Venture Capital (VC)
Venture capital is financing (technically a form of private equity) provided by investment funds / firms to startups and early-stage companies with high growth potential. In simple terms, VCs are professional investors who give money to promising startups in exchange for ownership stakes.
Early-stage VC investments often use convertible notes or SAFEs, whereas later-stage rounds (Series A and onwards) typically involve priced / equity rounds. Venture capital is distinct from venture debt, which is effectively a loan for startups (whereas VC is essentially an exchange of equity for funding). The venture investment model typically entails both capital investment and strategic support: investors in priced rounds will usually participate in the board of directors and/or provide strategic guidance as members of the advisory board. The venture capital model is known for its high-risk, high-reward nature. VC funds typically targeting returns of 10x or greater on invested LP capital.
Angel Investor
Angel investors are high-net-worth individuals who provide capital for startup companies, typically in exchange for convertible debt or ownership equity. Put simply, they are individual investors who invest their own money in very early-stage companies. Angels often organize into angel networks or syndicates to pool resources and share due diligence, primarily focusing on pre-seed and seed stage investments. Unlike institutional investors, they invest during the earliest stages of a company’s development, frequently providing the first external capital beyond friends and family (F&F). Ideally, angel investors will bring significant operational expertise and industry connections, offering valuable mentorship alongside their financial investment.
Priced Round
A priced round is a financing event where investors purchase equity at a specific company valuation, establishing a clear price per share. In everyday terms, it’s when investors buy ownership in a company at an agreed-upon company value. Unlike convertible instruments, priced rounds definitively set the company’s valuation and the investors’ ownership percentage at the time of investment. This type of financing typically involves more complex documentation than convertible instruments and often establishes the governing terms for future rounds of investment.
Lead Investor
A lead investor is the primary investor in a financing round who typically sets the terms of the investment and may represent the interests of other participating investors. Simply put, they’re the investor who takes charge of organizing and negotiating an investment round. They commonly conduct the majority of due diligence, negotiate key terms, and often take a board seat. Lead investors frequently commit to the largest portion of the round and play a crucial role in validating the investment opportunity for other potential investors.
Follow-on Investment
Follow-on investment is additional capital invested in a company by existing investors across subsequent financing rounds. Put simply, it’s when current investors put more money into companies they’ve already backed previously. These investments often reflect the investor’s conviction in the company’s execution and market opportunity, while potentially protecting against ownership dilution. Follow-on investment decisions usually entail detailed analysis of the company’s progress against key performance metrics established in earlier rounds (one of the reasons it’s important to consider what goes in the Roadmap and Projections slide of your startup’s pitch deck).
Institutional Investor
Examples of institutional investors include venture capital firms, pension funds, and endowments. In simple terms, they’re professional investment organizations that manage other people’s money. These entities typically operate under specific investment mandates and regulatory requirements, deploying capital systematically across multiple investments to manage risk while pursuing target returns. Their involvement often signals increased scrutiny of governance and reporting requirements for portfolio companies.
Seed Round
A seed round is the first significant capital raise from external investors, typically occurring when a company has preliminary product validation (ie. early pilots, beta testers, or LOIs) but limited revenue. Seed or pre-seed investments usually come after friends and family but before major VC rounds. This financing stage bridges the gap between early concept development and institutional venture capital, usually focusing on product development, market validation, and early customer acquisition. In recent years, seed rounds have evolved to become larger and more sophisticated with the emergence of pre-seed and seed VC funds seeking to tap into asymettric returns of early-stage investing.
Series A/B/C
Series A, B, and C rounds describe sequential fundraising events that startups use to raise capital (each round is named for the series of stock being issued). Typically, Series A funding marks a company’s first priced round, and generally follows seed funding. Simply put, these are the major funding rounds that a startup will raise as it grows, with each round typically being larger than the last (thought not always).
Although the size and objective each round varies by startup and continue to evolve, the purpose of each round can be generalized as follows: Series A typically focuses on optimizing product-market fit and establishing scalable business processes. Series B generally emphasizes accelerating growth and market expansion, while Series C and beyond target market leadership, international expansion, or pre-IPO scaling. Many unicorn and decacorn startups raise Series D, Series E, Series F, and so-on before exploring exiting via acquisition, merger, or IPOs.
Strategic Investor
Strategic investors are industry-specific partners who provide capital with the dual objectives of financial returns and strategic alignment. Often, strategic investors represent established companies investing in startups that could benefit their own business. These investors often seek portfolio companies whose technologies, products, or services complement their core business objectives. Beyond capital, strategic investors frequently offer valuable industry relationships, technical expertise, and potential commercial partnerships. One often overlooked risk of industry strategic investors is that their involvement may complicate future M&A opportunities with competitors.
Private Equity (PE)
Private equity is investment capital structured as direct investments in private companies, or buyouts of public companies that result in a delisting of public equity. In basic terms, PE firms buy established companies to improve and later sell them for a profit. Whereas venture capital focuses on early-stage growth companies, private equity typically targets mature companies with large, established revenue lines. Private equity firms often employ debt leverage to enhance returns. PE investments frequently involve significant operational restructuring and financial engineering to improve company performance.
Investment Bank (IB)
Investment banks are financial institutions that provide various capital-raising, M&A advisory, and strategic services to companies and investors. Examples of well-known investment banks include JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, Credit Suisse, and Deutsche Bank. In short, investment banks help companies raise money, go public, or get acquired. IBs differ from venture capital firms by primarily facilitating transactions rather than making direct investments.
Investment banks are commonly referred to as “sell side” because they primarily facilitate the selling of securities (like stocks and bonds) to investors on behalf of companies seeking capital. Investment banks typically become involved with later stage startup, particularly during IPOs, debt offerings, or M&A processes. Many I-banks operate dedicated venture capital arms, though these function separately.
Venture Debt
Venture debt is a form of debt financing for venture-backed companies that supplements venture capital funding. Unlike traditional VC which takes equity, venture debt provides loans to startups, typically after they’ve raised a significant equity round. This financing tool helps companies extend their runway and minimize dilution, though it requires regular interest payments and often includes warrants for equity. Venture debt is particularly useful for companies with predictable revenue streams or valuable intellectual property that can serve as collateral.