Raise Millions by Hustle Fund VC Page 144 Dilution: Dilution is the decrease in an existing shareholder's ownership percentage of a company as a result of the company issuing more shares. Down round: A startup on a good trajectory should see its post- money valuation increase with every new financing round. If the post-money valuation goes down round-over-round, it’s called a down round and this could signal the business is in peril. Employee stock option pool (ESOP): Investors will often expect you to create an employee stock option pool (ESOP). This means setting aside some shares for your employees to incentivize them to do great work. This typically represents 10% of the pie and is something to potentially negotiate when you raise money from investors because the ESOP will further dilute the cap table. Equity: Equity is ownership in the company. So if an investor has 5% of the equity in your business, they own 5% of your company. You want to strategically give equity to key people – investors, advisors, and employees – to help grow the value of the company. Beware of giving away too much because a small amount of equity in the beginning can be worth millions of dollars down the line. Exponential growth: when your revenue is increasing at a faster rate than your incurring costs. Investors love investing in startups that have the potential to scale fast through exponential growth. hustlefund.vc / @hustlefundvc