exercising unvested options early, which, with an 83(b) election, starts the capital-gains holding period immediately.
Full ratchet: The harshest antidilution, resetting the conversion price to the new low price regardless of the round's size.
Fully diluted shares: Issued shares plus all options, the unallocated pool, warrants, and convertibles counted as-converted. The denominator for share price.
Issued and outstanding shares: Shares actually issued to holders. Only these represent ownership and appear on the cap table.
Liquidation preference overhang: When discounted or capped shares carry the full-price preference, giving an effective preference above the intended 1x.
Liquidation stack: The order of payment in a liquidation: secured debt, unsecured debt, senior preferred, junior preferred, then common.
Nonparticipating preferred: The investor takes the greater of its preference or its as-converted share, not both. Most founder-friendly.
Participating preferred: The investor takes its preference and then shares pro rata in the remainder. Least founder-friendly.
Pay-to-play: A term requiring existing investors to join a down round or lose preferred status, often converting to common.
Post-money option pool: A pool added after the investment and shared pro rata, so all holders bear its dilution.
Post-money SAFE: The 2018 Y Combinator standard whose cap fixes each investor's ownership at signing, placing inter-SAFE dilution on founders.
Pre-money option pool: A pool carved out of the pre-money valuation, so the founders alone bear its dilution.
Protective provisions: Investor veto rights over defined major decisions, such as a sale, new stock issuance, or dividends.
QSBS: Qualified Small Business Stock under Section 1202. For stock acquired after July 4, 2025, gains phase in at 50% (three years), 75% (four), and 100% (five).
Share price: Equity value divided by fully diluted shares.
Single-trigger acceleration: Vesting that completes on an acquisition alone.
Valuation cap: The maximum valuation at which a note or SAFE converts, protecting early investors if the priced round is high.
Vesting: Earning equity over time, commonly three to four years with a one-year cliff, to prevent dead equity.

Week 7 · VC Fund Economics37 terms

American waterfall: A deal-by-deal waterfall in which the GP can earn carry as each investment exits, before the whole fund's capital is returned. GP-friendly.
ASC 820: The fair-value measurement standard governing how funds value illiquid private portfolio companies.
Capital call: A request from the fund to LPs to wire a portion of their commitment, typically with 10 to 14 days notice, as investments are made.
Carried interest (carry): The GP's share of investment profit, typically 20%, paid through the distribution waterfall after capital is returned.
Clawback: A provision requiring the GP to return excess carry if early distributions overpaid it relative to the fund's final performance.
Committed capital: The total capital LPs have promised to the fund. The usual basis for the management fee during the investment period.
Conviction investing: A strategy of fewer, larger investments with higher ownership and deeper engagement per company.
Distribution waterfall: The tiered rules for splitting distributions between LPs and the GP: return of capital, preferred return, GP catch-up, then the carry split.
DPI: Distributions to paid-in. Cash actually returned to LPs per dollar contributed. The realized multiple.
Dry powder: Committed capital that has not yet been called or invested.
European waterfall: A whole-fund waterfall in which the GP earns carry only after all fund capital, plus any preferred return, is returned. LP-friendly.
Fund (limited partnership): The legal entity that holds LP commitments and makes the investments. Example: a named fund such as Fund XVI, L.P.
Fund of funds: A fund that invests in other VC or PE funds rather than directly in companies, providing diversification and access.
General partner (GP): The entity that manages the fund, makes investment decisions, carries unlimited liability, and receives the carried interest.
GP catch-up: A waterfall tier in which the GP receives most or all distributions until it holds its full carry percentage of the profit distributed.
GP commit: The general partners' own capital invested in the fund, typically 1 to 5%, as an alignment mechanism.
Harvest period: The later years, often years 6 to 10 and beyond, when the fund stops new investing and seeks exits.
ILPA: The Institutional Limited Partners Association, whose reporting templates have become a de facto standard for LP reporting.
Investment period: The early years, often years 1 to 5, when the fund deploys capital into new investments.
J-curve: The path of cumulative net cash to LPs, which dips negative as capital is called and fees are paid, then rises as exits occur.
Leveraged buyout: A private equity acquisition of a controlling stake in a mature company financed largely with debt.
Limited partner (LP): An investor who commits capital to a fund, such as a pension, endowment, fund of funds, or family office. Liability is limited to the commitment.
Management company: The operating business that employs the team and receives the management fee. Legally separate from the GP entity.
Management fee: An annual fee, commonly about 2%, charged on committed capital and later on invested capital, to fund the management company's operations.
MOIC: Multiple on invested capital. A gross multiple of value created on an investment, before fund-level fees and timing.
Paid-in capital: The portion of committed capital that has actually been called and contributed. Also called called capital.
Performance persistence: The tendency of a GP's fund returns to correlate across successive funds, documented more strongly for VC than buyout.
Power law: A distribution with a long right tail, where a few outliers account for most of the total. Describes VC returns.
Preferred return (hurdle): A minimum return, often about 8%, that LPs receive before the GP earns carry. Common in buyout, far less common in VC.
Reserves: Capital, often 40 to 60% of the fund, set aside for follow-on investments to protect ownership in the best companies.
RVPI: Residual value to paid-in. The remaining portfolio value per dollar contributed. The unrealized multiple.
Secondary market: A market for buying and selling existing LP fund interests, often at a discount to net asset value.
Section 1061: A Tax Cuts and Jobs Act provision requiring a three-year holding period for carried interest to receive long-term capital gains treatment.
Spray and pray: A strategy of many small investments with lower ownership, maximizing the chance of catching an outlier.
TVPI: Total value to paid-in. The sum of realized and unrealized value per dollar contributed. Equals DPI plus RVPI.
Vintage year: The year a fund begins investing, used to compare funds raised in the same market environment.
Zombie fund: A fund that lingers in its harvest period collecting reduced fees when the GP cannot raise a successor fund.

Week 8 · Capital Structure28 terms

Acceleration: A lender's right, on a covenant breach or default, to demand immediate repayment of the outstanding principal.
Adverse selection: The market's inference that a firm issuing equity may be overvalued, which pushes the price down and makes equity costly.
Agency costs: Costs from conflicts of interest between managers, shareholders, and lenders (Jensen and Meckling, 1976).
Asset substitution: An agency cost of debt in which levered shareholders favor risky projects whose upside is theirs and downside falls on lenders.
Capital stack: The full set of a firm's financing claims, from senior secured debt down to common equity.
Capital structure: The mix of debt, equity, and hybrid securities a firm uses to finance its assets.
Cost of capital: The return a firm needs to earn on its assets to satisfy its investors, expressed as a rate.
Cost of debt: The interest rate a lender charges. Its after-tax value reflects the interest tax shield for a profitable firm.
Covenant: A condition in a loan agreement, such as a minimum cash balance or growth milestone, whose breach can trigger acceleration.
Financial distress costs: The costs that rise with leverage: lost customers, fire-sale asset values, and legal and bankruptcy expenses.
Financial leverage: The use of debt in the capital structure, which magnifies both returns and risk to equity.
Free cash flow discipline: Jensen's (1986) argument that required debt payments force out excess cash and curb wasteful managerial spending.
Hybrid instrument: A security that blends debt and equity features, such as a convertible note or a SAFE, that converts to equity later.
Information asymmetry: The gap between what managers know and what investors know, which drives the pecking order and adverse selection.
Interest tax shield: The value created because interest is tax-deductible. Under MM 1963, it adds Tc times the debt to firm value.
Levered value: The value of a firm with debt. Under MM 1963, unlevered value plus the interest tax shield.
MM Proposition I: In perfect markets with no taxes or frictions, firm value is independent of the financing mix (Modigliani and Miller, 1958).
MM Proposition II: The cost of equity rises linearly with the debt-to-equity ratio, offsetting the use of cheaper debt so WACC is unchanged without taxes.
Net operating loss (NOL): A tax loss that can be carried forward to offset future taxable income, the deferred value of a startup's early losses.
Pecking order theory: Under information asymmetry, firms prefer internal funds, then debt, then equity (Myers and Majluf, 1984).
Personal guarantee: A founder's personal promise to repay company debt, which turns much new-firm bank debt into a levered claim on the founder.
Revenue-based financing: Capital repaid as a share of revenue, available once a firm has recurring revenue to share.
Section 382: A tax provision that limits the use of NOLs after an ownership change exceeding 50%, which venture rounds frequently trigger.
Signaling: The idea (Ross, 1977) that taking on fixed debt payments signals management's confidence in the firm's cash flows.
Tradeoff theory: Optimal leverage balances the marginal interest tax shield against the marginal cost of financial distress, giving an interior optimum.
Unlevered value: The value of a firm financed entirely with equity, before any tax shield from debt.
Venture debt: A term loan for venture-backed firms, commonly 25 to 35% of the last round at 8 to 15% interest with warrants, used to extend runway.
Warrant: A right to buy shares at a set price, attached to venture debt as additional lender compensation, causing modest dilution.

Week 9 · Pitch Deck Mastery7 terms

Founder-market fit: Evidence that a specific founding team is unusually well suited to this specific problem and market.
Milestone-based ask: An ask that ties the amount raised to the runway it buys and the specific proof point it will reach before the next round.
North-star metric: The single metric that best captures the core value a product delivers to customers.
Read-alone test: The standard that a deck should be fully legible when forwarded and read without a founder present to narrate it.
Traction: Demonstrated progress to date (users, revenue, growth, retention), best read against the timeframe in which it was achieved.
Unit economics: The profit or loss on a single customer or unit, captured by CAC, LTV, and payback. The core test of whether growth creates value.
Vanity metric: A number that looks impressive but does not reflect real, durable engagement or value (for example, raw signups).

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