Glossary
AI Finance Glossary
Plain-English definitions of AI, accounting, and SaaS-finance terms.
Categories
A
C
Cap Table
A spreadsheet or software record showing all equity ownership in a company, including shares, options, warrants, and convertible instruments.
Cliff Vesting
A vesting provision where no equity vests until a minimum service period (the cliff) is completed, protecting against early departures.
Co-Sale Rights
Investor right to sell shares alongside a founder in a secondary transaction on the same terms.
Convertible Note
A short-term debt instrument that converts to equity at a future funding round, typically with an interest rate, maturity date, discount, and valuation cap.
D
Dilution
The reduction in existing shareholders' ownership percentage caused by the issuance of new shares to investors, employees, or through conversion of instruments.
Drag-Along Rights
A provision allowing majority shareholders to force minority shareholders to agree to a company sale on the same terms.
Due Diligence
Systematic investigation of a business or investment to verify facts and identify material risks before closing.
E
Earnout
Contingent payment mechanism tying part of the acquisition price to the target's future financial performance.
Enterprise Value
The total value of a company available to all capital providers — equity holders and debt holders — used as a basis for acquisition pricing and valuation multiples.
Equity Compensation
Non-cash compensation in the form of company ownership interests, including stock options, RSUs, and restricted stock, used to attract and retain talent.
F
I
Indemnification
Contractual obligation by one party to compensate another for losses arising from specified events or breaches.
Information Rights
Investor contractual rights to receive regular financial statements and company information.
L
Letter of Intent
Preliminary document expressing a party's intent to enter a transaction, outlining key proposed terms.
Liquidation Preference
A provision giving preferred stockholders the right to receive their investment back before common shareholders in a company sale or liquidation.
M
N
P
Participating Preferred
Preferred stock that receives its liquidation preference and also participates in remaining proceeds alongside common stockholders.
Priced Round
A funding round in which the company's value is formally determined and investors receive shares at a specific price, establishing a definitive valuation.
Pro-Rata Rights
The right of existing investors to participate in future funding rounds proportionally to maintain their current ownership percentage.
R
Ratchet
Mechanism adjusting investor ownership percentage upward if performance targets are missed post-investment.
Redemption Rights
Preferred stockholder right to require the company to repurchase shares after a specified period.
Representations and Warranties
Contractual statements of fact in a purchase agreement that allocate risk between buyer and seller.
Restricted Stock Units
Equity awards that vest over time and convert to actual shares upon vesting, taxed as ordinary income at vesting.
Retention Bonus
One-time payment incentivizing a key employee to remain with the company through a specified date.
Right of First Refusal
Investor right to purchase shares before a stockholder transfers them to a third party.
S
SAFE Note
A Simple Agreement for Future Equity — a startup financing instrument that converts to equity at a future priced round, without accruing interest or setting a maturity date.
Stock Options
Rights to purchase company shares at a fixed price (strike price) within a specified exercise window.
Subordinated Debt
Debt that ranks below senior obligations in payment priority in the event of default or liquidation.
T
Tag-Along Rights
A right allowing minority shareholders to sell their shares alongside a majority shareholder on the same terms in a proposed sale.
Term Sheet
Non-binding document outlining the key terms of a proposed investment or acquisition deal.
V
Variable Pay
Performance-contingent compensation including bonuses and commissions that fluctuates based on results.
Vesting Schedule
The timeline over which an employee earns the right to exercise stock options or receive equity grants, typically over four years.