Venture Capital Glossary
Accredited Investor: An individual or institutional investor who meets specific income, net worth, or professional experience criteria, enabling them to invest in higher-risk, less-regulated investment vehicles like venture capital funds. Accreditation standards in the U.S. are set by the Securities and Exchange Commission (SEC) and you can view the current requirements here.
Advisor: An individual who provides expertise, guidance, and connections to both venture capital firms and their portfolio companies, but is not typically involved in the fund's management.
Analyst: An entry- or junior-level role that focuses on research, data analysis, and preliminary due diligence to inform investment decisions.
Associate: A mid-level role focused on identifying potential investment opportunities, conducting due diligence, and supporting the partners in various functions.
Carry (Carried Interest): The percentage of a fund's profits that are paid to the fund's managers as a performance-based incentive.
Distributions: The profits returned to Limited Partners when a portfolio company is successfully exited.
Distributions to Paid-In (DPI): A performance metric that assesses the ratio of money returned to Limited Partners relative to the capital they initially committed, providing a measure of liquidity and realized gains.
Dry powder: This term describes uninvested capital that a VC firm has yet to deploy. Having sufficient "dry powder" enables the firm to make new investments or follow-on investments in existing portfolio companies.
EIR (Entrepreneur-in-Residence): An entrepreneur or industry expert who temporarily joins a venture capital firm to help identify investment opportunities or develop a new startup idea.
Follow-on investment: This refers to additional investment by a VC firm in a portfolio company, typically made in subsequent funding rounds. Follow-on investments signify a firm's sustained belief in the company's potential.
Fund Vintage Year: The year in which the first influx of investment capital is delivered by investors into a fund. Vintage year is often used to compare the performance of different funds over similar time periods, serving as a valuable benchmarking tool.
Internal Rate of Return (IRR): A metric used to measure the time-adjusted return of a fund.
Limited Partner (LP): An external investor in a venture capital fund, providing the capital that the fund invests but not typically involved in day-to-day operations or investment decisions.
Management Fees: Ongoing fees charged by the venture capital fund to cover operational expenses. Management fees are usually calculated as a percentage of the fund's total committed capital and typically range from 1.5% to 2.5% per year.
Mentor: An experienced individual who offers guidance and advice to portfolio companies to help them grow and overcome challenges.
Multiple on Invested Capital (MOIC): A straightforward metric that calculates the return on a specific investment as a multiple of the original capital invested, offering a snapshot of the investment's performance.
Partner: A senior-level executive in a venture capital firm who is responsible for sourcing investments, making final investment decisions, and managing relationships with portfolio companies.
Principal: Position often found between associate and partner, responsible for sourcing new investments, participating in deal structuring, and supporting portfolio companies.
Term sheet: A non-binding document outlining the terms and conditions under which an investment is made. The term sheet serves as the blueprint for subsequent, legally binding documents.
Total Value to Paid-In (TVPI): A metric that quantifies the total value of a fund (both realized and unrealized gains) relative to how much capital an investor put in.
Venture Partner: An external consultant or advisor who collaborates with a venture capital firm on a part-time basis to source and evaluate potential investments.
