Investors & Plans: key terms, formulas and examples
Investors fund startups for equity. Angels invest early, VCs write bigger checks, and a term sheet outlines the deal. A business plan shows market and money model.
Example
500k at a 2M pre-money valuation gives investors 20% of the company.
Takeaway
Know your valuation, your exit strategy and what you give up.
Key terms
- Angel investor
- A wealthy individual who funds early startups for a share.
- Unicorn
- A private startup valued at over a billion dollars.
- Term sheet
- A short document outlining the main terms of an investment deal.
- Business plan
- A document describing goals, market and how a business will make money.
- Venture capital
- Funding for risky startups in exchange for equity.
- Exit strategy
- A plan for how owners will eventually cash out, such as a sale or IPO.
- Pre-money valuation
- A company's value before new investment.
- Equity stake
- A share of ownership in a company.
- Convertible note
- Debt that later turns into shares.
Formulas
Money multiplier100 ÷ RR
Investor ownershipI ÷ V × 100
Ownership dilutionN ÷ (O + N) × 100
Post-money valuationV + I
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