Glossary

Private company ownership glossary

Definitions of the terms that appear on cap tables, term sheets and transfer notices, written in plain language and linked to deeper guidance.

Authorised shares: The maximum number of shares a company is permitted to issue under its constitution. Authorised shares are a ceiling, not ownership.
Cap table: The record of who owns what in a company: shares by class and holder, plus options, warrants and instruments that can become shares.A cap table is only reliable when it is derived from a complete history of ownership events rather than maintained as a running summary.Cap table software Fully diluted cap tables
Convertible note: Debt that converts into equity at a future round. It accrues interest and has a maturity date, both of which affect the share count at conversion.Convertible notes and cap tables
Data room: A permissioned space for sharing confidential documents with a defined audience during fundraising or diligence.Startup data rooms
Dilution: A reduction in an existing holder's percentage caused by new shares being created — through a round, an option grant or a conversion.How to model dilution Dilution calculator
Exercise price: The amount an option holder pays per share to convert an option into shares. Also called the strike price.
Fully diluted ownership: Ownership measured as if every option, warrant and convertible instrument had already become shares, including the unissued option pool.What is a fully diluted cap table?
Issued shares: Shares that have actually been issued to holders and recorded in the register. Issued shares carry rights; authorised-but-unissued shares do not.
Liquidation preference: The amount a preferred shareholder receives before ordinary shareholders on an exit, expressed as a multiple of the amount invested.
Option pool: Shares reserved for grants to employees, advisors and contractors. Both granted and unallocated pool shares count in fully diluted ownership.How large should an option pool be?Option pool calculator
Post-money valuation: Pre-money valuation plus the amount invested. The investor's ownership equals investment divided by post-money valuation.Post-money ownership calculator
Pre-money valuation: The agreed value of a company immediately before new investment is added.
Pro rata rights: The right of an existing investor to invest in a future round to maintain their percentage ownership.
ROFR: Right of first refusal: before selling to an outside buyer, a shareholder must offer the shares on the same terms to the company or existing shareholders.How ROFR works
SAFE: A Simple Agreement for Future Equity: an investment that converts into shares at a future priced round, usually subject to a valuation cap or a discount.SAFE dilution explained
Secondary transaction: The sale of existing shares from one holder to another. No new shares are created, so a pure secondary is not dilutive.Private company secondary
Strategic investment: An investment where the investor also seeks a commercial relationship, often with terms linking equity to milestones or partnership obligations.Strategic equity deals
Strike price: Another name for the exercise price of an option.Employee options and fully diluted ownership
Vesting: The schedule over which an option or share award is earned, commonly four years with a one-year cliff.
Warrant: A right to buy shares at a set price within a set period, usually issued to investors, lenders or partners rather than employees.