Dilution: When a company takes VC investments, it issues new shares and then sells them to the investor in return for the investment. This increases the total numbers of shares hence it decreases the percentage ownership of existing shareholders. For example: Assume the company has 100 shares, and the founders owned all of it (100% ownership). Now, if they issue 25 new shares, and sell it to an investor. Founders still own 100 shares, but their percent ownership is 80% instead of 100%, i.e., 100/125. Hence they diluted the ownership by 20%.
Valuation: Value of the total number of shares of the company. Usually, for startups, the valuation is determined by the price at which the company sold its shares in the last round.
Pro-rata rights: Dilution decreases the percent ownership of shareholders with each funding round. Pro-rata right gives an option to the existing investor to buy more shares to maintain their original percentage ownership. For example, assume, there is a seed investor-owned 5% equity in the company, now the company raises more funding in Series-A round with a dilution of 20%. This will decrease the ownership of the seed investor from 5% to 4%, if the seed investor has a pro-rata right, she can buy more shares at the valuation of the new round to maintain her ownership at 5%. See also: https://avc.com/2014/03/the-pro-rata-participation-right/
Up Round: A funding round is called “up round” when the valuation of the company is more than the valuation of previous round.
Down Round: A funding round is called “down round” when the valuation of the company is less than the valuation of previous round.
Priced Round: A funding round where the investors set a valuation to the company and the company issues shares to the investor. This is a norm for Series-A and beyond.
SAFE and Convertible notes: Instead of issuing shares directly to the investor, sometimes the company issues a promise to the company that they’ll issue them shares in the next priced round. Raising money through a SAFE is faster as there are some regulatory overheads in raising money in a priced round. SAFEs are a popular instrument for Pre-Seed and Seed stage investing.
General Partner (GP) is the person who makes deals on the behalf of the Venture Capital Firm.
Limited Partner (LP) is the entity (person or a company) who put money in a Venture Captial fund for it to invest this money in the startup. Limited Partners are not involved in the day-to-day activities of a VC firm.
Management Fee: A VC firm, charges a small fee to manage the fund on the behalf of LPs, it is usually 1-3% of the fund.
Carry: Carry is the percentage of the profit which the VC firm gets to keep on the returns they have made for the LPs.
Angel Investor: Angel Investors are individual who invests in startups with their own money. Angels usually only invest in pre-seed or seed rounds.
Syndicates: Sometimes individuals pool in money together, and form legal entities to invest in startups. This collective of angels is called a syndicate.