83(b) Election
A tax filing that allows founders and employees to lock in the taxable value of restricted stock at its current (usually near-zero) value, rather than waiting until the shares fully vest. Missing the 30-day filing deadline after receiving restricted stock is irrevocable and can cost founders hundreds of thousands of dollars in ordinary income tax when they exit. If you receive any restricted stock, filing an 83(b) election with the IRS is almost always the right move.
Accredited Investor
A legal classification under SEC regulations for individuals or entities permitted to invest in private securities. In the US, individuals qualify with $200K+ annual income ($300K with a spouse) or $1M+ net worth excluding their primary residence. SAFE agreements and seed rounds may only be offered to accredited investors without costly additional regulatory compliance — this is why investors will ask you to verify their status.
Anti-Dilution
A protection mechanism that adjusts an investor's ownership percentage or conversion price downward if the company later raises money at a lower valuation (a "down round"). Broad-based weighted-average anti-dilution is the most common and founder-friendly form; full-ratchet anti-dilution is aggressive and means the investor is made completely whole at the expense of everyone else. Always know which form your investors hold.
Bridge Round
A short-term financing round used to keep a company operational while preparing for a larger raise. Bridge rounds are typically done via convertible notes or SAFEs and buy 3–12 months of runway, but they add to the cap table complexity that Series A investors scrutinize. Raise a bridge when you have a clear catalyst coming (a product milestone, revenue target) — not as a substitute for a real raise.
Burn Rate
The monthly rate at which a startup spends its cash reserves, measured in gross burn (total spending) or net burn (spending minus revenue). A company with $3M in the bank and $500K monthly net burn has 6 months of runway. Investors use burn rate to assess operational efficiency and judge the urgency — and therefore the leverage — of a founder going into fundraising conversations.
Cap Table
Short for capitalization table: a spreadsheet or software record tracking who owns what percentage of your company, including founders, employees (via the option pool), and every investor. A clean, accurate cap table is one of the first documents Series A investors review during due diligence. Messy cap tables — with misallocated shares, missing option grants, or unconverted instruments — slow deals and erode trust.
Model your cap table with the SAFE Calculator →Cliff
The minimum time that must pass before any equity begins to vest under a vesting schedule. Standard 1-year cliff vesting means an employee who leaves at month 11 receives zero equity; at 12 months they receive 25% of their total grant, after which shares typically vest monthly for 3 more years. Cliffs protect the company from giving equity to contributors who leave before proving their value.
See also: Vesting →Convertible Note
A short-term debt instrument that converts to equity at a future priced round, similar to a SAFE but with an interest rate and maturity date. Unlike SAFEs, convertible notes create a repayment obligation if the company fails to raise a qualifying round before the note matures — meaning investors could technically call the debt. For most pre-seed founders, SAFEs are simpler and safer; convertible notes are more common in markets where SAFEs haven't fully penetrated.
SAFE vs Convertible Note: read the comparison →Dilution
The reduction in each existing shareholder's ownership percentage that occurs when a company issues new shares. Dilution is mathematically inevitable as a company raises money — and usually healthy if the company's total value is growing. Understanding exactly how much equity you're giving away before you sign any SAFE, note, or term sheet is essential. Use a dilution calculator, not back-of-envelope math.
Calculate your dilution with the free SAFE Calculator →Discount Rate
A percentage reduction in the per-share price that SAFE or convertible note holders receive at conversion, compared to what new investors in the priced round pay. A 20% discount means if Series A investors pay $1.00/share, early SAFE investors convert at $0.80/share — rewarding the extra risk they took. Discount rates typically range from 10–30%; the valuation cap and discount rate work together, and investors receive whichever gives them the better price.
How discount rates work in SAFE agreements →Due Diligence
The investigative process investors run to verify all claims a startup makes before closing an investment. Typical due diligence covers cap table accuracy, financial statements, IP ownership, team background checks, customer references, and any outstanding legal disputes. Well-prepared founders with a clean data room can cut due diligence from months to weeks; surprises uncovered during this phase are deal-killers or negotiation leverage for investors.
Liquidation Preference
The contractual right for investors to receive their invested capital back (and sometimes a multiple of it) before founders, employees, and common stockholders receive any proceeds in a sale, merger, or wind-down. A 1x non-participating liquidation preference is standard and founder-friendly — investors get their money back, then everyone shares the remainder. Participating preferences let investors "double-dip," getting their money back and then sharing the remainder as if they converted; aggressive terms founders should always push back on.
MFN (Most Favored Nation)
A clause in a SAFE that entitles the holder to automatically receive the benefit of any better terms offered to future SAFE investors. If you later issue a SAFE with a lower valuation cap to a different investor, your MFN investor's cap updates to match. MFN provisions protect very early investors from being leapfrogged by later investors who negotiate better terms, but they can complicate future fundraising if you have many MFN holders.
Learn more about SAFE agreement terms →Option Pool
A block of shares reserved for future employees, advisors, and contractors, typically representing 10–20% of the fully diluted cap table at the time of a funding round. Investors usually require founders to create or expand the option pool before a priced round closes — and since the pool is carved out of pre-money shares, this expansion dilutes founders, not incoming investors. Negotiate the pool size carefully; larger pools dilute you more than they need to.
Model option pool dilution in the SAFE Calculator →Post-Money Valuation
The total value of a company immediately after a financing round closes, calculated as pre-money valuation plus the new investment. If a company raises $2M at a $10M post-money valuation, the investors own 20% ($2M / $10M). Y Combinator's standard SAFE uses post-money mechanics, which makes ownership math straightforward — each investor's percentage is simply their investment divided by the valuation cap.
Pre-money vs post-money SAFEs explained with worked examples →Pre-Money Valuation
The agreed value of your company before new investment is added to calculate ownership percentages. A $500K investment into a company with a $4.5M pre-money valuation gives the investor 10% ownership ($500K ÷ $5M post-money). Pre-money valuation is the central negotiation point in any fundraise — higher valuations mean less dilution but set expectations for the next round. For pre-seed, valuation is more art than science.
Full comparison: pre-money vs post-money SAFEs →Pre-Seed
The first formalized funding round, typically $200K–$2M, raised before the company has significant traction or revenue. Pre-seed rounds almost always use SAFEs or convertible notes because the company is too early to support the legal costs and valuation rigor of a priced equity round. Investors at this stage are betting on the team and the problem, not the product.
Pro Rata Rights
The contractual right for investors to maintain their percentage ownership in future funding rounds by investing additional capital proportional to their existing stake. An investor with 5% ownership and pro rata rights can invest enough in Series A to stay at 5% rather than being diluted down to 3%. Not all SAFE holders receive pro rata rights — they're typically reserved for lead investors or those above a certain investment threshold.
Runway
The number of months a company can operate before running out of cash, calculated as current cash balance divided by monthly net burn rate. A company with $1.2M and $100K monthly burn has 12 months of runway. Investors typically want to see 18+ months of runway after a round closes so the company has time to reach the next milestone without fundraising pressure. Thin runway is negotiating leverage for investors, not founders.
See also: Burn Rate →SAFE Agreement
A Simple Agreement for Future Equity: a contract where an investor gives money now in exchange for the right to receive equity when a priced round occurs (typically Series A). Developed by Y Combinator in 2013, SAFEs have no maturity date or interest rate, making them simpler and cheaper than convertible notes for early-stage funding. The two key terms are the valuation cap (the maximum valuation at which it converts) and the discount rate (the price reduction vs. new investors).
Complete Guide to SAFE Agreements for Founders →Seed Round
The first formally priced equity round, typically $1M–$5M, where investors receive preferred stock rather than a debt or SAFE instrument. A seed round establishes the company's first official post-money valuation and requires full legal documentation: term sheet, stock purchase agreement, and investor rights agreement. Raising a seed round is significantly more work than a SAFE round — budget 2–4 months from first meeting to close.
Series A / B / C
Sequential institutional fundraising rounds that scale with company growth: Series A ($5M–$20M, product-market fit proven), Series B ($20M–$100M, scaling operations and team), and Series C+ ($50M+, market dominance and often pre-IPO). Each round issues a new class of preferred stock with its own rights and preferences negotiated in the term sheet. The letters are arbitrary labels — what matters is the milestone the company must hit to earn the next round.
Series A Readiness Checklist: are you ready? →Term Sheet
A non-binding document (except for exclusivity and confidentiality clauses) that summarizes the key financial and governance terms of a proposed investment before the full legal documents are drafted. Term sheets cover valuation, investment amount, option pool, board composition, pro rata rights, and investor protections. While not legally binding, both parties treat term sheets as morally binding — changing terms after a signed term sheet is a serious breach of trust in the venture community.
Valuation Cap
The maximum valuation at which a SAFE converts to equity, protecting early investors from being diluted if the company raises its next round at a much higher valuation. If your SAFE carries a $5M cap and the Series A values the company at $20M, SAFE investors convert at $5M — giving them 4× more shares per dollar than Series A investors. A lower cap is better for investors, a higher cap is better for founders; most pre-seed SAFEs in the UK fall in the £3M–£10M range.
How valuation caps work in SAFE agreements →Vesting
The process by which founders and employees earn their equity ownership over time, rather than receiving it all immediately. Standard founder vesting is 4 years with a 1-year cliff: no equity if you leave before 12 months, 25% at month 12, then monthly vesting for 3 more years. Vesting aligns long-term incentives, prevents early leavers from retaining large stakes, and is required by nearly all institutional investors as a condition of funding.
See also: Cliff →Confused by SAFEs?
Model exactly how much equity your SAFEs will cost. Stack up to 3 SAFEs, set discount rates, and see your post-conversion cap table in real time — no signup needed.