Anti-dilution provisions protect investors in a “down-round” by adjusting the price at which preferred stock converts into common stock, otherwise the down-round would reduce the value of the preferred investors’ shares.
A capitalization table is a list that determines how many shares investors received for their investment. It also provides the whole company’s percentages of ownership, equity dilution and value of equity in each round for founders, investors and other owners.
A convertible loan is a short-term debt that converts into equity. The investor provides a loan with interest, maturity date and the right to convert the loan into equity at some point in the future. Usually investors negotiate for a conversion discount or conversion cap and debt converts at the next financing round.
Dilution happens when a stockholder’s ownership percentage decreases because of an increase in outstanding shares. Investor A owns 100,00 shares out of total 1m shares (10%). If the company issues 1m more shares to new investors, investor A now owns the same amount of shares but smaller percentage (100,000 / 2,000,000=5%).
A dividend is a payment by a company to its shareholders. When a company earns a profit, the majority will be kept within the company, but the rest can be distributed to shareholders as a dividend. Startups usually don’t offer regular dividends because of insufficient funds.
A fully-diluted cap table shows everything a cap table shows, all outstanding shares and additionally the employee stock pool and outstanding warrants.
Liquidation preference determines how the proceeds will be distributed to stockholders if the company is liquidated or sold (usually a merger, acquisition but sometimes it includes other terms)
A liquidity event is a sale of the company or the majority of the company's assets. That can result in either investors or debt holders to receive cash from the company, either through acquisition, merger, IPO or a sale of assets resulting from bankruptcy. Clauses from the term sheet determine order and amount of payout.
Is a schedule that determines when you’ll be fully vested aka acquire full ownership of certain assets (e.g. stock options). There are three basic types: immediate, cliff and graded.