Plain-English definitions of the terms founders, operators, and investors actually encounter across fundraising, M&A, IPOs, and fund formation. Each entry links to a deeper analysis where one exists. Part of the blegal.ai knowledge base.
409A Valuation
An independent appraisal of a private company's common stock fair market value under IRC Section 409A, used to set option strike prices and avoid deferred-compensation tax penalties. Boards typically refresh it annually or after a material event.
An acquisition undertaken primarily to bring on a target's team rather than its product, usually structured as an asset purchase with retention packages for key employees. Treatment of outstanding SAFEs and IP assignment are central issues.
A contractual adjustment that protects preferred investors when a company later raises money at a lower price, by reducing their conversion price. Broad-based weighted average is the common, founder-friendlier form; full ratchet is far harsher.
A state-law wind-down alternative to Chapter 7 bankruptcy in which a company assigns its assets to an assignee who liquidates them and pays creditors. Often faster and quieter than federal bankruptcy.
The share of a fund's investment profits paid to the general partner as its performance incentive, customarily around 20% above a return hurdle. The economic heart of the fund-manager model.
The Committee on Foreign Investment in the United States, an interagency body that reviews foreign investments in U.S. businesses for national-security risk. AI and critical-technology companies face heightened scrutiny.
A debt instrument that converts into equity at a future financing, carrying interest and a maturity date. Unlike a SAFE, it is a loan — which changes the founder's downside if a priced round never comes.
Restructuring a foreign-incorporated startup so a Delaware parent company owns the original operating entity, typically to make the company investable for U.S. venture capital. Common for India-origin founders.
Equity vesting that accelerates only when two events both occur — almost always a change of control plus the holder's termination without cause. The market-standard protection for employees in an acquisition.
A provision allowing a defined majority of stockholders to compel the minority to join a sale of the company on the same terms, preventing holdouts from blocking a deal.
Deferred acquisition consideration paid to sellers only if the business hits defined post-closing milestones. Who controls the business after closing — and how milestones are measured — is where disputes arise.
A status under the JOBS Act giving newly public companies below set revenue thresholds reduced disclosure, executive-compensation, and auditor-attestation obligations for up to five years.
A portion of the purchase price held by a neutral third party after closing to secure the seller's indemnification obligations, released after a defined survival period.
India's Foreign Exchange Management Act, which governs cross-border investment, share issuance, pricing, and repatriation for companies with India operations, employees, or investors.
A party's contractual promise — usually the seller's — to compensate the other for losses arising from breached representations or specified pre-closing liabilities. The core risk-allocation mechanism in M&A.
A passive investor in a fund who commits capital but does not manage it, with liability limited to the amount committed. LPs include pensions, endowments, family offices, and funds of funds.
The right of preferred stockholders to be paid before common holders in a sale or liquidation, typically a 1x return of invested capital. Stacked preferences across rounds can heavily affect what founders actually receive.
A commitment by company insiders not to sell their shares for a defined period after an IPO, most commonly 180 days, to support an orderly aftermarket.
A provision letting a buyer decline to close if the target suffers a significant adverse change between signing and closing. Courts read it narrowly, and carve-outs for general market conditions are heavily negotiated.
Shares reserved for employee equity grants. Creating or expanding the pool in the pre-money at a financing dilutes existing holders rather than new investors — the so-called option pool shuffle.
Preferred stock that first takes its liquidation preference and then also shares pro rata with common in the remaining proceeds — a double dip that raises investors' payout, often capped at a multiple.
A cash-settled contract paying an amount tied to share value without issuing actual shares. Useful for advisors and international employees where issuing real equity is impractical, though typically taxed as ordinary income.
The market-standard SAFE since 2018, under which an investor's ownership is fixed as investment divided by the post-money valuation cap. Other SAFEs no longer dilute that investor — founders absorb the combined dilution.
An investor's right to participate in future financing rounds to maintain its existing ownership percentage. Frequently negotiated in SAFE side letters and term sheets.
Protective Provisions
Veto rights giving preferred investors approval over defined major decisions — new financings, a company sale, charter amendments, or increasing the option pool. A key lever in the founder–investor control balance.
Stock qualifying under IRC Section 1202 that can exclude a substantial portion of capital gains on a qualifying C-corporation held five or more years. California does not conform, an important trap for in-state founders.
Statements of fact the parties make about the business in a deal — on ownership, financials, IP, litigation, and more. Their breach can trigger indemnification claims against the escrow.
A company's or investor's right to buy shares a holder wishes to sell, on the same terms, before they can go to an outside buyer. A common obstacle to pre-IPO secondary sales.
A promise to deliver shares (or their cash value) upon vesting. Common at later-stage and pre-IPO companies, often with double-trigger vesting so they settle only after a liquidity event.
A pre-arranged trading plan that lets corporate insiders buy or sell company stock on a fixed schedule established while they did not possess material nonpublic information, providing an affirmative defense to insider-trading claims.
An instrument that converts into equity at a future priced round rather than functioning as debt. The dominant early-stage fundraising tool in Silicon Valley, almost always used in its post-money form.
A sale of existing private-company shares by a founder, employee, or early investor to another buyer — as opposed to a primary sale, where the company issues new shares. Usually subject to transfer restrictions and ROFRs.
A Delaware statute granting stockholders the right to inspect specified corporate books and records for a proper purpose — often a precursor to litigation or a governance dispute.
A supplementary agreement granting a particular fund investor terms that differ from the main fund documents — fee discounts, co-investment rights, or reporting preferences.
An arrangement depositing software source code with a neutral third party, to be released to the licensee on defined trigger events such as the vendor's insolvency or failure to support the product.
Federal law imposing internal-control, certification, and audit requirements on public companies, including the Section 302 officer certifications and Section 404 internal-control attestations.
The maximum company valuation at which a SAFE or convertible note converts into equity, protecting early investors from being diluted away by a much higher later-round price. It sets the conversion price, not the company's actual value.
A post-closing true-up of the purchase price comparing the target's actual working capital at closing to an agreed target. Small definitional choices move real money, making it a frequent source of disputes.