Signed – Glossary

A C D G I M P Q S T

A

Angel Investing

Investing personal funds in early-stage startups in exchange for equity

Angel investing is the practice of providing financial backing to early-stage startups, typically in exchange for equity ownership. Unlike venture capital firms that invest institutional money, angel investors use their own personal funds. Most angel investments range from $5,000 to $100,000.

ARR

Annual Recurring Revenue — the yearly value of recurring subscription revenue

Annual Recurring Revenue (ARR) is a metric used primarily by SaaS and subscription-based companies. It represents the annualized value of recurring revenue, giving investors a normalized view of a company's revenue run rate. ARR is one of the most important metrics for evaluating early-stage software companies.

C

Cap Table

Capitalization table — a record of who owns what percentage of a company

A capitalization table (cap table) is a spreadsheet or document that shows the equity ownership structure of a company. It lists all shareholders, their ownership percentages, and the types of securities they hold (common stock, preferred stock, options, warrants, SAFEs, etc.). Cap tables become increasingly complex as companies raise multiple rounds of funding.

Convertible Note

A debt instrument that converts to equity at a future financing round

A convertible note is a short-term debt instrument that converts into equity, usually at a discount, when the company raises a subsequent financing round. Unlike SAFEs, convertible notes carry an interest rate and a maturity date. They were the standard instrument for early-stage investing before SAFEs became popular.

Cost Basis

The original purchase price of an investment, used for calculating taxable gains

Cost basis is the original value of an investment for tax purposes, typically the purchase price plus any associated costs. When you sell or otherwise dispose of an investment, the difference between the proceeds and your cost basis determines your capital gain or loss for tax reporting.

D

Distributions

Cash returned to investors from exits, dividends, or fund liquidations

Distributions are cash payments returned to investors from their investments. They can come from various events: a company being acquired, going public, paying dividends, or a fund liquidating its positions. Distributions are the ultimate measure of realized returns — paper gains don't count until cash is actually returned.

DPI

Distributed to Paid-In — cash returned relative to capital invested

Distributed to Paid-In (DPI) measures how much cash has been returned to investors relative to the total amount invested. A DPI of 1.0x means you've gotten back exactly what you put in. A DPI of 0.0x means no cash has been returned yet (common in early-stage portfolios). DPI is sometimes called the 'realization ratio' because it only counts actual distributions, not paper gains.

G

Gain/Loss

The difference between what you received and what you paid for an investment

Gain or loss represents the difference between the proceeds from selling or disposing of an investment and its cost basis. Gains held for more than one year qualify as long-term capital gains with lower tax rates. Losses can be used to offset gains, reducing your overall tax liability.

I

IRR

Internal Rate of Return — the annualized return accounting for timing of cash flows

Internal Rate of Return (IRR) is the annualized return on your investment, accounting for the timing of cash flows. Unlike simple return multiples, IRR factors in when money was invested and when (or if) it was returned. A 3x return in 2 years has a much higher IRR than a 3x return in 10 years. IRR is the standard metric for comparing investment performance across different time horizons.

M

MOIC

Multiple on Invested Capital — how many times your investment has grown

Multiple on Invested Capital (MOIC) measures how many times your original investment has grown. A MOIC of 2.0x means your investment has doubled in value. Unlike IRR, MOIC doesn't account for time — a 2x return in one year looks the same as a 2x return in ten years. MOIC is useful for quickly understanding the magnitude of returns.

Monthly Burn

How much cash a company spends per month beyond what it earns

Monthly burn (or burn rate) measures how much cash a company spends each month beyond its revenue. For startups that are not yet profitable, burn rate determines how long the company's cash reserves will last (its 'runway'). Investors track burn rate to understand when a company will need to raise additional funding.

P

Post-money Valuation

The company's total valuation after an investment round

Post-money valuation is the total value of a company immediately after a round of financing. It equals the pre-money valuation plus the amount of new capital raised. For example, if a company has a $8M pre-money valuation and raises $2M, its post-money valuation is $10M. Post-money valuation determines how much of the company new investors own.

PPS

Price per share — the current estimated price per share

Price per share (PPS) is the price of a single share of a company's stock. In venture investing, PPS is determined during each funding round and is used to calculate valuations and ownership percentages. Your effective PPS may differ from the round PPS if you invested via a SAFE or convertible note with a discount.

Q

QSBS

Qualified Small Business Stock — may qualify for up to $10M in tax-free capital gains under Section 1202

Qualified Small Business Stock (QSBS) is a powerful tax benefit under Section 1202 of the Internal Revenue Code. If you hold stock in a qualified small business (a domestic C corporation with gross assets under $50M) for more than 5 years, you may be able to exclude up to $10 million in capital gains from federal taxes. This makes QSBS one of the most significant tax advantages available to angel investors.

Costly QSBS Mistakes QSBS Benefits for Angel Investors

S

SAFE

Simple Agreement for Future Equity — converts to equity at the next priced round

A SAFE (Simple Agreement for Future Equity) is an investment instrument created by Y Combinator that has become the standard for seed-stage deals. Unlike convertible notes, a SAFE is not debt — it has no interest rate or maturity date. It simply converts to equity at the next priced round, subject to a valuation cap and/or discount. SAFEs are simpler and more founder-friendly than convertible notes.

What is a SAFE?

SPV

Special Purpose Vehicle — an entity created for a single investment

A Special Purpose Vehicle (SPV) is a legal entity (usually an LLC) created for the sole purpose of making a single investment. SPVs are commonly used by angel investors and syndicates to pool capital from multiple investors into one investment. The SPV appears as a single line item on the company's cap table, simplifying things for the startup.

T

TVPI

Total Value to Paid-In — ratio of current value to total amount invested

Total Value to Paid-In (TVPI) measures the total value of your portfolio (both realized distributions and unrealized paper value) relative to the total amount invested. A TVPI of 2.0x means your portfolio is worth twice what you put in, counting both cash returned and current paper value. Unlike DPI, TVPI includes unrealized gains.

Glossary

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