Plain-language definitions of terms you will meet when raising money. Definitions are general; legal and tax terms vary, so confirm with an advisor.
- Accredited investor
- In Canada, an individual who meets a test in National Instrument 45-106, for example financial assets over $1,000,000, or net income over $200,000 in each of the last two years ($300,000 with a spouse), or net assets of at least $5,000,000. Companies can qualify with net assets of at least $5,000,000. Accredited investors can buy under a prospectus exemption without the limits that apply to other investors.
- Angel investor
- A wealthy individual who invests their own money in early-stage companies, often with advice and introductions.
- ARR / MRR
- Annual or monthly recurring revenue: the predictable subscription revenue a business expects each year or month.
- Bridge financing
- Short-term funding, often a convertible note, that carries a company to its next priced round.
- Burn rate
- The amount of cash a company spends each month. Net burn is spending minus revenue.
- CAC (customer acquisition cost)
- Total sales and marketing cost divided by the number of new customers won in the same period.
- Cap table
- A table of who owns what: founders, investors, option holders, with share counts and percentages.
- CCPC
- Canadian-controlled private corporation. Many Canadian tax incentives, including enhanced SR&ED refunds, depend on CCPC status.
- Churn
- The share of customers (or revenue) lost in a period.
- Convertible note
- A loan that converts into shares at a later round, usually at a discount or with a valuation cap, instead of being repaid in cash.
- Data room
- An organized folder of documents that investors review during due diligence.
- Dilution
- The reduction in an existing owner's percentage when new shares are issued.
- Down round
- A funding round at a lower valuation than the previous round.
- Due diligence
- The investigation an investor or lender runs on your company before committing money.
- Equity crowdfunding
- Raising money from many small investors, who receive shares, through a regulated online portal.
- Exit
- How investors get their money back: an acquisition, a public listing or a share buy-back.
- Gross margin
- Revenue minus the direct cost of delivering the product, as a percentage of revenue.
- IRAP
- The National Research Council's Industrial Research Assistance Program, which supports technology-driven small and medium businesses with advice and, for eligible projects, funding. Confirm current terms with the NRC.
- Lead investor
- The investor who negotiates the terms of a round and often takes the largest cheque; others follow the lead.
- Liquidation preference
- A term that gives preferred shareholders the right to be paid first, and sometimes more than their money back, when the company is sold.
- LOI (letter of intent)
- A non-binding letter from a customer or partner stating that they intend to buy or work with you. Useful traction evidence.
- LTV (lifetime value)
- The gross profit you expect from a customer over their lifetime.
- MVP
- Minimum viable product: the simplest version that lets you test your core assumption with real users.
- Non-dilutive funding
- Money that does not cost you ownership, such as grants, tax credits and most loans.
- Offering memorandum
- A disclosure document used to sell securities under the offering memorandum exemption. It carries statutory liability for misstatements.
- Option pool
- Shares reserved for employee stock options. Investors often ask for a pool top-up before they invest.
- Pari passu
- Ranking equally: shareholders or creditors paid at the same time and in proportion.
- Pitch deck
- A short slide presentation that tells investors the problem, solution, traction, market, team and ask.
- Pre-money and post-money valuation
- Pre-money is the company's value before a round; post-money is pre-money plus the new money. An investor's percentage is the amount invested divided by the post-money valuation.
- Private issuer
- A company that is not a reporting issuer and restricts transfers of its shares, with no more than 50 beneficial owners (excluding employees). It can sell to a limited list of buyers under an exemption.
- Pro-rata rights
- The right of an existing investor to buy enough shares in a later round to keep their percentage.
- Runway
- How many months the company can operate before running out of cash: cash divided by net burn.
- SAFE
- Simple agreement for future equity: a contract that gives an investor shares at a later priced round. Common in the USA and increasingly used in Canada.
- Seed round
- An early equity round that funds a first product or first customers. Sizes vary widely by country and sector.
- Series A / B / C
- Later priced equity rounds that fund growth once the business model is proven.
- SR&ED
- The federal Scientific Research and Experimental Development tax incentive program, which gives tax credits to Canadian businesses doing eligible R&D. Rates and refundability depend on the company; confirm with the CRA.
- Start-up crowdfunding exemption
- A Canadian securities exemption (NI 45-110) that lets start-ups raise limited amounts through registered or exempt funding portals.
- TAM / SAM / SOM
- Total, serviceable and obtainable market: the whole demand, the part you can reach, and the part you can realistically win.
- Term sheet
- A short, mostly non-binding document that sets out the main terms of an investment before lawyers draft the final agreements.
- TRL (technology readiness level)
- A 1 to 9 scale describing how mature a technology is, from basic principles (1) to proven in commercial operation (9).
- Unit economics
- The revenue and cost of one unit, such as one customer or one sale, used to test whether growth makes money.
- Valuation cap
- The maximum valuation at which a convertible note or SAFE converts into shares.
- Venture debt
- A loan to a venture-backed company, usually alongside equity, often with warrants.
- Vesting
- Earning shares or options over time, commonly four years with a one-year cliff.
- Warrant
- A right to buy shares at a fixed price in the future, often attached to loans or fees.