During your fundraise, you want investors to focus on learning about you and your company, not struggling to understand what it is that you want, or what you have to offer them in return. That’s why it’s crucial that you be able to discuss your company and the opportunity it presents to investors in terms that investors will understand.

That’s not a problem if you’ve gone through the investment process before, or if you have a strong background in finance. For a lot of people, though, it can take a bit of studying up. To help you out with this, we’ve compiled a list of common investor terms you hear often in the investor world, along with an easy-to-understand definition for each.

* * *

Acquisition: When a larger company—for example, a YouTube or a Google— purchases a controlling interest in your company, that larger company has acquired your company. Acquisition by a larger company is a common goal for startups pursuing equity campaigns.

Add-on services: Assistance an investor may provide to your company aside from their monetary contribution— for example, making introductions to other investors, helping to assemble a management team or helping to prepare for an IPO.

Benchmarks: Performance goals used to measure the success of a company. Many investors use certain benchmarks – for example, yearly revenue or yearly increase in sales – to decide whether a company merits additional funding.

Buyout: The purchase of either a company or a controlling interest in a company’s shares or business. A buyout is often the long-term goal of startups and other businesses pursuing equity fundraise campaigns.

Board of directors: A group of people elected to act as representatives of the stockholders in a company. Members of the board of directors handle management-related policies and make decisions regarding major company issues, including the hiring/firing of executives, options policies and executive compensations. The board of directors should fairly balance the interests of both management and shareholders alike.

Cap table: Short for the “Capitalization Table”, a cap table is a detailed list of exactly how much stock each entity or person owns. Think of it like a spreadsheet that simply lists names and percentage ownership stakes, all adding up to 100%.

Common vs. preferred stock: There are many “classes” of stock that can be issued in a company, and each class may have its own rights and preferences. Investors typically get preferred stock, which may give them preferences such as the ability to get their investment back first, before the rest of the common stock holders get their proceeds. Founders and employees are usually left with common stock, which means they’re usually the last people to get paid.

Convertible note: A convertible note is a loan made to a company that can be converted into stock by the choice of the issuer or holder at certain events. Each note has an interest rate, a maturity date, and may come with the option to convert at a discount at a future round or time.

Dilution: The effect of giving someone else part of the company’s stock is considered “dilution”. It means that you are diluting your equity stake to make room for someone else. When you’re worried about “giving away the company”, what you’re worried about is the dilution of your company.

Drag along rights: Designed to protect the majority shareholder in a company, drag-along rights enable a majority shareholder to force a minority shareholder to agree to the sale of a company. The majority owner is required to give the minority shareholder the same price, terms and conditions as any other seller, with the goal of eliminating minority owners and securing 100% of the company’s stocks to the buyer.

Due diligence: The process of investigation and evaluation of the details of a company, which investors complete before they make the final decision whether to invest in that company.

Exit strategy: the means by which an investor “cashes out” of an investment and earns the return on investment that they are seeking in making the investment in the first place. Typical exit strategies include IPO, acquisition and buyout. Also known as a “harvest strategy” or “liquidity event”.

Follow-on investment: An additional investment made by an investor who has already invested in a company, typically made once the company is at a later stage of development.

Initial public offering: Commonly abbreviated as IPO, is the first time that stock in a private company is made available to the public. An IPO is a common goal for startups pursuing equity campaigns.

Return on investment: or ROI, is the profit or loss resulting from an investment. It’s typically expressed in terms of a percentage. For example, if an investor makes a $100,000 investment in a company and gains $2 million when the company is acquired by a larger company, that’s an ROI of 200%.

Risk: the likelihood of loss or less-than-expected returns, including the possibility of losing some or all of the initial investment. Risk is typically quantified using the historical returns or average returns for a specific investment.

Seed capital: The first round of capital that is put into a business, typically coming from the company founder and friends and family. Seed capital comes before any large investment rounds have been taken on, often during the pre- or low-revenue stages of a company. The capital is typically used to help build traction in order to attract attention from venture capitalists in later stages of fundraising.

Stock option pool: When a company takes on an investment, the investor will usually request (or, more accurately, insist) that you allocate a certain percentage of the company’s shares to a Stock Option Pool for future employees. That pool comes out of your portion of the stock, not the investors. Stock option pools will range from as little as 5 points of equity to as much as 20 points.

Term sheet: A non-binding outline of the terms and conditions according to which an investment is to be made—for example, the interest rate of a debt investment, or the valuation for equity. It’s similar to a Letter of Intent in that it indicates a strong interest to move forward, but it’s not the same as guaranteeing an actual deal gets done.

Valuation: An estimation of what your company is worth at a given point in time. While you may be the person who sets the valuation of your company, until an investor agrees to that valuation, and writes a check based on that valuation, it’s not validated.

pre-money valuation is how much the company is worth before the investor puts money into your company. So if you set your valuation to be $2 million, and the angel investor puts in $500,000, your pre-money valuation is $2 million.

post-money valuation is how much the company is worth after the angel investor puts money into your company. So if you set your valuation to be $2 million, and the angel investor puts in $500,000, your post-money valuation is $2.5 million.

Vesting: a process by which you “earn” your stock over time, much like you earn your salary. The purpose of vesting is to grant stock to people over a fixed period of time so they have an incentive to stick around. A typical vesting period for an employee or

Founder might be 3 – 4 years, which would mean they would earn 25% of their stock each year over a 4 year period. If they leave early, the unvested portion returns back to the company.

* * *

The Least You Need to Know

It’s the investors’ job to be the expert about investing; it’s your job to be the expert about your company. You don’t have to be an investment genius in order to get investors excited about your opportunity. But the more familiar you are with these common investor buzzwords and their meanings, the better situated you will be to represent what you have to offer, field investors’ questions, and keep the whole process moving surely and smoothly toward that end goal of getting your company the funding it needs.