Angel Investing Glossary: 16 Terms Every Angel Needs, Grouped by Decision

Angel investing has its own language, and most first-time angels get stuck on the words long before they get stuck on the money. The good news is that the vocabulary is smaller than it looks. Sixteen core terms cover almost every angel deal, and each one maps to a decision you actually make.

Deal-structure terms decide what you own: SAFE, term sheet, pre-money and post-money valuation, dilution, and pro-rata rights. Vehicle and return terms decide how you get paid: SPV, carry, liquidation preference, IRR, and MOIC. Startup-health terms decide whether a company is worth backing at all: ARR, LTV, COGS, and TAM. The cap table ties them together.

Cheryl Kellond, founder of Play Money and an active angel in more than 50 startups, has long argued that vocabulary and access, more than capital, are what keep most qualified people from ever writing a check.

Only 3% of accredited investors actually angel invest, though three-quarters say they want to. Play Money didn't build for the 3% already investing. Play Money built for everyone else, where time and access were scarce, not capital.

How angel investing terms differ from VC-fund terms

Start with the difference that trips up the most people: an angel is not a small venture capitalist. An angel investor writes personal checks into early-stage startups. A venture capitalist manages a fund raised from outside investors, called limited partners (LPs), and runs it with partners called general partners (GPs).

That structural gap shapes the words. A VC talks about fund vintages, capital calls, and management fees because a VC answers to LPs. An angel talks about SAFEs, SPVs, and pro-rata rights because an angel invests directly, often a few thousand dollars at a time.

Most individual angels now invest through an SPV, a single-deal vehicle that pools several angels into one line on a startup's cap table. On platforms like Play Money, an SPV is the default way a first-timer gets into a professionally vetted deal without negotiating terms alone. Cheryl walked through the plumbing in Angel Investing Deal Mechanics.

Terms grouped by the decision they affect, not the alphabet

Almost every glossary sorts terms alphabetically or by who's reading them: employee, founder, investor. AngelList, Carta, Hustle Fund, and The Helm all do it that way. Alphabetical order is easy to publish and close to useless in a live deal, because the term you need at 9pm on a Tuesday isn't filed under the letter you happen to be thinking of.

So this glossary groups the 16 terms by the decision each one drives. Three clusters:

• What you own. SAFE, term sheet, valuation, dilution, pro-rata rights. These set your ownership percentage and how it changes as the company raises more money.
• How you get paid. SPV, carry, accredited investor, liquidation preference, IRR, MOIC, cap table. These set the structure and the math behind your eventual return.
• Whether the company is worth backing. ARR, LTV, COGS, TAM. These tell you whether the underlying business can generate a return in the first place.

Find the decision in front of you, jump to that cluster, and skip the rest.

Deal-structure terms: what you own

These five terms decide how much of a company you end up with, and what happens to that slice over time.

What is a SAFE?

A SAFE (Simple Agreement for Future Equity) lets you invest now and get your shares later, when the company raises a priced round. You wire money today and convert to equity at the next round, usually at a discount or a capped valuation. The SAFE was created and is maintained by Y Combinator, which publishes the standard templates. A SAFE is not debt, so unlike a convertible note it carries no interest and no maturity date.

What is a term sheet?

A term sheet is the short, mostly non-binding document that lays out a deal before the lawyers draft the long contracts: valuation, how much is being raised, board seats, and investor rights. The National Venture Capital Association publishes the model term sheet most US venture deals start from. If you read one document in a round, read this one.

What is pre-money vs. post-money valuation?

Pre-money valuation is what a company is worth before it takes your money. Post-money is pre-money plus the new investment. If a startup is valued at $8M pre-money and raises $2M, the post-money is $10M, and the new investors own 20% ($2M of $10M). Your ownership percentage is always calculated on the post-money number, which is why the distinction matters.

What is dilution?

Dilution is the drop in your ownership percentage each time the company issues new shares, usually in a later raise. Your slice gets smaller while the pie (ideally) gets bigger, so the value of your stake can still climb. Cheryl broke this down in the newsletter Dilution Isn't the Problem. Not Understanding It Is.

What are pro-rata rights?

Pro-rata rights let you invest more in a later round to keep your ownership percentage from shrinking. If you own 2% and the company raises again, your pro-rata right is the option, not the obligation, to buy enough of the new round to stay at 2%. It's how angels protect their position in the winners.

Vehicle and return terms: how you get paid

These terms describe the plumbing between a startup's success and money landing back in your account.

What is an SPV?

An SPV (special purpose vehicle) is a single-use entity created to hold one investment. Instead of 40 angels each appearing on the cap table, they invest through one SPV that shows up as a single shareholder. It's cleaner for the founder and lower-friction for the angel. On platforms like Play Money, you can join an SPV with a check as small as $500, which is how someone builds a real portfolio without writing large solo checks. For a closer look, see SPV vs RUV.

What is carry (carried interest)?

Carry, short for carried interest, is the share of a deal's profits that the person organizing it keeps as their cut. It only pays out after investors get their money back. Play Money's fees run 10% per investment, capped at $1,500, with carry typically 20% and varying by deal, so you can see the full cost before you commit. How Angel Investors Make Money walks through the full waterfall.

Who is an accredited investor?

An accredited investor is someone the SEC lets invest in private deals like startups. You qualify with a net worth over $1M, excluding your primary residence, or income over $200,000 on your own ($300,000 with a spouse) in each of the last two years, with the same expected this year. Holding a Series 7, 65, or 82 license also qualifies you. According to SEC accredited-investor data analyzed by Play Money, most first-time angels clear the bar long before they realize it.

What is a liquidation preference?

A liquidation preference decides who gets paid first when a company is sold. Investors with a preference get their money back, sometimes a multiple of it, before common shareholders see a dollar. A 1x preference returns 1x their investment first. It's why a modest exit can still return nothing to founders and employees.

What is IRR (internal rate of return)?

IRR (internal rate of return) is your annualized return, accounting for how long your money was tied up. A 3x return in 3 years and a 3x return in 10 years look identical as a multiple but very different as IRR. It's the metric that respects time.

What is MOIC (multiple on invested capital)?

MOIC (multiple on invested capital) is the blunt version of the same question: how many times your money came back, ignoring time. Put in $10K, get back $50K, and that's a 5x MOIC. Angels track both, MOIC for the headline and IRR for the truth. See how the returns actually distribute.

What is a cap table?

A cap table (capitalization table) is the spreadsheet listing everyone who owns a piece of the company and how much. Founders, investors, option holders, and every SAFE and priced round sit on it. When you invest, you're buying a row. Cheryl covered how to read one in The Truth About Cap Tables.

Startup-health terms: whether the company is worth backing

The first two clusters describe your deal. This one describes the business underneath it. If these numbers are weak, the cleanest term sheet in the world won't save your check.

What is ARR (annual recurring revenue)?

ARR (annual recurring revenue) is the predictable, subscription-style revenue a company books every year. It's the number software investors watch most, because recurring revenue is worth more than one-time sales. Watch for founders who blur ARR with total revenue. We covered the revenue terms angels miss in more depth.

What is LTV (lifetime value)?

LTV (lifetime value) is the total profit a company expects from one customer over the whole relationship. Set against what it costs to acquire that customer, LTV tells you whether growth is a good deal or an expensive habit.

What is COGS (cost of goods sold)?

COGS (cost of goods sold) is the direct cost of delivering the product: servers for software, materials for hardware, ingredients for food. Revenue minus COGS is gross margin, and gross margin is the ceiling on how profitable a company can ever be.

What is TAM (total addressable market)?

TAM (total addressable market) is the total revenue available if a company captured 100% of its market. Founders love a huge TAM. The sharper signal is market pull, meaning real evidence that customers already want the thing. A giant TAM with no pull is a slide, not a business. Our evaluation framework goes deeper on the difference.

How to use this glossary while evaluating a real deal

When a deal lands in your inbox, the terms show up in a predictable order. First you check whether the business is worth backing: ARR, the margin left after COGS, and whether the TAM comes with real pull. Then you check what you'd own: the SAFE or priced round, the valuation, your dilution. Then you check how you'd get paid: the SPV, the carry, the liquidation preference, the eventual IRR and MOIC.

That sequence is the whole job, and it's learnable in an afternoon. The barrier to angel investing is mostly vocabulary and access, and both are fixable. Clear the words, and the deal in front of you stops being intimidating and starts being a decision. When you're ready, start with how to start angel investing and how to evaluate a deal.

Written by Cheryl Kellond, founder of Play Money. Serial founder, MIT Sloan MBA, active angel investor. Not investment advice. Do your own diligence before investing in any startup. Last updated: July 2026.