Capital raising glossary

I use this glossary to explain the words I hear in capital raising conversations. Each definition gives a plain-language starting point, not legal, tax, or investment advice. A term can mean something different in a particular deal, so I read it with the governing documents and ask qualified professionals about decisions. I have worked with investors and capital raisers through the Family Office Club since 2007. The definitions here cover companies, funds, securities, investor relationships, and deal processes. I also link each term to a relevant guide or question so you can keep learning in context. If a term affects your transaction, get advice from professionals who understand your facts and the applicable rules.

A

Accredited investor: An accredited investor is a person or entity that meets specified criteria under a securities exemption. The criteria depend on the applicable rules and facts.
Accredited investor verification: Accredited investor verification is the process of documenting that an investor meets the relevant eligibility criteria. The method can depend on the offering exemption.
Accrued return: An accrued return is a preferred or other contractual return that accumulates over time before payment. The governing documents define its calculation and timing.
Allocation: An allocation is the amount of an investment opportunity assigned to an investor or group. It may be limited by demand, fund capacity, or deal terms.
Alternative investment: An alternative investment is an investment outside common public stocks, bonds, or cash instruments. Private company equity, private funds, and real estate are examples.
Anchor investor: An anchor investor is an early or significant investor whose commitment can help establish momentum for a raise. The term has no single universal threshold.
Angel investor: An angel investor is an individual who invests personal capital in an early stage company. Some angels also provide experience or introductions.
Angel round: An angel round is an early financing round that includes one or more angel investors. It may use equity, a SAFE, or another instrument.
Anti-dilution protection: Anti-dilution protection adjusts certain investor rights or conversion terms after a later financing at a lower price. The details depend on the documents.
Ask: An ask is the specific request I make to a prospective investor, such as a meeting, feedback, or consideration of an offering.
Asset: An asset is a resource with economic value that a person or entity owns or controls. In a deal, the term may refer to property, securities, or other holdings.

B

Bad actor disqualification: Bad actor disqualification refers to certain events involving covered persons that can affect eligibility to use some securities exemptions. The rules and exceptions are specific.
Basis point: A basis point is one hundredth of one percentage point. It is commonly used to describe fees, rates, or changes in rates.
Blind pool: A blind pool is a fund that raises capital before identifying all of the investments it will make. Investors evaluate the manager, strategy, and governing terms.
Board observer: A board observer is a person allowed to attend board meetings without being a voting director. Rights and limits are set by agreement.
Bridge financing: Bridge financing is temporary capital intended to cover a period before a later financing, sale, or other funding event. Its repayment or conversion terms vary.
Broker-dealer: A broker-dealer is a person or firm engaged in securities transactions or related activities that may require registration. Definitions and requirements depend on the facts and applicable rules.
Burn rate: Burn rate is the pace at which a company uses cash over a period. It is often discussed as gross burn or net burn.
Business plan: A business plan describes a company's goals, customers, operating approach, and financial expectations. Its depth depends on the company and audience.

C

Cap table: A cap table is a record of a company's ownership interests and related securities. It may show current and potential ownership.
Capital call notice: A capital call notice is a communication requesting that an investor fund some or all of a commitment by a stated deadline. The documents set the required content and process.
Capital commitment: A capital commitment is an investor's agreed maximum contribution to a fund or other arrangement, subject to its documents. It may be funded over time.
Capital formation: Capital formation is the process of sourcing and securing capital for a company, fund, or project. It can include preparation, outreach, diligence, and closing.
Capital preservation: Capital preservation is an objective focused on limiting loss of principal. It does not remove risk or assure that principal will be returned.
Capital provider: A capital provider is an individual or organization that supplies financing or investment capital. It may be a lender, investor, or funding institution.
Capital raise: A capital raise is a defined effort to obtain money for a company, fund, or project. The plan states the amount, intended use, target investors, and process.
Capital raising readiness: Capital raising readiness describes how prepared an issuer is to explain its opportunity, support its claims, and manage investor review. It is a practical assessment, not a certification.
Capital stack: A capital stack is the combination and priority of financing sources used for a company, asset, or project. It can include debt and multiple types of equity.
Capitalization table: A capitalization table, or cap table, records a company's ownership securities and the holders of those securities. It may show ownership on issued and fully diluted bases.
Carried interest: Carried interest is a share of certain fund profits allocated to the sponsor or manager under the fund documents. It is often subject to distribution priorities and other conditions.
Catch-up: A catch-up is a distribution provision that directs a portion of proceeds to a specified party after a preferred return or hurdle is met. Its mechanics vary.
Closing: A closing is the completion of a transaction or an accepted round of investments under the applicable documents. A fund may have more than one closing.
Co-investment: A co-investment is an investment made alongside a fund or lead investor into the same company or asset. Terms and access vary by arrangement.
Commitment period: A commitment period is the period during which a fund may call committed capital for investments or expenses under its documents.
Common stock: Common stock is an ownership class that typically carries rights defined by a company's charter and agreements. It may have different economic and voting rights from preferred stock.
Company valuation: Company valuation is an estimate or agreed measure of a company's value for a particular purpose and point in a transaction. Methods and assumptions differ.
Confidentiality agreement: A confidentiality agreement sets conditions for handling specified nonpublic information shared between parties. Its scope and exceptions are set by the document.
Control rights: Control rights are contractual or governance rights that affect decisions in a company or investment vehicle. They may include voting, consent, or board rights.
Conversion discount: A conversion discount allows an investment instrument to convert into equity at a price below a later financing price, as defined in its terms.
Conversion price: A conversion price is the price used to convert an instrument into equity under specified terms. It may reflect a discount, valuation cap, or other formula.
Convertible note: A convertible note is a debt instrument that may convert into equity after specified events or on specified terms. It can include interest, maturity, discount, and valuation cap provisions.
Corporate venture capital: Corporate venture capital is investment capital provided by a company through an investment program or related entity. Strategic aims may sit alongside financial aims.
Covenant: A covenant is a promise or restriction in a financing or investment agreement. It may require an action or limit specified actions.
Crowdfunding: Crowdfunding is the process of seeking contributions or investments from many people, often through an online platform. Securities offerings through crowdfunding can have specific rules.

D

Data room: A data room is an organized collection of documents shared with prospective investors or other reviewers. It may be virtual or physical.
Deal memo: A deal memo summarizes an investment opportunity, its structure, key assumptions, and open questions. It is a working communication document.
Deal sponsor: A deal sponsor is the person or organization arranging or leading a specific investment opportunity. The sponsor's role depends on the transaction.
Debt financing: Debt financing provides capital that a borrower agrees to repay under specified terms. It may include interest, collateral, covenants, or maturity provisions.
Dilution: Dilution is a reduction in an existing holder's ownership percentage when additional shares or convertible securities are issued. The holder's economic value does not necessarily change in the same way.
Direct investment: A direct investment is an investment made into a company or asset rather than through a pooled fund.
Discount: A discount is a reduction from a reference price or value under specified terms. In early financing instruments, it can apply when converting into shares.
Distribution: A distribution is cash or property paid from a company, fund, or other entity to its owners or investors. Timing and priority depend on the governing documents.
Distribution waterfall: A distribution waterfall sets the order and conditions for distributing proceeds among investors and the sponsor. The sequence is defined by the governing documents.
Due diligence: Due diligence is the review of information about a company, fund, sponsor, or transaction before a decision. It can cover business, financial, operational, and legal matters.

E

Early-stage company: An early-stage company is a business in an early phase of development, often still building its product, customers, or operating model. There is no universal definition.
Economic interest: An economic interest is a right to receive specified financial benefits from an entity or arrangement. It may or may not include voting or management rights.
Emerging manager: An emerging manager is a fund manager building an investment firm or fund track record. The term has no single universal definition.
Equity: Equity is an ownership interest in a company or other entity. The rights attached to equity depend on the class and governing documents.
Equity financing: Equity financing is capital raised by issuing ownership interests in an entity. It can change ownership and governance arrangements.
Exit: An exit is an event in which an investor or owner sells, transfers, or otherwise realizes an interest. Timing and proceeds are uncertain.

F

Family office: A family office is an organization that coordinates services or manages affairs for a wealthy family. Its structure, scope, and investment activity vary.
Family office investor: A family office investor is a family office or related investment entity that considers investing in companies, funds, or assets. Mandates differ widely.
Fee offset: A fee offset reduces certain fees payable to a manager by specified amounts received from other sources, as described in fund documents.
Finder: A finder is a person who introduces potential investors or parties to a transaction. Whether the activity requires registration depends on the facts and applicable law.
First close: A first close is the initial completion of subscriptions or commitments in a fund or offering that permits activity to begin under its terms.
First-time fund: A first-time fund is a fund raised by a manager without a prior fund under the relevant strategy or firm. The description depends on context.
Follow-on financing: A follow-on financing is additional capital raised after an earlier financing. It may involve existing or new investors.
Fully diluted ownership: Fully diluted ownership estimates ownership after accounting for specified outstanding and potential shares or conversion rights. The calculation conventions matter.
Fund: A fund is a pooled investment vehicle that holds capital from multiple investors for a stated strategy. Its legal form and terms vary.
Fund of funds: A fund of funds invests primarily in other funds rather than directly in operating companies or assets. It may add an additional layer of fees and reporting.
Fund of one: A fund of one is a vehicle or arrangement created for a single investor, with terms tailored to that relationship. Structure varies.
Fund term: A fund term is the stated duration of a fund, including any extension options described in its documents.
Fundraising: Fundraising is the process of seeking and securing capital from investors. It includes preparation, outreach, communication, diligence, and closing.

G

General partner: A general partner is a party with management or other responsibilities in a partnership, as set out in its documents and applicable law. In a fund, the GP often directs operations.
Governance: Governance is the system of rights, responsibilities, and processes used to direct and oversee an organization.
Gross return: Gross return is a return measure before specified fees, expenses, or other deductions. The precise calculation should be stated.
Growth equity: Growth equity is capital invested in a company seeking to expand, often after it has established operations. The label can mean different things across investors.

H

Hurdle rate: A hurdle rate is a threshold return that may need to be met before a manager receives specified incentive compensation. The calculation and timing are set by the documents.

I

Independent sponsor: An independent sponsor sources and organizes an acquisition or investment, often raising capital for each transaction. Roles and economics are deal-specific.
Information rights: Information rights are contractual rights to receive specified reports or company information. Their scope and frequency vary.
Institutional investor: An institutional investor is an organization that invests capital, such as a pension plan, insurer, endowment, or investment firm. Requirements differ by institution.
Investor diligence: Investor diligence is the review an investor conducts to understand a proposed investment and its risks, terms, and sponsor.
Investor pipeline: An investor pipeline is an organized record of prospective investors and the status of each relationship or discussion.
Investor relations: Investor relations is the ongoing communication and coordination between an issuer or manager and its investors.
Investor reporting: Investor reporting is the delivery of financial or operational information to investors. Timing and content may be governed by agreements.
Investor suitability: Investor suitability is an assessment of whether an investment may fit an investor's circumstances, objectives, and constraints. The process and obligations vary.
Investor update: An investor update is a periodic communication about a company, fund, or project. It may cover progress, challenges, finances, and upcoming needs.
IRR: Internal rate of return, or IRR, is a calculation that expresses the rate at which the net present value of a series of cash flows equals zero. Results depend on timing and assumptions.

K

K-1: A Schedule K-1 is a tax form used to report certain items allocated to a partner or other recipient. Tax treatment depends on individual facts and professional advice.

L

Lead investor: A lead investor is an investor who takes a prominent role in a financing, which may include setting terms or coordinating other participants. The role varies.
Limited partner: A limited partner is an investor in a limited partnership whose rights and responsibilities are set by law and the partnership agreement.
Liquidity event: A liquidity event is a transaction or event that may allow owners or investors to convert an interest into cash or other liquid assets.
LOI: A letter of intent, or LOI, summarizes proposed terms for a possible transaction. Some provisions may be binding while others are not, depending on wording and law.

M

Management fee: A management fee is compensation paid to a manager under an agreement, often calculated using a defined base and schedule.
Management team: A management team is the group responsible for leading a company, fund, or project. Its composition and duties vary.
Market size: Market size is an estimate of the potential demand or revenue opportunity for a product, service, or asset strategy. Estimates rely on assumptions.
MFO: A multi-family office, or MFO, serves or coordinates services for more than one family. Its services and investment activity vary by firm.
Minimum investment: A minimum investment is the smallest amount an investor may contribute under an offering's terms. Exceptions may be possible if the documents allow them.
MOIC: Multiple on invested capital, or MOIC, compares value received or held with the amount invested. The calculation may be gross or net and realized or unrealized.

N

Net return: Net return is a return measure after specified fees, expenses, or other deductions. The deductions included should be stated.
Non-binding indication of interest: A non-binding indication of interest is a preliminary expression that a party may consider a transaction or investment. It is generally subject to further review and documentation.

O

One-liner: A one-liner is a short description of a company, fund, or investment opportunity. It states what it is and why a relevant audience may care.
Operating agreement: An operating agreement is a governing document for a limited liability company. It commonly addresses ownership, management, and distributions.

P

Participation rights: Participation rights give an investor the ability to take part in specified future offerings or distributions, subject to the terms.
Pitch: A pitch is a concise presentation of an opportunity and a request for a next step or investment consideration.
Pitch deck: A pitch deck is a presentation that summarizes a company, fund, or project for prospective investors. It often covers the problem, approach, team, market, plan, and capital request.
Portfolio company: A portfolio company is a company held by an investment fund or investment entity.
Post-money valuation: Post-money valuation is a company valuation measured after a specified financing is included. The calculation depends on the round terms and securities counted.
Pre-money valuation: Pre-money valuation is a company valuation measured before a specified financing is included. It is used with financing terms to calculate ownership.
Pre-seed financing: Pre-seed financing is capital raised at an early stage, often before a company has a fully established product or operating history. There is no single standard definition.
Preferred return: A preferred return is a contractual distribution priority or threshold that may be paid to investors before other specified distributions. It is not a guaranteed return.
Preferred stock: Preferred stock is an equity class with rights that may differ from common stock, including preferences on distributions or liquidation. Terms vary by company.
Private equity: Private equity is ownership investment in companies that are not publicly traded, often through a fund or direct transaction. The term covers varied strategies.
Private placement: A private placement is an offering of securities made without a public offering, relying on an available exemption where required. Rules vary by jurisdiction and facts.
Private placement memorandum: A private placement memorandum, or PPM, is an offering document that describes a private securities offering, its terms, and associated risks. Its use and contents vary.
Pro rata rights: Pro rata rights allow an investor to maintain a specified ownership share by participating in later issuances, subject to the agreement.

Q

Qualified purchaser: A qualified purchaser is a defined investor category under certain investment company rules. Criteria are specific and differ from accredited investor criteria.

R

Real estate fund: A real estate fund is a pooled vehicle that invests in real property, real estate debt, or related assets. Strategies and terms vary.
Reg A+: Regulation A, often called Reg A+, provides an exemption that permits certain securities offerings subject to eligibility, filing, and other requirements.
Reg CF: Regulation Crowdfunding, or Reg CF, is a securities offering exemption that permits eligible issuers to raise through registered intermediaries under specified rules.
Reg D: Regulation D is a set of exemptions from Securities Act registration requirements used for certain private offerings. Different rules have different conditions.
Reg D 506(b): Rule 506(b) is a Regulation D safe harbor that generally restricts general solicitation and has conditions for sales to accredited investors and a limited number of non-accredited purchasers.
Reg D 506(c): Rule 506(c) is a Regulation D safe harbor that permits general solicitation under conditions, including sales to accredited investors and required verification steps.
Revenue share: A revenue share gives a party a stated share of defined revenue under an agreement. The calculation base, duration, and limits matter.

S

SAFE: A SAFE, or simple agreement for future equity, is a contract that may give an investor a right to equity upon specified future events. It is generally not debt, but its exact terms matter.
Secondary sale: A secondary sale is a sale of existing shares or interests by a current holder rather than an issuance of new securities by the company.
Seed round: A seed round is an early financing round used to support a company's initial development and growth. Instruments and company stages vary.
Series A: A Series A is a labeled financing round that commonly follows earlier seed financing, though practices vary. The label alone does not define the terms.
SFO: A single-family office, or SFO, serves the needs of one family. Its investment function and services vary.
Skin in the game: Skin in the game refers to a sponsor or manager having personal or organizational exposure to the outcome of a deal. The form and amount vary.
Soft circle: A soft circle is a preliminary, nonbinding indication that an investor may consider committing a stated amount.
Sponsor: A sponsor is a person or entity that organizes, manages, or promotes an investment opportunity. The specific duties depend on the arrangement.
SPV: A special purpose vehicle, or SPV, is an entity formed for a defined transaction or purpose. It may pool investors for a single investment.
Subscription agreement: A subscription agreement is a document through which an investor applies to purchase an interest in an offering and agrees to specified terms.
Syndicate: A syndicate is a group of investors participating in a transaction, sometimes coordinated by a lead or sponsor.
Syndication: Syndication is the process of pooling capital from multiple investors for a transaction or investment. Structures and roles vary.

T

Target raise: A target raise is the amount of capital an issuer or fund intends to seek. It may differ from a minimum or maximum amount.
Term sheet: A term sheet summarizes proposed key terms for a possible investment or transaction. It is often preliminary, and binding effect depends on its wording.
Track record: A track record is a record of prior relevant results or experience attributed to a person, team, or strategy. Attribution and context matter.
TVPI: Total value to paid-in capital, or TVPI, compares the total value attributed to a fund with investor capital contributed. It includes realized and unrealized value under the stated method.

U

Use of proceeds: Use of proceeds describes how raised capital is expected to be spent. It may be set out by category or milestone.

V

Valuation: Valuation is an estimate or agreed measure of an entity or asset's worth for a particular purpose. Methods and outcomes can differ.
Valuation cap: A valuation cap sets a maximum company valuation used to calculate conversion terms for certain instruments. It does not necessarily set the company's current valuation.
Venture capital: Venture capital is investment in companies with potential for significant growth, commonly through equity or convertible instruments. Fund mandates vary.

W

Warm introduction: A warm introduction is an introduction made by someone with a relationship to both parties. It can provide context but does not assure interest.
Waterfall: A waterfall is the agreed order for allocating cash or proceeds among investors and managers. The details are set in governing documents.
Wire instructions: Wire instructions are the details needed to send funds electronically to an account. They should be verified through a secure process.
Working capital: Working capital is money available to support a business's ordinary operating needs. Definitions may vary in accounting and transaction contexts.

Y

Yield: Yield is an income measure expressed relative to an investment amount or value, using a stated calculation. It does not capture every aspect of return.

General education only. Not legal, tax or investment advice.

About Richard C. Wilson

Richard has run the Family Office Club since 2007, the largest investor club in the world by media reach. The team hosts 30 events a year, including 16 in person, and has hosted more than 340 events. Richard has done 46+ transactions as an investor and shares what he has learned on the Centimillionaire Strategies YouTube channel.

If you're working through a raise and have a question, I'm happy to help. Text or WhatsApp me at (808) 600-9260 or email Richard@CapitalRaising.com.

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