Fundraising Glossary

‍Termsheet

A termsheet is a firm intent to invest issued by the investor to a company and its founders and contains the key terms and conditions of the investment deal. A termsheet is not a legally binding document.

Shareholders’ Agreement (SHA)

Shareholders’ Agreement is a definitive, legally binding agreement entered into by shareholders and the company and outlines the rights, preferences and obligations of all the shareholders.

Share Subscription Agreement (SSA)

SSA is a legal document that outlines the terms and conditions under which an investor agrees to subscribe or purchase freshly issued shares in a company against an agreed investment amount. The SSA details the number of shares being purchased, the price per share, the total investment amount, and other key terms of the equity investment.

Share Purchase Agreement (SPA)

A Share Purchase Agreement (SPA) is a legal contract that defines the terms of a transaction where an existing shareholder sells their shares to a buyer. Unlike a Share Subscription Agreement (SSA) which involves issuing new shares, an SPA involves the transfer of already issued shares from one existing shareholder to another.

Capitalization Table (CapTable)

A table summarising the current ownership of the company that includes all shareholders, number of shares and percentage stake. Apart from current ownership, CapTable can also depict any future dilutive provisions including convertible instruments, warrants, employee stock options etc. thus reflecting a fully diluted shareholding incorporating these instruments.

Due Diligence

The comprehensive investigation and audit of a potential investment to confirm all material facts and financial information. Investors will thoroughly examine your business before committing funds.

Pre-Money Valuation

The total value or the total worth of the company before a funding round, typically estimated by an investor, a chartered accountant or a recognized valuer. This value is arrived at by using one or more methodologies including discounted cashflow, multiples, comparables among others.

Post-Money Valuation

The total value or the total worth of the company post a funding round. This is calculated as Post Money Valuation = Pre Money Valuation + Funding Round Amount

Venture Capital (VC)

Institutional funds that pool in capital from investors (called as limited partners of the fund) and invest into early-stage companies with high growth potential.

Angel Investor

An individual into a startup, in exchange for equity (ownership) in the company. They are typically the first set of backers of an early stage venture and willing to take high risk.

Due Diligence

The comprehensive audit of a company to confirm all material facts and financial information. Investors will thoroughly examine your business before committing funds.

Convertible Note

A type of short-term debt that converts into equity at a later funding round. It's often used in seed funding to defer the valuation of the company until a later stage.

SAFE (Simple Agreement for Future Equity)

An investment instrument that provides investors with the right to receive equity in a future funding round, typically at a discount to the next round price or valuation.

Preferred Shares

A special class of shares given to investors with additional rights including a higher preference of payout in case of a liquidation event compared to ordinary class of shares.

Conversion Ratio

The rate at which preferred shares can be converted to common shares

Pre-emptive or Pro-rata Rights

Rights given to existing shareholders to retain their proportionate ownership in the company by participating in a new financing round.

Promoter Lock-In

Investor’s right that prohibits the promoter/founder group to sell their shares to anyone without the prior written consent of the Investor.

Right of First Refusal (ROFR)

Investor’s right to buy shares of the selling shareholder at the same price and terms or higher as being offered by a potential third party buyer.

Right of First Offer (ROFO)

Investor’s right to first receive an offer to sell from a shareholder before soliciting 3rd party bids.

Tag Along Right

Investor’s Right to participate in a round where a majority shareholder(s) are selling shares to a buyer.

Drag Along Right

Rights with Investors that enable them to ‘drag’ the Promoters and other shareholders to sell their shares to the buyer who wishes to acquire a particular target stake in the company.

Anti Dilution Right

The anti-dilution protection is given to the current investors of the company to protect their value in the company in case of a down-round, i.e. if if the future investor happens at a price lower than the price paid by the current investors. This is done by issuing additional shares to the investors with anti-dilution rights as per the defined formula.

Liquidation Preference

Liquidation preference is the right of the investor to receive its investment amount plus certain agreed percentage of the proceeds in the event of happening of a Liquidation Event.

Employee Stock Option Pool

A certain number of shares or equity options reserved on the CapTable, as agreed by the company and its investors for offering to employees as a long term incentive.

Conditions Precedent

Specific conditions that must be met by the company and the founders before the investment is closed, that is funds are transferred to the company by the investor.

Representations and Warranties

Statements about the company's condition and capabilities made by the startup founders that provide a comprehensive and truthful snapshot of the company's current condition.

Indemnities

Indemnities are legal provisions that protect investors by requiring the founders or the company to compensate for specific potential losses or damages. They function as a financial safety net that shifts the responsibility for certain risks from the investor to the company or its founders.

Event of Default

An Event of Default is a predefined circumstance that triggers significant consequences for the company, typically giving investors the right to take specific actions to protect their investment including accelerated exit, change of control etc.

Affirmative Rights

Affirmative Rights are specific rights that investors can proactively exercise, giving them direct involvement and control in key company decisions beyond standard voting rights. Typically the decisions covered under affirmative rights require explicit written approval of the investor before they are enforced by the company.

Exit Rights

Exit Rights are provisions that define how and when investors can liquidate their investment, typically through several potential mechanisms including trade sale/acquisition, IPO, Secondary Sale, Buyback, Drag Along Sale, among others.

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