Venture Capital Cheat Sheet

The core ideas of Venture Capital distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/venture-capital/cheatsheet

Quick Reference

Term Sheet

A non-binding agreement outlining the key terms and conditions of a venture capital investment. It covers valuation, investment amount, equity stake, governance rights, liquidation preferences, and other deal terms that will be formalized in the final legal documents.

Valuation (Pre-Money and Post-Money)

Pre-money valuation is the value of a company immediately before it receives a new investment, while post-money valuation equals the pre-money valuation plus the new investment amount. These figures determine what percentage of the company the investor receives.

Due Diligence

The comprehensive investigation and analysis a venture capital firm conducts before making an investment. This includes evaluating the founding team, market opportunity, product-market fit, financials, competitive landscape, intellectual property, legal matters, and customer references.

Power Law Distribution

The fundamental economic principle of venture capital stating that returns are not normally distributed but follow a power law, where a small number of investments generate the vast majority of returns. Most startups fail, a few return capital, and very few become massive successes.

Liquidation Preference

A clause in the investment agreement that determines the payout order and amount investors receive in a liquidation event such as an acquisition. Common structures include 1x non-participating (investors get back their money or convert to common shares) and participating preferred (investors get their money back plus share in remaining proceeds).

Dilution

The reduction in an existing shareholder's ownership percentage that occurs when new shares are issued during a subsequent funding round. Anti-dilution provisions in investment agreements can protect investors from excessive dilution in down rounds.

Carried Interest (Carry)

The share of profits that the venture capital fund's general partners receive as compensation, typically 20% of the fund's gains above the invested capital. This aligns the interests of fund managers with their limited partners, as carry is only earned if the fund is profitable.

Cap Table (Capitalization Table)

A detailed spreadsheet or ledger that records the equity ownership structure of a company, including shares held by founders, employees (through stock options), and investors across all funding rounds. It tracks how ownership percentages change as new rounds are raised.

Venture Funding Stages

The sequential rounds of financing a startup typically goes through as it grows. These generally include pre-seed (idea stage), seed (early product), Series A (product-market fit), Series B (scaling), and Series C and beyond (expansion and market dominance). Each stage involves larger amounts at higher valuations.

Exit Strategy

The method by which a venture capital investor realizes a return on their investment. The two primary exit paths are an initial public offering (IPO), in which the company lists its shares on a public stock exchange, and an acquisition (M&A), in which another company purchases the startup. Secondary sales, in which investors sell their shares to other private investors, provide an additional liquidity option.

Key Terms at a Glance

Accelerator:A fixed-term, cohort-based program providing startups with mentorship, education, and often seed funding in exchange for equity (e.g., Y Combinator, Techstars).

Angel Investor:A high-net-worth individual who provides early-stage capital to startups, typically before institutional venture capital firms invest.

Anti-Dilution:Contractual protections that adjust an investor's conversion price or ownership in the event of a down round.

Bridge Financing:Short-term funding provided to a company between major funding rounds to sustain operations until the next round closes.

Burn Rate:The rate at which a startup spends its cash reserves, typically measured monthly. Used to calculate the company's runway.

Cap Table:A detailed record of a company's equity ownership structure, listing all shareholders and their respective ownership stakes.

Carried Interest:The percentage of fund profits (typically 20%) paid to general partners as performance-based compensation.

Cliff (Vesting):The initial period (typically one year) before any equity vests in a standard vesting schedule.

Convertible Note:A form of short-term debt that converts into equity at a predetermined discount during a future financing round.

Deal Flow:The rate at which investment opportunities are presented to a VC firm for consideration.

Dilution:The reduction in ownership percentage experienced by existing shareholders when new shares are issued.

Down Round:A financing round in which a company's valuation is lower than in its previous round.

Due Diligence:The investigation and analysis process conducted by investors before committing capital to a startup.

Equity:Ownership interest in a company, represented by shares of stock.

Exit:The event through which investors realize returns on their investment, primarily through an IPO or acquisition.

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