Angel Investing Glossary

A privately held company worth $1 billion or more. The average angel portfolio has about 5% of its companies reach this mark; top portfolios reach 20%+.

An individual with $1M+ net worth (excluding primary residence) or $200K+ annual income ($300K joint). Required by the SEC to invest in most private offerings.

A high-net-worth individual who invests personal capital in early-stage startups, typically at pre-seed or seed stage, in exchange for equity.

A group of angel investors who pool capital to invest together, typically organized by an experienced angel who conducts due diligence and negotiates terms.

A provision that protects investors from dilution if the company later raises money at a lower share price. Can be full ratchet or weighted average.

A spreadsheet showing who holds a company's equity, including all shareholders, option holders, and holders of convertible securities.

The share of profits (typically 20%) that a fund manager or syndicate organizer receives from successful investments, above the invested capital.

A loan that converts to equity at a future financing round, typically with a discount (15-25%) and a conversion price cap.

The rate at which investment opportunities are presented to an investor. Quality deal flow is the primary competitive advantage for angel investors.

The reduction in each shareholder's percentage stake when a company issues new shares. Typical dilution per round is 15-25%.

The investigation process before making an investment. Includes market analysis, team assessment, financial review, legal review, and reference checks.

The event where investors realize returns on their investment. Common exits include acquisition (M&A), IPO, or secondary sale.

Additional capital invested in a portfolio company in later funding rounds, typically to keep the same percentage stake or double down on winners.

The annualized return on an investment, accounting for the time value of money. Top-quartile angel portfolios report annual returns in the mid-20s percent.

The order in which investors get paid in an exit event. 1x non-participating is standard; anything higher is unfriendly to founders.

Total value returned divided by total capital put in. A 10x multiple means an investor got back 10 times the original investment.

The simplest version of a product that can be released to test core assumptions and gather user feedback.

What a company is worth right after new investment is added. Post-money = pre-money + new investment.

What a company is worth before new investment is added. Determines how much equity investors receive for their capital.

The earliest institutional funding stage, typically $250K-$2M with a $3-6M price cap. Investors bet on team and market thesis rather than traction.

The highest company value at which a convertible note or simple agreement for future equity converts to equity. Protects early investors from excessive dilution.

The right to invest in future rounds to keep the same percentage stake. Valuable for angel investors in successful companies.

Section 1202 of the IRC. Allows exclusion of up to $10M in capital gains if stock is held 5+ years in a qualifying C-corp.

The investor who sets the terms of a round, conducts primary due diligence, and often takes a board seat. Other investors follow the leader's terms.

Typically $2-5M at an $8-20M company value. Companies at this stage have product-market fit signals and need capital to scale.

The first institutional VC round, typically $10-25M. Requires strong metrics: $1M+ ARR, clear unit economics, and a scalable go-to-market.

A Y Combinator-created agreement that converts to equity at the next priced round. The post-money version is now standard (75%+ of deals).

A legal entity created specifically to make a single investment. Allows multiple investors to participate through one entity on the cap table.

The total revenue opportunity available if a product won the entire market. Angels typically look for $1B+ TAMs.

A non-binding document outlining the key terms of an investment: company value, amount, rights, and governance. Precedes definitive legal agreements.

The process by which founders or employees earn their equity over time, typically 4 years with a 1-year cliff.

The year a fund or investor first put money into a company. Used to compare performance across cohorts and account for the J-curve effect in returns.

The order of distribution in an exit: debt holders first, then preferred shareholders (investors), then common shareholders (founders and employees).

When an investment is marked as having zero value, typically because the company has failed or shut down.