Fundraising glossary

A founder-friendly contract that lets investors put in money now and convert to equity later (at the next priced round).

A SAFE is an investment instrument popularized by Y Combinator. The investor wires money today; equity gets allocated later — usually at the next priced round, with either a valuation cap, a discount, or both. No interest, no maturity date, no debt. SAFEs are common for pre-seed and seed rounds in SEA because they're fast to close and don't require setting a valuation.

A short-term loan that converts into equity at the next priced round — like a SAFE, but with interest and a maturity date.

A convertible note is debt that converts to equity at the next priced round. Unlike a SAFE, it accrues interest (typically 4-8%) and has a maturity date (12-24 months) — if no priced round happens by then, the note matures and must be repaid or renegotiated. More common in markets where SAFEs aren't legally enforceable.

The maximum company valuation at which a SAFE or note will convert into shares.

When you raise on a SAFE with a $10M cap and later raise a priced round at $20M, the SAFE investor converts as if the company were worth $10M — meaning they get twice as many shares. Caps protect early investors who took risk before the valuation got high.

Paying off a loan in equal monthly installments where each payment is partly principal + partly interest.

Standard amortization spreads your loan repayment evenly across the term. Early payments are mostly interest; later payments are mostly principal. A $500K loan at 8% over 36 months has monthly payments of $15,668 and you pay $64,054 in total interest. The full schedule shows exactly when each dollar shifts from interest to principal.

The yearly cost of borrowing money, expressed as a percentage of the loan amount.

APR includes the interest rate plus any mandatory fees. For SEA debt: bank SME loans run 6–10% APR, venture debt 10–14%, revenue-based financing 12–24% effective. The "effective" APR matters more than the headline — a 12% rate with monthly compounding costs more than a flat 12%.

A spreadsheet showing who owns what percentage of your company.

The cap table lists every shareholder (founders, employees with options, investors) and their ownership percentage. It updates every time you raise, issue options, or convert SAFEs. A clean, well-maintained cap table is a sign of a fundable company.

How much your ownership percentage drops when new shares are issued (typically to new investors).

If you own 100% of a company and sell 20% to an investor, you're now diluted to 80%. Dilution is the cost of capital — you trade ownership for money. Founders usually end up with 30-60% by Series B.

The right of existing investors to maintain their ownership percentage by investing in future rounds.

If an investor owns 10% of your company and you raise a new round, their pro-rata right lets them buy enough new shares to stay at 10%. Most VCs ask for pro-rata rights to protect their position in winning companies.

How much an investor gets paid back FIRST when the company is sold — before founders see anything.

A 1x liquidation preference means investors get their money back before anyone else gets a cent. 2x means they get double. "Participating" preferences mean they also get their share of what's left. Stick to 1x non-participating — anything more is investor-unfriendly to founders.

A pool of company shares reserved to grant to current and future employees as part of their compensation.

ESOP gives employees the option to buy company stock at a fixed price, usually with a vesting schedule (e.g., 4 years with a 1-year cliff). Typical pool size is 10–20% of fully-diluted shares. VCs in priced rounds often require expanding the pool BEFORE pricing — which dilutes founders only. Negotiate this carefully.

Predictable revenue you collect every month from subscriptions or contracts.

MRR is the holy metric for SaaS. If you have 100 customers paying $50/month, your MRR is $5,000. Investors love MRR because it's predictable — unlike one-time transactions. Annualize by multiplying by 12 to get ARR.

MRR × 12. Your subscription revenue annualized.

ARR is MRR × 12. It's a snapshot of your run-rate revenue if everything stayed constant for a year. SaaS valuations are typically expressed as multiples of ARR (e.g., "5x ARR" means a company with $1M ARR is valued at $5M).

The average dollar value of a customer contract, per year.

If you have 10 customers and total annual contracted revenue is $500k, your ACV is $50k. ACV tells you whether you're selling to enterprises (high ACV, slow sales cycles) or SMBs (low ACV, fast volume).

Revenue from existing customers a year later — including expansion, downgrades, and churn.

NRR > 100% means existing customers are net-expanding (upgrades + new modules outweigh churn + downgrades). Best-in-class SaaS hits 120-130%. Investors care about NRR because it tells you whether your product is sticky.

The total revenue opportunity if you captured 100% of your market — globally and forever.

TAM is the maximum possible revenue if everyone who could ever use your product did so. Investors want to see TAM > $1B for venture-scale outcomes. Don't inflate it — sophisticated investors smell it immediately.

The slice of TAM you can realistically reach — usually filtered by geography, segment, or channel.

SAM = TAM, but realistic. If your TAM is "all SaaS spend globally" ($500B), your SAM might be "SaaS spend in SEA, mid-market" ($5B). SAM tells investors you understand who you actually sell to.

The piece of SAM you can capture in 3-5 years — the size of the opportunity in YOUR roadmap.

SOM is what you'll actually capture given your competition, sales team, and timeline. Usually 1-10% of SAM. SOM should justify the size of round you're raising — if SOM is $50M and you're raising $20M, the math doesn't work.

The average yearly growth rate of a market or revenue figure over multiple years, smoothed for compounding.

If a market grows from $1B to $2B over 5 years, the CAGR is roughly 15% (not 20%, because growth compounds). Investors look for SEA markets with 20%+ CAGR — anything below 10% is mature/slow, anything above 40% is hot but might be hype. Formula: (end ÷ start)^(1/years) − 1.

A valuation ratio comparing the company's enterprise value to its annual revenue. Used to price companies vs comparable peers.

If a SaaS company has $5M ARR and trades at 8x EV/Revenue, its enterprise value is $40M. SEA multiples vary by sector — early-stage SaaS often 8–15x, marketplaces 2–5x, fintech 4–10x. Lower multiples than the US (where SaaS can hit 20x+) because SEA markets are smaller and less liquid.

How much you spend on sales + marketing to land one new customer.

CAC = (sales + marketing spend) / customers acquired. If you spent $100k last quarter and got 50 new customers, CAC is $2k. Lower CAC is better, but CAC alone is meaningless — you need to compare it to LTV.

How much revenue you expect from a customer over their entire relationship with you.

LTV = (avg revenue per customer) × (avg customer lifespan). If customers pay $1k/year and stick around 3 years, LTV is $3k. LTV / CAC ratio matters — anything above 3x is healthy SaaS unit economics.

How much cash you lose per month (revenue minus expenses).

If you spend $200k/month and earn $50k, your burn is $150k. Burn comes in flavors: gross burn (just expenses), net burn (expenses minus revenue). Investors care about net burn because it tells them how long your runway is.

How many months you have before you run out of cash, at current burn rate.

Runway = (cash in bank) / (monthly net burn). If you have $1.2M and burn $100k/month, you have 12 months of runway. Investors expect 18-24 months of runway from a fresh round. Plan your next raise to start when you have 6+ months left.

A small interim raise to extend runway between major priced rounds — usually on a SAFE or note.

You raised a seed 14 months ago, you're not ready for Series A, but cash is getting tight. A bridge round (typically $500k-$2M) extends runway by 6-12 months. Often led by existing investors. Useful but a yellow flag if it happens repeatedly.

What investors think your company is worth BEFORE they put their money in.

Pre-money is the agreed company value before the new investment. Post-money = pre-money + amount raised. If you raise $2M on a $8M pre-money, your post-money is $10M — and the new investor owns 20%.

Pre-money valuation PLUS the new money raised. The total value of the company after the round closes.

If you raise $2M on $8M pre-money, post-money is $10M. Investors who put in $2M own 20% (2 / 10). Always check whether a quoted valuation is pre or post — it changes your dilution math significantly.