Glossary

LAST REVIEWED 2026-09 · TERMS AS EXPLAINED IN THE SESSIONS

Definitions as the practitioners explained them in the room — practical, not academic. Linked pages carry the full context. Terms with a dedicated concept page add a verbatim quote and the common mistakes.

83(b) election — A tax filing that moves the taxable event on restricted stock from each vesting date to the grant date, when the stock is nearly worthless. Due within 30 days of the grant; no extensions. Missing it means being taxed on paper gains every vest. Founder stock, vesting, and 83(b) · Concept page

Add-backs — Owner expenses added back to EBITDA when presenting the business for sale. Optimize for taxes while operating, then recast the financials for enterprise value before going to market. Running the exit process · Concept page

409A valuation — The defensible fair-market value of common stock, used to set option strike prices. Third-party 409As give IRS safe harbor; the practical goal is the lowest justifiable number. Options, pools, and advisor equity · Concept page

ACV (annual contract value) — What one customer pays per year. Investor traction bars scale with it: a $10K-ACV product is judged differently than $50K B2B. How seed VCs actually decide

AEO (answer-engine optimization) — Optimizing to be recommended by AI assistants, the way SEO optimized for search ranking. Buyers increasingly ask an assistant before visiting any website. Surviving the SaaS repricing

ARR (annual recurring revenue) — Subscription/license revenue on an annual run rate. Variable usage revenue is not ARR, and blending them unravels in diligence. Data rooms

Broker-dealer rule — Anyone compensated conditionally on investment money closing must be a registered broker-dealer; the company that pays them is liable too. Pay for intros and deck work unconditionally instead. Options, pools, and advisor equity

Buying committee — Champion, economic buyer, users, procurement, and security. The champion wants you to win; the committee decides. Map who approves, who funds, and who uses, and start procurement and security in parallel with the pilot. Pilots that convert · Concept page

Cap (valuation cap) — The maximum company valuation at which a SAFE converts. Scale it to the raise: $1M on a $10M post-money cap is ~10% dilution. SAFEs vs. notes vs. priced rounds · Concept page

Convertible note — Early-stage debt (8–12% interest, maturity date) that converts to equity. More investor-protective than a SAFE; in bankruptcy, secured note holders outrank everyone. Exits, M&A, and leverage

Data room — The organized document set investors diligence: one master room, per-investor sub-rooms with revocable access. Its organization is itself a signal. Data rooms

Discount (SAFE) — A conversion discount to the next round’s price. Terminology trap: a “90% discount rate” means a 10% discount in YC SAFE language. SAFEs vs. notes vs. priced rounds

Double trigger — Acceleration requiring both a change of control and a termination. Standard for employees; founders push for single trigger. Founder stock, vesting, and 83(b)

Earn-out — 25–50% of exit proceeds parked against post-close milestones. Negotiate funding for your team and roadmap into the deal so the acquirer can’t “starve the earn-out” by deprioritizing your product. Running the exit process · Concept page

Economic buyer — The person who owns the budget and writes the check. Sometimes also the champion; that is the ideal. A pilot with no economic buyer is a science project. Pilots that convert · Concept page

Fatal flaw analysis — Finding everyone who tried your idea and died, calling them, and solving every flaw that killed them before you build. Validate demand before you build

Give-get — The sales principle that every valuable thing you give a prospect (custom demo, free trial) is exchanged for sales progress (more stakeholders, a decision process). Repeatable sales motion

ISO / NSO — Incentive stock options (W-2 employees only, tax-advantaged) vs. non-qualified options (contractors and advisors, taxed on exercise spread). Options, pools, and advisor equity

LOI (letter of intent) — The non-binding agreement that opens exclusive deal diligence. It is your price ceiling, not your floor: deals typically move down 5–35% from the LOI. Running the exit process · Concept page

LOI with teeth — A hypothetical purchase order: the prospect specifies the perfect product, price, and volume, and signs it — turning an investor conversation from “can you sell?” into “can you hit these numbers?” First angel check

LTV:CAC — Lifetime value over customer acquisition cost. 3:1 is the floor investors will look at; 4:1 is the working bar, and AI variable costs argue for more. Validate demand before you build

Liquidation preference — Who gets paid first, and how much, when the company sells. Market standard is 1x non-participating; 2x participating is a laugh-them-out-of-the-building term. Term sheets and red flags · Concept page

Mutual action plan — A co-edited, dated plan from today’s call to a signed decision, required as the price of a free trial; if the prospect won’t schedule the steps, there’s no trial. Repeatable sales motion

Paid diagnostic — A paid scoping engagement (on the order of $50K in the session that named it) that maps the customer’s problem and how the product addresses it, with success criteria, stakeholders, and a decision path in the agreement. Distinct from a free trial. Pilots that convert

Paid pilot / customer pilot — Someone buying the product as prescribed and proving a few things in their organization before rollout. Always charged, one to two months, measurable success criteria, ends with a purchase order. Not a design-partner co-build. Pilots that convert · Concept page

MAC clause (material adverse change) — A lender’s right to act if the business deteriorates. Broad and effectively non-negotiable in venture debt, which is why you pick lenders on trust. Venture debt

NRR (net revenue retention) — Revenue kept plus expansion from existing customers. The renewal signal traction-oriented seed funds look for at roughly a year in market. How seed VCs actually decide

NVCA model documents — The industry-standard legal document set for priced rounds; they constrain what’s realistically negotiable. Term sheets and red flags

Option pool — Shares reserved for future hires. Sized to ~12 months of hiring (~10%); a fat unused pool silently dilutes founders at SAFE conversion and via pre-money top-ups. Term sheets and red flags

Pari passu — Equal seniority between preferred series. Keep it that way; granting seniority once sets the precedent for every later round. Term sheets and red flags

Post-money / pre-money — Whether a valuation includes the new money. A “$90M valuation” swings by tens of millions depending on which it is. Confirm in writing first. Term sheets and red flags

Protective provisions — Preferred stockholders’ veto rights over listed actions. Watch approval rights over future financings and per-series class votes. Term sheets and red flags

Quality of earnings — The buyer-side financial review of your books: revenue recognition, accrual accounting, margin accuracy. Getting it clean before the LOI is the first pillar of exit readiness. Running the exit process · Concept page

QSBS (qualified small business stock) — C-corp stock that can exclude up to $15M of gain from federal tax at exit. One of the reasons Delaware C-corp is the default. Founder stock, vesting, and 83(b)

RSA (restricted stock award) — Actual shares subject to vesting, used while the company is cheap enough to buy in for pocket change; starts the capital-gains clock. Pair with an 83(b). Founder stock, vesting, and 83(b)

Roll-up (platform & plug-in) — A PE strategy of buying a platform company and bolting on smaller ones. Aggregation alone climbs the EBITDA multiple bands, which is also why acquiring your way past a band threshold can rerate your own exit. Running the exit process

SAFE — “Simple agreement for future equity”: an IOU for preferred stock. Not debt, not equity; no interest, no maturity, no stockholder rights until conversion. SAFEs vs. notes vs. priced rounds · Concept page

SPV (special purpose vehicle) — A single entity pooling many small investors into one cap-table line. Rule of thumb: under ~20 investors, individual SAFEs are simpler. SAFEs vs. notes vs. priced rounds

System of action vs. system of record — Software that does the work vs. software that stores the record. The market is repricing the latter. Surviving the SaaS repricing

Venture debt — Senior secured, non-converting debt underwritten to the likelihood of your next equity round. An accelerant placed with 12+ months of runway, never a rescue. Venture debt · Concept page

Warrant — A lender’s or investor’s right to buy a small amount of stock at a set price; the equity kicker on venture debt. Venture debt

XYZ hypothesis — A numeric demand statement: X% of market Y will pay $Z (with a time bound). Tested with a cheap prototype until true 70–90% of the time, before anything gets built. From The Right It. Validate demand before you build · Concept page