Private Market Glossary: Key Terms Every Investor Should Know
New to private market investing? This glossary covers the key terms you will encounter on StartEngine — from SAFEs and cap tables to Reg CF and dilution — in plain language.
A
- Accredited Investor
- An individual who meets income or net worth thresholds set by the SEC, allowing them to participate in a broader range of investment opportunities — including Reg D offerings and secondary market trades — beyond what's available to the general public. Accredited status isn't required to invest on StartEngine. Under Regulation CF, any US resident aged 18 or older can invest in startups regardless of income or net worth. Accreditation simply unlocks additional offering types and higher investment limits.
C
- Cap Table (Capitalization Table)
- A record of who owns equity in a company — including founders, employees with stock options, and investors — and how much each party owns, expressed as a percentage or number of shares. When you invest in a company through an equity round, your name (or a representative entity) is added to the cap table. For SAFE and convertible note investors, you typically don't appear on the cap table until your instrument converts to equity at a future funding round.
- Convertible Note
- A form of startup investment structured as a loan that is intended to convert into equity — typically at the company's next priced funding round — rather than be repaid in cash. Convertible notes accrue interest and have a maturity date. If the company raises a qualifying round before maturity, the note converts to shares, usually at a discount to reward early investors. If no conversion event occurs by maturity, the company is technically obligated to repay the principal plus interest, though in practice most convertible notes are renegotiated rather than repaid. Like SAFEs, convertible notes often include a valuation cap.
D
- Dilution
- The reduction in an existing investor's ownership percentage that occurs when a company issues new shares — typically during a new funding round. Dilution is a normal part of a startup's growth. When a company raises a Series A, new shares are issued to Series A investors, which reduces the percentage ownership of seed-stage investors. Your number of shares stays the same; the percentage of the total they represent decreases. Significant dilution without corresponding company growth is worth paying attention to when evaluating an investment.
- Discount Rate
- A percentage reduction on the share price that converts a SAFE or convertible note into equity, offered as a reward for investing early. For example, if a SAFE includes a 20% discount and the company's next round prices shares at $1.00, your SAFE converts at $0.80 per share. Discount rates typically range from 10% to 25% and are specified in the offering documents.
E
- Equity Crowdfunding
- A method of raising capital in which a company offers ownership stakes — in the form of shares, SAFEs, or convertible notes — to a large number of investors, typically through an online platform like StartEngine. Equity crowdfunding under Regulation CF allows any US resident aged 18 or older to invest in startups, not just accredited investors. It's distinct from rewards-based crowdfunding (like Kickstarter), where backers receive a product or perk rather than ownership.
- Exit Event
- An occurrence that creates liquidity for investors — meaning an opportunity to convert their equity into cash. Common exit events include an IPO (initial public offering), an acquisition by another company, or a secondary market sale. Not all startups reach an exit, and timelines are unpredictable. Most private market investors hold their positions for several years before an exit event occurs, if one occurs at all.
F
- Form C
- The official disclosure document that companies raising capital under Regulation CF are required to file with the SEC and make available to investors before accepting any investment. Form C includes the company's financials, business description, use of proceeds, risk factors, ownership structure, and terms of the offering. Reading the Form C is one of the most important steps in evaluating any offering on StartEngine.
O
- Offering Circular
- A formal disclosure document used in Regulation A+ offerings, similar in purpose to a Form C for Reg CF. It provides investors with a comprehensive view of the company's business, finances, and the terms of the investment. The Offering Circular is reviewed by the SEC before the offering can launch, which is one reason Reg A+ offerings go through a longer launch process than Reg CF.
P
- Post-Money Valuation
- The estimated value of a company immediately after a new round of investment is completed — calculated as pre-money valuation plus the capital raised. Post-money valuation determines the percentage of the company that new investors own collectively. If the post-money valuation is $6M and you invested $60K, you own approximately 1% of the company.
- Pre-Money Valuation
- The estimated value of a company before a new round of investment capital is added. It's used to calculate how much ownership investors receive in exchange for their investment. For example, if a company has a $5M pre-money valuation and raises $1M, the post-money valuation is $6M. An investor putting in $100K would own approximately 1.67% of the company ($100K ÷ $6M). Pre-money valuation is set by the company and reflects their assessment of their current worth — it's worth comparing to the company's traction, financials, and comparable companies.
- A class of stock that typically carries additional rights compared to common shares, such as liquidation preference, anti-dilution protection, or priority in dividend distributions. In most startup investments, early institutional investors (venture capital firms) hold preferred shares, while Reg CF investors may receive common shares or SAFEs that convert to a defined share class. The specific rights attached to any share class are detailed in the offering documents.
- Pro-Rata Rights
- The right of an existing investor to participate in a future funding round — in proportion to their current ownership — to maintain their percentage stake and avoid dilution. Pro-rata rights are typically negotiated by larger investors and are less common in Reg CF rounds. When offered, they can be a meaningful benefit: they let you keep pace with a company's growth by investing again as it scales.
R
- Regulation CF (Reg CF)
- A federal securities exemption that allows startups to raise up to $5 million per year from any US resident aged 18 or older — not just accredited investors — through a registered funding portal like StartEngine. Reg CF is the primary exemption used for offerings on StartEngine. It opened private market investing to the general public for the first time in 2016. Companies raising under Reg CF must file a Form C with the SEC and meet ongoing disclosure requirements.
- Regulation D (Reg D)
- A federal securities exemption that allows companies to raise an unlimited amount of capital from accredited investors without registering the offering with the SEC. Reg D is the most commonly used exemption for venture-backed startups. Unlike Reg CF, it is not open to non-accredited investors. StartEngine offers both Reg CF and Reg D investment opportunities.
- Right of First Refusal (ROFR)
- A contractual right that gives a company (or designated existing shareholders) the opportunity to purchase shares before a shareholder can sell them to an outside party. ROFR is common in private company shareholder agreements. If you list shares for sale on StartEngine Secondary and the company exercises its ROFR, the company purchases your shares instead of the external buyer — at the same price and terms. ROFR can affect the timeline and outcome of secondary market sales.
S
- SAFE (Simple Agreement for Future Equity)
- An investment instrument in which an investor provides capital to a startup today in exchange for the right to receive equity in the future, typically when the company raises its next priced funding round. SAFEs are the most common instrument used in Reg CF offerings on StartEngine. They are simpler than convertible notes — no interest, no maturity date — and typically include a valuation cap, a discount rate, or both. A SAFE is not equity until it converts; until then, you are a future equity holder, not a current shareholder.
- Secondary Market
- A marketplace where investors can buy and sell shares in private companies that have already been issued — as opposed to a primary market offering where new shares are created and sold by the company itself. StartEngine Secondary is an SEC-registered Alternative Trading System (ATS) that allows eligible investors to trade shares in private companies. Secondary market transactions require both a willing buyer and a willing seller, and are subject to transfer restrictions set by the company.
- Seed Round
- A startup's first formal round of outside investment, typically used to build a product, hire early team members, and acquire initial customers. Seed rounds are commonly raised through SAFEs, convertible notes, or priced equity. Many offerings on StartEngine are seed-stage raises, meaning the company is at an early but defined stage — past the idea phase, but still building toward scale.
- Special Purpose Vehicle (SPV)
- A legal entity created for the specific purpose of pooling multiple investors' capital into a single investment in a company. SPVs appear on StartEngine Secondary as a way to structure secondary market transactions. From the company's perspective, the SPV appears as a single entry on the cap table, which simplifies cap table management when many investors are involved.
V
- Valuation Cap
- A ceiling on the company valuation at which a SAFE or convertible note will convert into equity, protecting early investors from excessive dilution if the company's valuation grows significantly before conversion. For example, if your SAFE has a $10M valuation cap and the company raises its Series A at a $30M valuation, your SAFE converts as if the company were valued at $10M — giving you three times more shares than a Series A investor paying the full $30M price. A lower cap means more favorable conversion terms for early investors.
- Venture Capital (VC)
- A form of private equity investment in which professional investment firms provide capital to startups in exchange for equity, typically at Series A and beyond. Venture capital firms invest other people's money (from their fund's limited partners) and typically take board seats or observer rights in the companies they back. VC involvement in a company is often a positive signal of institutional validation, though it can also affect cap table dynamics and the company's strategic direction.
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Important disclosure
All content is for educational purposes only and does not constitute investment advice. All investments involve risk, including loss of principal. Please consult with a qualified financial advisor before making investment decisions.
