Not legal
advice
These are plain-language explanations to help you ask better questions — not legal, tax, or investment advice. Anything marked 🔒 is a real legal or structuring decision that belongs with your securities counsel and fund admin.
A
Accredited investor
An investor who meets income or net-worth thresholds (or certain professional criteria) and is therefore allowed to participate in many private offerings. Most early fund and SPV capital comes from accredited investors. 🔒 The exact thresholds and how you verify them are legal questions.
Anchor LP
The first sizeable, credible investor to commit to a fund. Anchors de-risk the raise for everyone after them — the first close usually forms behind the anchor, and the rest of the round gathers from there.
Anti-dilution
A provision protecting an investor's ownership if the company later raises at a lower price. Broad-based weighted average is the common, founder-tolerable version; full ratchet is punitive — worth flagging loudly. 🔒 Whether a term is standard or off-market is a call for counsel.
C
Cap table
The ledger of who owns what in a company — founders, employees, investors, and convertibles — ideally read on a fully-diluted basis (everything as-converted). A messy or non-reconciling cap table is itself a diligence red flag.
Carry carried interest
The share of a fund's profits the GP keeps, commonly around 20%. It's the main way fund managers get paid for performance, separate from the management fee. 🔒 Exact carry, hurdles, and waterfalls are documented in your fund's legal terms.
D
Data room
The organized set of documents you share with investors (or that a company shares with you) for due diligence. When you're raising, your LP-facing data room signals operational maturity; when you're evaluating, the gaps in a company's room are as telling as the contents.
DPI distributions to paid-in
Cash actually returned to investors divided by cash they put in. The "real money back" metric — distinct from paper marks. DPI of 1.0x means investors have gotten their money back.
Drag-along
A provision letting a majority force minority holders to join a sale of the company, so a deal can't be blocked by a small holdout. Affects exit control. 🔒 Read the mechanics with counsel.
E
ERA exempt reporting adviser
A lighter regulatory status many small venture-fund advisers operate under instead of full registration. Whether you qualify is a legal determination. 🔒 Confirm your adviser status with counsel before raising a fund.
F
Final close
The point at which a fund stops accepting new commitments. Everything between the first close and the final close is the window where momentum either builds or stalls.
First close
The first official round of committed capital that lets a fund start operating — money in, the vehicle real. The milestone every emerging manager is chasing, because it converts "I'm raising" into "I've raised," and momentum compounds from there.
G
General solicitation
Publicly advertising a securities offering — including, often, cold-emailing investors you have no prior relationship with. It's permitted under some exemptions (with conditions) and not others, which is why how you do outreach matters. 🔒 This is the single biggest compliance question in cold fundraising — settle it with counsel first.
GP commit
The GP's own money invested in their fund — "skin in the game." LPs expect it; the amount is often around 1–2%+ of the fund. 🔒 Structure and amount are documented in fund terms.
H
Hard circle
An actual commitment from an investor — the real thing, as opposed to a soft circle. Converting soft circles into hard circles is the core work of closing a round.
Hurdle preferred return
A minimum return LPs must receive before the GP starts earning carry. Not every emerging fund has one; when present, it shapes the economics. 🔒 Defined in fund terms.
I
IRR internal rate of return
A time-weighted measure of a fund's return that accounts for when cash moved, not just how much. Useful but sensitive to timing — read it alongside DPI and TVPI, never alone.
L
Liquidation preference
Who gets paid first, and how much, when a company exits. 1x non-participating is the founder-friendly norm; multiples above 1x or "participating" terms are more aggressive and compound at exit. 🔒 Standard vs. off-market is a counsel call.
LPA limited partnership agreement
The core legal contract governing a fund — the rights, terms, and obligations between the GP and the LPs. Prepared by your counsel; you don't draft it, you understand it. 🔒 Always counsel-prepared.
M
Management fee
The annual fee that funds the GP's operations, often around 2% during the investment period and frequently stepping down later. Distinct from carry. 🔒 Exact figures are documented in fund terms.
MOIC multiple on invested capital
Total value divided by the amount invested — how many times your money you've made (or made on paper). Simple and intuitive; doesn't account for time the way IRR does.
O
Option pool
Equity set aside for future employees. Watch when it's created: a pool added pre-money dilutes existing holders (often the founder) rather than the new investor — the "option pool shuffle." 🔒 Model both pre- and post-money treatment.
Oversubscribed
When investor demand exceeds the room available in a round or fund — more people want in than there's space for. The position every manager wants to be in; it's what a well-run raise can produce.
P
PPM private placement memorandum
The disclosure document for a private offering, laying out the terms and risks for prospective investors. Counsel-prepared. 🔒 Always counsel-prepared.
Pro rata
An investor's right to invest in future rounds to maintain their ownership percentage. Standard for lead investors; affects your future allocation.
Protective provisions
The list of company decisions that require investor consent. A short list is normal; a long one transfers real control. Read it literally. 🔒 Counsel call on what's reasonable.
Q
Qualified purchaser
A higher bar than "accredited," based on investment holdings, that matters for certain fund exemptions (see 3(c)(7)). 🔒 Eligibility is a legal determination.
R
Rule 506(b)
A common private-offering exemption that prohibits general solicitation but lets you accept self-certified accredited investors among your pre-existing, substantive relationships. 🔒 Whether your relationships qualify is a counsel question.
Rule 506(c)
A private-offering exemption that allows general solicitation (e.g., cold outreach, public marketing) but requires you to verify every investor is accredited — not just take their word. Often the relevant regime for cold fundraising. 🔒 Choose 506(b) vs 506(c) with counsel before you send anything.
RVPI residual value to paid-in
The unrealized, still-on-paper value divided by capital paid in — the complement to DPI. TVPI = DPI + RVPI.
S
Soft circle
A non-binding indication of interest — "I'm in for around X, pencil me in." Useful signal, but not a commitment; soft circles evaporate, which is why the whole job is converting them into hard circles and a close.
SPV special purpose vehicle
A single-deal vehicle that pools investors to back one company. The usual on-ramp for emerging managers: easy "yes" (investors see the exact deal), real attributable track record, and a growing list of co-investors. 🔒 Formation and terms are legal/structuring decisions.
Syndicate
A recurring group of co-investors who see your deal flow and opt into deals (usually each as an SPV). Less a vehicle than a relationship layer — and the distribution base that makes a future fund fundable.
T
TVPI total value to paid-in
Total value created (realized + unrealized) divided by capital paid in — the headline "how's the fund doing" multiple. Always read with DPI so you know how much is real cash vs. paper.
3
3(c)(1) & 3(c)(7)
Two common exemptions that let a private fund avoid registering as an investment company. 3(c)(1) limits the number of beneficial owners; 3(c)(7) requires investors to be qualified purchasers but allows more of them. Which fits you is a legal determination. 🔒 Decide with fund counsel.
Want the same plain-English treatment applied to your term sheet or cap table? That's module 03. See the system →
The operating system for emerging managers