Every Fundraising Term Founders Should Know (2025 Edition)

Every fundraising term, founders should know is essential if you plan to raise capital in 2025. This guide breaks down complex investor jargon, valuation caps, CCPS, liquidation preference, vesting, and ESOPs into simple language so you negotiate confidently and protect your equity.

Why Knowing Fundraising Terms Matters More Than Ever

Raising money is not about getting investors excited—it's about understanding the terms they bring to the table. Most Indian founders have strong businesses but struggle during fundraising because the documentation feels like a different language. And in many ways, it is.

The problem is simple: If you don’t understand fundraising language, you lose control before you even realise it.

That’s why learning every fundraising term founders should know is now the difference between a founder who leads negotiations, and one who gets led.

This blog is your complete guide. It explains every important fundraising term in simple English, the exact format you want, with context, examples, and clarity. As you’ll see, knowing these terms doesn’t just help you raise money, it helps you raise smarter.

Section 1: Valuation Terms

Before you talk about money, you must understand how your startup is valued. These terms form the foundation of every negotiation and are present in every funding round, from pre-seed to Series C.

Here’s the list of every fundraising term founders should know under valuations:

• Pre-Money Valuation: Company valuation before new investment comes
• Post-Money Valuation: Company valuation after adding the new investment
• Cap Table: Table showing equity breakdown across all shareholders
• Dilution: Reduction in your ownership after issuing new shares
• Valuation Cap: Maximum valuation at which SAFE/convertible will convert
• Discount Rate: Percentage discount offered to early investors in conversion
• Floor Valuation: Minimum permitted valuation for share issuance
• Fully Diluted Shares: Total shares assuming all conversions + ESOPs
• Equity Dilution: Percentage of ownership founders lose during a round
• Round Size: Total capital being raised from investors
• Premature Dilution: Losing excessive equity early due to poor negotiation

Now that the valuation basics are clear, let’s move into the instruments investors actually use while funding a startup.

Section 2: Fundraising Instruments

Every funding round in India uses one of a few standard instruments. Understanding these instruments helps you avoid surprises later and negotiate the right deal structure.

These tools are core parts of every fundraising term that founders should know:

• SAFE: Investor gives money now and receives equity later
• Convertible Note: Short-term loan converting into equity
• CCPS: Preferred shares that must convert into equity
• CCD: Debt instrument that will compulsorily convert into shares
• Equity Round: Direct equity purchase by investors
• Bridge Round: Short-term round to extend runway
• Angel Round: Early investments by individuals
• Pre-Seed Round: Funding for MVP and early experiments
• Seed Round: Funding for early traction and go-to-market
• Series A/B/C: Larger rounds for scale and growth
• Rights Issue: Existing shareholders get right to buy additional shares
• Private Placement: Shares offered to selected investors only
• Debt Funding: Loan without giving equity

Now that we understand funding vehicles, let’s look at the most critical part of fundraising, he term sheet.

Section 3: Term Sheet Terms

The term sheet determines your rights, your risks, and your future ownership. This is where most founders make mistakes because they don’t fully understand how terms work together.

Here are the power terms inside every fundraising term founders should know:

• Liquidation Preference: Defines who gets paid first during an exit
• Participating Preference: Investor gets principal + share of remaining proceeds
• Non-Participating Preference: Investor chooses payout OR share of proceeds
• Pro-Rata Rights: Investor can maintain ownership in future rounds
• Anti-Dilution Protection: Protects investors in down rounds
• Full Ratchet: Converts investor shares at lowest future round price
• Weighted Average: Softer anti-dilution based on average share price
• Pay-to-Play: Investor must participate in future rounds to retain rights
• Redemption Rights: Investor can demand buyback under conditions
• Drag-Along Rights: Majority can force minority to sell
• Tag-Along Rights: Minority can join majority shareholder sale
• ROFR: First right to buy shares before outsiders
• ROFO: First right to make an offer before outsiders
• Voting Rights: Power to influence key company decisions
• Board Seat Rights: Investor gets representation on the board
• Observer Rights: Investor attends board meetings without voting
• Information Rights: Rights to periodic financials and MIS
• Founder Vesting: Founder shares vest over a schedule
• Clawback: Company can reclaim unvested shares if founders leave
• No-Shop Clause: Founder cannot approach other investors for a period
• Exclusivity Period: Time window to close the transaction
• Break Clause: A Condition allowing the investor to withdraw

Once we’ve mastered the term sheet, we need to understand ownership because equity distribution affects the future of your company.

Section 4: Ownership, ESOPs and Founder Terms

Ownership is the most emotional and sensitive part of fundraising. Understanding these terms ensures you don’t give away more than necessary.

Below are core terms inside every fundraising term founders should know related to ownership:

• ESOP Pool: Shares reserved for employees
• ESOP Top-Up: Increase in ESOP pool demanded by investors
• Vesting Schedule: Timeline over which shares/ESOPs vest
• Cliff Period: Minimum time before first vesting event
• Exercise Price: Price at which employees can buy vested ESOPs
• Sweat Equity: Shares given for contribution instead of cash
• Lock-In: Restriction on selling shares for a period
• Reverse Vesting: Founder shares vest over time post-investment
• Founder Dilution: Equity founders lose during funding rounds
• Promoter: Legal designation in MCA filings
• Super-Voting Shares: Shares with higher voting power
• Observer: Person attending board meetings without voting
• Management Rights Letter: Defines founder obligations post-fundraise

Now that ownership is clear, let’s move toward the legal documents and fundraising compliance founders must handle in India.

Section 5: Legal & Compliance Terms

This is where founders often feel overwhelmed because of India’s heavy compliance structure. Understanding these terms eliminates surprises during due diligence.

These India-specific terms are vital to every fundraising term founders should know:

• Shareholders’ Agreement (SHA): Defines rights, obligations, governance
• Share Subscription Agreement (SSA): Covers issuance of new shares
• Term Sheet: Blueprint of the funding deal
• Due Diligence: Audit of finances, compliance, IP, technology
• MCA Filings: Mandatory filings like PAS-3, MGT-14, SH-7
• FEMA Compliance: RBI rules governing foreign investment
• FDI Sectoral Caps: Maximum foreign ownership allowed
• Valuation Certificate: Required for issuing shares to foreign investors
• Board Resolution: Approval document for fundraising decisions
• Share Certificate: Proof of share ownership
• DSC: Digital signature for MCA filings
• DIN: Identification number for directors
• Private Placement Offer Letter: Required for private issue of shares

Once your compliance is in order, investors will focus on metrics that measure your company's performance.

Section 6: Performance & Financial Metrics

Investors care deeply about numbers that show traction, efficiency, and sustainability. These metrics help them decide whether you’re a high-quality startup or a risky bet.

Key metrics inside every fundraising term founders should know:

• Burn Rate: Monthly cash spent
• Gross Burn: Total spending without revenue counted
• Net Burn: Burn minus revenue
• Runway: Months before cash runs out
• CAC: Cost to acquire a customer
• LTV: Lifetime revenue from a customer
• CM1/CM2/CM3: Contribution margins
• AOV: Average value per transaction
• ARPU: Revenue per user
• MoM Growth: Monthly growth
• GMV: Gross merchandise value
• Churn Rate: Percentage of users lost
• Cohort Analysis: Behaviour of user groups over time
• Retention Rate: Users who continue using product
• Active Users: Daily (DAU) or monthly (MAU)
• North Star Metric: Most important metric for growth
• Blended CAC: CAC across all channels

Now that you know the core terms, let’s understand when they actually appear in your fundraising journey.

When These Terms Appear: Stage-by-Stage Funding Journey

Pre-Seed Stage

Founders usually deal with:

• SAFE
• CCPS
• Valuation cap
• ESOP creation
• Founder vesting
• Early dilution math

Seed Stage

Terms become slightly more complex:

• Discount rate
• Updated cap table
• Liquidation preference
• Early board rights
• Convertible instruments

Series A

Now governance becomes important:

• Anti-dilution
• Board seats
• Reserved matters
• Enhanced reporting

Series B & C

Larger capital comes with greater structure:

• Participating preference
• Drag-along
• Tag-along
• Detailed compliance
• Strategic governance

Each stage reinforces the importance of mastering every fundraising term founders should know.

Common Founder Mistakes (Caused by Ignoring These Terms)

Here are the mistakes we most commonly see founders making:

1. Accepting participating preference unknowingly
2. Giving board control too early
3. Underestimating dilution impact
4. Forgetting ESOP pool adjustments
5. Signing no-shop clauses prematurely
6. Not understanding liquidation waterfalls
7. Accepting full-ratchet anti-dilution
8. Ignoring drag-along and tag-along balance
9. Misjudging future fundraising impact

All of these come from not understanding every fundraising term founders should know deeply enough.

How to Use These Terms When Negotiating With Investors

To negotiate effectively, combine clarity, confidence, and the right questions.

Ask These Intelligent Questions

• “Is liquidation preference non-participating?”
• “Do you require ESOP pool expansion pre-money or post-money?”
• “Is anti-dilution weighted average?”
• “Which reserved matters are essential for you?”
• “What reporting frequency do you expect?”

Watch Out for These Red Flags

• 2x or 3x liquidation
• Full-ratchet anti-dilution
• Founder vesting reset
• Too many reserved matters
• Drag without tag

Apply These Negotiation Tactics

• Push for better valuation
• Reduce ESOP top-up
• Ask for weighted-average anti-dilution
• Balance drag/tag rights
• Limit board control to reasonable levels

These techniques come naturally once you’re confident with every fundraising term founders should know. 

A Simple, Practical Term Sheet Example

Let’s say:

• Investment = ₹5 crore
• Pre-money valuation = ₹20 crore
• Post-money valuation = ₹25 crore

Here’s what you’ll likely see in a term sheet:

• Liquidation Preference: 1x
• ESOP Pool: 12%
• Anti-Dilution: Weighted average
• Board Seat: 1 for investor
• Drag/Tag: Standard rights
• Reporting: Quarterly statements
• Founder Vesting: 4-year vesting with 1-year cliff

Now that these structures are clear, founders negotiate with more confidence.

Quick Reference Table: Every Fundraising Term Founders Should Know

This table is perfect for quick revision before investor meetings.

Conclusion

Startup fundraising is not about luck, it’s about literacy. The founders who understand terms protect their companies, retain more equity, and negotiate stronger deals. The founders who don’t… pay the price later.

Once you master every fundraising term founders should know, you no longer fear the term sheet; you read it like a professional.

And that changes everything.

If you want expert help reviewing your term sheet, preparing a cap table, or planning your fundraising strategy, Startup Movers is here to help.