409a valuation

A formal report that tells you the fair market value of your company’s common stock prepared in compliance to recommended guidelines issued by regulatory bodies.

Gust Equity Management (provides 409A Valuations) How to value your pre-seed startup's stock

83(b) election

A form that tells the IRS that you will be taxed on the value of granted shares today rather than recognizing income on their value as of the date that they vest.

Why startup founders should file 83(b) elections


A type of business incubator that typically accepts startup teams into a three-month program and may provide capital, basic living expenses, office space and mentorship, often in exchange for equity in the startup.

From Accelerators to Venture Capital: What is best for your startup?


The process of contextualizing each transaction in order to present an accurate picture of the company’s financial performance. Accountants go beyond recording a transaction; they interpret how each transaction impacts the financial status of the business.

What are accounting and bookkeeping?


One company’s acquisition of another for the primary purpose of hiring its employees, rather than for the intrinsic value of the business itself.


A process where a company acquires the controlling interest (more than 50%) of another company.


An individual providing guidance, connections, advice and support to the entrepreneur, often in return for a small equity stake.

Users Guide to Startup Advisors

Amazon Web Services (AWS)

A service that allows startups to cheaply rent server space and development tools in the cloud and scale up as needed rather than purchasing their own expensive servers.

What are Amazon Web Services Credits?

angel group

A formal or informal organization of individual accredited investors who pool their deal flow, resources, expertise and capital in order to make angel investments.

Investment Strategy for Angels

angel investor

An accredited investor who invests his or her personal capital in early stage, potentially high-growth companies.

What are some things that truly committed angel investors do for startups?

angel round

A round of investment into a startup company from angel investors not previously affiliated with the founder. Typically the first money invested in a company after the founder’s own money and the founder’s friends and family.

How would you break down the process of raising an angel round of investment in 5-10 steps?

annual recurring revenue (ARR)

The subscription-based revenue which software-as-a-service or platform-as-a-service (SaaS/PaaS)-based companies receive each year; also known as the run rate.

Articles of Incorporation (or Certificate of Incorporation)

Documents filed with the state’s Secretary of State or Registrar which acts as a charter to document the establishment and existence of a corporation—typically including the business’s name, address, a statement of business purpose, and details related to the types of stock the corporation is entitled to issue.

The difference between incorporation and company formation

authorized shares

The maximum number of shares that a company can issue, as decided by its Board of Directors. For a Delaware C-Corporation, any increases or decreases to this number require amending and restating the Certificate of Incorporation in Delaware. Gust Launch starts each company with 10 million authorized shares—a very common number to begin with.

balance sheet

A condensed financial statement showing the nature and total value of a company’s assets, liabilities, and capital on a given date.


Big Hairy Audacious Goal, the giant sweeping vision of a startup founder to change the world.

Board of Directors

A group of people elected by a company’s shareholders (often according to the terms of a negotiated shareholders’ agreement) that makes decisions on major company issues, including hiring/firing the CEO.

Who sits on a startup's board of directors?


The process of recording all of the company’s transactions in a set of books, also known as a ledger. Entries are recorded in accounting software, which will compile reports based on how bookkeepers tag such entries.


Funding a company without external help or capital and reinvesting initial profits.

10 Incentives For Entrepreneurs To Bootstrap Their Startup

bridge loan

A temporary investment instrument used to cover a company’s operating expenses until a future financing.

burn rate

The monthly negative cash flow from a startup.

Basics of Unit Economics for Startups

business model canvas

A strategic management template for developing or documenting business models through a visual chart with elements describing a firm’s value proposition, infrastructure, customers and finances.

Start Planning Today with LivePlan

business plan competition

A program to encourage entrepreneurs to develop plans for new businesses, and sometimes a showcase competition for existing startups seeking financing.


business-to-business (B2B)

When one business engages in commercial interactions with other businesses (one business is the supplier and the other businesses are the customers).

business-to-consumer (B2C)

When a business engages in commercial interactions directly with consumers (the consumer is the end-use customer of the product or services provided).


The purchase of a company or a controlling interest of a corporation’s shares, product line or business. A leveraged buyout is an acquisition accomplished with borrowed money or by issuing more stock.

cap (on a convertible note)

The maximum company valuation at which a convertible note will convert into a company’s stock.

cap table (capitalization table)

A record of all securities and their shareholders commonly displayed in a fully diluted view.

3 Key Cap Table Management Concepts

cash flow statement

Reconciles the beginning cash balance to the ending cash balance by illustrating the sources and uses of cash from operations, investing, and financing activities.

common stock

A US term for a form of equity ownership of a company, equivalent to the terms “voting share” or “ordinary share” used in other parts of the world. In a liquidity event or a bankruptcy, common stockholders receive all of the net value of a company after paying the fixed amounts due to bondholders, creditors and preferred stockholders. Common stock usually carries with it the right to vote on certain matters, such as electing the board of directors.

Who should I grant Common Stock to? How to value your pre-seed startup’s stock

convertible note

A type of loan (also known as convertible debt) which provides that the amount of money loaned may (or must, under certain conditions) be converted by the investor into shares of stock in the company at a particular price.

How does Convertible Debt work?

convertible preferred stock

Preferred stock in a company that is convertible at the option of the holder into common stock at a predetermined valuation. This provides the priority and security of holding preferred stock, as well as the potential value appreciation of common stock.

What kind of stock should investors receive? Why should different stock classes in a startup be created?

corporate venture

An investment from one corporation in another, typically at an early stage for strategic reasons.


A joint effort by many individuals to support a cause, project or company. Donation-based crowdfunding bears no expectation of returns. In reward-based crowdfunding, contributors are promised rewards (such as the ability to purchase a product) in exchange for their contributions. Equity-based crowdfunding gives funders the ability to purchase equity interests in a company.

Limiting the Number of Shareholders in Private Companies

customer lifetime value (CLTV or LTV)

A forecast of the total net profit related to the entire lifetime of a specific customer relationship.

DBA Registration

Allows you to conduct business in a name other than your own (or your company’s) legal name, and allows others to identify the person or entity behind the business name you’ve registered.

What is the difference between a DBA and a trademark?

deal lead

The investor or investment organization taking primary responsibility for organizing an investment round in a company. The deal lead typically finds the company, negotiates the terms of the investment, invests the largest amount and serves as the primary liaison between the company and the other investors.

What’s actually required to start or close a funding round? How To Secure A Lead Investor


Borrowed money that needs to be paid back. The entrepreneur rents the money for a specific period of time and promises to pay interest on the money for as long as the loan is outstanding.

demo day

A public pitch event or “graduation” day for a group of startups in an accelerator or other program at which each company has 5–15 minutes to present its investment opportunity to potential investors in attendance.


When a company sells additional shares of stock, thereby decreasing the percentage ownership of existing shareholders. Note that if the valuation of the new sale is at a high enough level, the value of stock held by existing investors may increase, even though the percentage ownership may decrease.

How does equity dilution work for startups?

discounted convertible note

A loan that converts into the same equity security being purchased in a future investment round, but at a discounted price representing a risk premium for the early investment.

due diligence

The process of investigation whereby both an investor and an entrepreneur have the opportunity to analyze and assess each other for the potential of an investment opportunity and partnership.

8 Key Questions To Expect In Investor Due Diligence

duty of care

A fiduciary duty of a board of directors that obligates board members to reasonably avail themselves of all material information before making a business decision.

duty of loyalty

A fiduciary duty of a board of directors that requires a director to put the interests of the stockholders ahead of their own individual interests.


“Earnings Before Interest, Taxes, Depreciation, and Amortization.” By not including interest, taxes, depreciation, and amortization, you can clearly see the company’s cash flow.

Employer Identification Number (EIN)

A unique, 9-digit identification number utilized by the Internal Revenue Service, (IRS) and assigned to business entities to identify employers as part of the tax reporting process. In order to obtain an EIN, business entities must file or apply to the IRS.

What’s an EIN?


A person who organizes and operates a business or businesses, taking on greater than normal financial risks to do so. Entrepreneurs are the founders of startups, and are the people angel investors support.

Who is the most important person in a tech/web startup?


A corporation is divided into shares, which represent a slice of both the company itself and the value the company creates. These shares, once distributed, represent the company ownership (a word commonly interchanged with equity).

Startup Equity 101

equity seed round

When an entrepreneur first sells a part of his or her business— and therefore a proportional part of the good things (like profits) and the not-so-good things (like losses)—to an investor. Equity investments, unlike loans, do not need to be paid back.


When a company is either acquired for cash, sold during a public offering, or abandoned as a failed venture.

Form K-1

A tax document that explains to the IRS the attributed income received by partners in a partnership. As hybrid of a partnership and a C-Corp, LLCs demand that all “partners” file K-1s annually.

Why Investors Prefer C-Corporations

founders stock (or founder’s equity)

The common stock owned by one or more of a company’s founders, typically received when the company was incorporated.

Co-founder Equity Split

franchise tax

A yearly tax for conducting business as a separate legal “person” from its owners.

Nickel-and-Dimed to Life: Franchise Tax, Registered Agents and Filing Fees What is the Assumed Par Value franchise tax calculation method for startups?

friends & family round

An investment in a company that often follows the founder’s own investment, from people who are investing primarily because of their relationship with the founder rather than their knowledge of the business.

If a startup has an unreasonably high valuation in its F&F round, would Angels and VCs be concerned?

Full Ratchet

A type of anti-dilution protection for preferred stock investors in the case of a future round at a lower valuation than the current round—a “down round”. It allows investors to “ratchet up” to the same ownership percentage they had in the previous round if the future round is at a lower valuation, i.e, more shares but not new money at the down round. It can have significant dilution effects on the common shareholders and investors without full ratchet protection.

fully diluted shares

All stock (common and preferred) and issued options (or warrants) as if converted to common stock. This is less relevant in the early days, but it’s a representation that investors care about as it most accurately reflects preferences, rights, and decisions made during a liquidity event (e.g. an acquisition or IPO).

funding platform

Any online website used to facilitate investments in private companies. As a defined term, a specific type of platform defined by the JOBS Act of 2012 that will allow non-accredited investors to invest in private offerings


Money provided by a government agency or other organization that does not need to be repaid and does not purchase equity.


The global SaaS platform for founding, operating, and investing in scalable, high growth companies. Gust’s online tools support corporate legal and financial formation and operation for entrepreneurs, as well as deal flow and relationship management for investors, from startup through exit.



A program or shared office center designed to support the successful development of companies by offering cost effective resources and support.

independent contractor

A specific classification of worker that is not an employee of the company. Usually distinguished by 1) whether the business has a right to direct and control how the worker does the task for which the worker is hired, 2) whether the company has a right to control the business aspects of the worker’s job, and 3) what kind of relationship the worker has to the business.

How (and why) to distinguish independent contractors from employees

initial public offering (IPO)

The first public sale of the stock of a formerly privately held company. After a lockup period, investors are typically able to sell their shares on the public stock market, as they are no longer illiquid.

intellectual property (IP)

An intangible asset of value. The protections of IP—trademarks, copyrights and patents—determine if you can prevent other people from copying these creations, and whether or not you yourself can use them freely.

Intellectual Property Punch List for Startups Every Startup Needs a Lawyer

investment round

A set of one or more investments made in a particular company, by one or more investors on essentially similar terms at essentially the same time.

Who, When, and How Much? A Quick Introduction to Startup Financing

issued shares

The total number of shares that have been granted by the company and purchased by a shareholder. These are also commonly referred to as issued and outstanding shares.

How do I issue stock?

lead investor

See deal lead.

liquidation waterfall

The sequence in which all parties, including investors, employees, creditors and others, receive payouts in the event of a company’s liquidation through acquisition or bankruptcy.

What happens when a company is acquired for less money than it raised in funding?

liquidity event

When investors have the ability to convert some or all of their equity interest in a company into cash. Typically as the consequence of an acquisition, this can also happen if a company is very successful and new investors are willing to buy out the interest of early investors.

lock up

A period of time (typically after an IPO or an acquisition of a startup by a public company) during which certain shareholders are not allowed to sell their stock. Often 90 or 180 days, but could be a year.

Main Street business

A colloquial term used to describe traditional small, local retail and service companies. They typically serve local markets, provide jobs and benefit the local economy, but are usually not high-growth industries or eventual targets for investment or acquisition by larger companies.

major investor

As used in investment term sheets, any investor who puts in more than a defined amount into a given round, and is therefore entitled to specific information and/or voting rights.


The correct term for organizations often referred to as “super angels.” Structured similarly to a traditional venture fund, a Micro-VC is typically much smaller in size, with fewer partners, and invests less money but at an earlier stage.

non-disclosure agreement (NDA)

A legally binding arrangement between two parties where one or both parties will classify confidential information and prohibit the other party from disclosing shared information.

When should startups use non-disclosure agreements (NDAs)?

option pool

An allocation of shares reserved to be granted as options via a company’s equity incentive plan (or stock option plan). You can also issue other derivatives from this reserved pool (e.g. warrants, RSAs, RSUs, etc).


A different way of distributing ownership-options are the right to buy shares based on a set of conditions. When an option is “exercised,” the option to buy stock is used and the result is issued shares. They’re typically used as part of a compensation package in the form of an incentive to employees, directors, advisors, and other people key to the company’s success.

Should a startup set aside equity?


An exclusive right, granted by the federal government, conferring the rights to exclude others from making, using, or selling an invention, design, or process for a fixed amount of time.

How do startup founders manage legal issues and compliance?


A term in VC financings that requires investors to participate in future down-valuation financings of the company, or else suffer punitive consequences (such as getting their preferred stock converted into common stock). One reason why investors keep some dry powder on hand.

peer-to-peer lending (P2P lending)

A type of online financing solution through which individuals lend money to other individuals or small businesses.


A presentation, typically supported by slides, in which a startup company’s founder describes his or her company and seeks an investment from angels or venture capitalists.

18 Ways to Make Your Financial Model Stand Out to Investors What Belongs in a Startup’s Pitch Deck?


A collection of companies invested in by an angel or VC.

post-money valuation

The value of a company immediately after it has received an equity investment, including both the company’s pre-money valuation and the amount it received from the investment.

Pre-money and Post-money Valuation

pre-money valuation

The value of a company immediately prior to receiving an investment, used to determine what percentage of a company’s ownership will be purchased in exchange for a specified investment amount.

Valuation Part I: Peeling the Onion, or How Top Investors Value the Startups They Invest In

preferred stock

A type of equity ownership of a company that has both a fixed value and priority in liquidation sequence.

private companies

Companies that are not publicly traded on the stock market.

public companies

Companies that are freely traded on the public stock exchanges such as NASDAQ and the New York Stock Exchange.

QSBS exemption

The Qualified Small Business Stock exemption allows a C-Corp’s stockholders to—under specific circumstances—write off 100% of personal taxes up to $10,000,000 after five years of ownership.

C-Corps, LLCs, and Tax Savings for Startups


A leading question-and-answer website where questions are answered by industry experts in entrepreneurship, investing, and other fields.

representations and warranties

A list of material statements or facts included in the investment documentation to which the entrepreneur unequivocally commits.

return on investment (ROI)

The amount of money or net benefit generated by an investment or spend.


How long a startup can survive before it goes broke; that is, the amount of cash in the bank divided by the burn rate.


Simple Agreement for Future Equity, a new form of funding for early-stage companies developed by Y Combinator to solve a number of issues with traditional convertible note funding.


Small Business Innovation Research grant program from the US government.


The United States Securities and Exchange Commission, charged with regulating all sales of corporate securities.

seed fund

A venture capital fund specializing in very early-stage startups.

seed round

When a number of investors provide capital to a new company with anywhere from $500,000 to $3 million. Investors are typically rewarded with convertible notes, equity, or a preferred stock option in exchange for their investment.


A customer communication platform for sending transactional and marketing email.

What is SendGrid?

serial entrepreneur

An entrepreneur who has previously founded and run one or more ventures.

Series A

When a number of angel investors or VCs contribute typically $2-10 million in exchange for equity. The fund is named after the type of equity investors hope to receive: Series A preferred shares. This implies they will be the first group of investors to receive preferred shares.

Series A crunch

A putative problem that occurs if more companies get early-stage funding from angels and seed funds than are eventually able to obtain later-stage funding from venture capital funds.

Series B, C, D…

Investment rounds from venture capital funds subsequent to the first Series A round.

series seed

Used generically to refer to a company’s first equity round from serious seed or angel investors following its friends & family round but prior to a Series A.

shareholders’ agreement

An agreement signed during a financing transaction by all of a company’s shareholders in which they agree in advance to various provisions. These will typically include indicating which parties are entitled to designate members of the board of directors and thus control the company.

social proof

An investment approach leaning heavily on the identity of other well-known people who are supporting the company.

social venture

A company established to create societal benefit through entrepreneurial methods.

soft landing

A face-saving acquisition of an unsuccessful startup, usually for little or no compensation.

strategic investor

A corporate investor funding an early-stage company primarily for reasons related to the investing company’s interest.

success fee

A percentage commission paid to an intermediary or other individual as an incentive on the closing of a large financing transaction.

sweat equity

The equity or ownership interest created in a startup by its founders as a result of their contributions in the form of hard work and toil.

Why Sweat Equity Often Stinks

term sheet

A summary of the major terms of an investment round that is agreed upon by all parties prior to beginning extensive legal documentation for the round.


Grants a business the exclusive right to use the mark, words, symbols, or title in commerce.

unissued shares

The total number of shares that are authorized to issue, but have not yet been issued to shareholders. Mathematically, this is the difference between authorized shares and issued shares.

Valley of Death

The period between a startup’s initial funding and the end of its runway. If you get through here, you should be OK.

value proposition

A statement a company uses to express why customers should purchase their product or service, including the ways it adds more value than that of alternative offerings.

venture capital fund

An investment fund that puts money behind high-growth companies.

venture debt

A type of debt financing provided to venture-backed companies from specialized banks or non-bank lenders.


A concept applicable to both stock and options, which prevents the recipient from owning all stock or options outright and instead earn them over time. For stock, vesting typically refers to stock that’s earned over time and, therefore, not re-purchasable by the company. For options, vesting indicates the number of options that become exercisable.

How vesting protects companies and co-founders

vulture capitalist

A VC whose operating method is to deliberately take advantage of an entrepreneur’s troubles.


The order in which investors (and everyone else) get their money out on an exit. Almost always this is “last in, first out.”