Venture capital glossary for advisers

A C D E F G H I J K L M N O P Q R S T U V W

AFOF: An Australian Venture Capital Fund of Funds. It is a registered fund that invests in other venture funds (VCLPs and ESVCLPs) rather than in companies directly, and its main tax benefit goes to eligible foreign investors. See ESVCLP, VCLP and unit trusts.
Apportionment at 1 July 2027: How a gain on an asset held across 1 July 2027 is split, so the growth before that date keeps the 50% CGT discount and the growth after it is taxed under the new rules. It uses a valuation at that date or, for assets without a market price such as startup stakes, a formula that is still in draft. See The 2027 CGT changes.
Capital account statement: The statement that rolls a fund's capital, or one investor's share of it, from opening to closing balance: contributions, distributions, fees and expenses, gains and losses, and any accrued carry. Some managers report it at fund level, others per investor. See Reading fund reports.
Capital call: A request from the fund for part of your client's commitment, with a notice period set in the fund documents. Funds typically call capital over three to five years as they find companies to back. See After your client commits.
Carried interest: The manager's share of the fund's profits, usually 20%, paid once investors have their money back (and often a hurdle on top). Also called carry, it ties most of a manager's upside to results. See How a venture fund works.
Carry forward: Using an unused tax offset in a later year. The ESVCLP offset is non-refundable, but an amount a client can't use in the year carries forward. See The ESVCLP guide.
Catch-up: A clause in the waterfall that lets the manager receive most of the profits for a period after investors clear the hurdle, until the manager has its full carry share of all profits. Without one, the manager only earns carry on profits above the hurdle.
CGT discount: The 50% reduction in a capital gain for assets held more than 12 months by individuals, trusts and partnerships. It ends on 1 July 2027, replaced by an inflation adjustment; growth before that date keeps the discount. Super funds keep their one-third discount; companies never had one (see The 2027 CGT changes).
Commitment: The total amount your client agrees to invest in a fund. It is paid in instalments through capital calls, so the client needs the cash available over several years rather than on day one.
Convertible note: A loan to a startup that converts into shares at the next priced round, usually at a discount or under a valuation cap. It lets a company raise money without agreeing a valuation yet. If the company never raises again, the note may be repaid, converted on other terms, or lost.
Decacorn: A private company valued at US$10 billion or more. Australia produces more decacorns per dollar of venture invested than any other country on the Side Stage and Dealroom 2026 count. See How venture returns work.
Dilution: The fall in an existing shareholder's percentage when a company issues new shares. A fund's stake in a startup usually shrinks with each round unless it invests more. Dilution isn't a loss in itself if the company's value rises faster.
Distribution: Money (or shares) the fund pays back to investors, usually after selling a company. Distributions are what turn paper value into cash and drive DPI. See Reading a fund report.
Distribution in specie: A distribution of shares rather than cash, for example shares in a company that has listed. The client then holds those shares directly. For an ESVCLP partner, a gain on the distribution itself can be exempt, but a later sale is taxed under the normal rules. See After your client commits.
DPI: Distributions to paid-in capital. Cash returned divided by cash invested: a DPI of 0.5x means half the money is back, and it can't be revalued. See Reading a fund report.
Drawdown: Another word for a capital call. The drawdown period is the stretch of years over which the fund calls the committed money.
ESVCLP: An Early Stage Venture Capital Limited Partnership: a government-registered venture capital fund structure that pools money from investors and invests it in unlisted, early-stage Australian companies. Investors pay no CGT on gains from eligible investments held 12 months or more, and get a tax offset of up to 10% of eligible contributions, claimed in the tax return for the year they pay in. See The ESVCLP guide.
Extension: Extra years added to a fund's term so it can sell its last companies without a fire sale. Extensions are usually one or two years at a time, and limited by the fund documents.
Follow-on and pro rata: A follow-on is a fund's further investment in a company it already backs. Pro rata rights let an existing investor buy enough of a new round to keep its percentage. Funds set aside reserves for both.
Fund term: How long a fund runs before it has to wind up, typically 10 years plus extensions. Venture money is locked up for that whole period; there is usually no way to redeem early. See How a venture fund works.
General partner: The manager of a limited partnership. The general partner (GP) makes the investment decisions and carries the legal liability; investors are limited partners. People often use GP to mean the fund manager.
GP commitment: The money the managers themselves put into their own fund. It shows whether the managers have their own money at risk. See How to vet a venture fund.
Growth stage: Companies past Series A with proven revenue, raising larger rounds (Series B onwards) to expand. Valuations are higher and the range of outcomes narrower than at seed. See Stage and fund size.
Harvest period: The years after the investment period when the fund stops making new investments and works on selling its companies. Most distributions arrive in this period.
Held at cost: A holding still valued at what the fund paid for it, usually because the company hasn't raised a new priced round. Holding at cost until a new round or other clear evidence is a common, conservative policy at seed.
Hurdle rate: A minimum return investors must receive before the manager earns carry, often 8% a year. Also called a preferred return. Not every venture fund has one.
ILPA: The Institutional Limited Partners Association, the global body for fund investors. It publishes voluntary templates for reporting fees, expenses, carry and performance. Many smaller managers report in their own format.
Inflation adjustment: Under the CGT rules from 1 July 2027, the purchase price of an asset is increased by inflation before working out the gain, so only the gain above inflation is taxed. It replaces the 50% CGT discount for individuals, trusts and partnerships, alongside a 30% minimum tax. See The 2027 CGT changes.
Information memorandum: The offer document for a wholesale fund, setting out the strategy, terms, fees, risks and team. Usually shortened to IM. It is the starting point for due diligence; see How to vet a venture fund.
Investment period: The first part of a fund's life, often three to five years, when it makes new investments. Most capital calls happen in this period.
IPEV Guidelines: The International Private Equity and Venture Capital Valuation Guidelines, the international standard for valuing unlisted companies at fair value. Managers value under these or under their own written methodology.
IRR: Internal rate of return: the annual rate that accounts for when money went in and came out. It rewards early cash returns, so a quick small win can show a high IRR. Read it with TVPI and DPI; see How venture returns work.
J-curve: The usual shape of a venture fund's returns. Value dips in the early years as fees are paid and weak companies are written down, then rises as winners grow. Early negative numbers say little about the final result.
Key-person clause: A clause that pauses new investments if named members of the team leave, giving investors a say in what happens next.
Limited partner: An investor in a limited partnership fund, whose liability is limited to what they committed. Limited partners (LPs) don't run the fund; the general partner does.
LPAC: Limited partner advisory committee: a small group of the fund's larger investors who approve conflicts of interest and some valuation or term changes. It advises; it doesn't pick investments.
Management fee: The annual fee paid to the manager to run the fund, typically 2% of committed capital during the investment period and often lower afterwards. The fee basis matters over a 10-year life. See How a venture fund works.
Mark and markdown: A mark is the value a fund puts on an unlisted company in its reports, usually based on the latest funding round. A markdown is a cut to that value; marks are estimates until a company is sold. See Reading a fund report.
Minimum tax (30%): Part of the CGT rules from 1 July 2027: resident individuals pay at least 30% on capital gains, including gains that reach them through a trust or partnership. It doesn't reach exempt ESVCLP gains, which are disregarded before it is worked out. See The 2027 CGT changes.
MOIC: Multiple on invested capital: what an investment is worth (or returned) divided by what went in. It is usually quoted per company or gross of fees, so it runs higher than a fund's net TVPI.
NAV: Net asset value: the fund's current estimated value of everything it holds, less liabilities. In venture it is mostly marks on unlisted companies, so it moves with funding rounds rather than daily prices.
Negative gearing limit: From 1 July 2027, losses on established homes bought from 7:30pm on 12 May 2026 can only reduce residential property income and then residential capital gains, with any excess carried forward. This is law; homes held before then, new builds, commercial property, super funds and widely held unit trusts are outside it. See Venture vs property.
Net multiple: A fund multiple, such as TVPI or DPI, worked out after management fees, fund costs and carried interest, so it reflects what investors actually receive. The gross multiple on the portfolio before those costs is always higher.
New build: A new residential dwelling that adds to housing supply. From 1 July 2027 an individual selling one can choose the 50% CGT discount (outside the 30% minimum tax) or the inflation method, and new builds keep negative gearing against other income. The definition in the Tax Reform No. 3 Bill (introduced 14 October 2026, not yet law) covers dwellings that add to supply, including one bought within 24 months of its first occupancy certificate; see Venture vs property.
Non-refundable tax offset: A tax offset reduces the tax a client owes, dollar for dollar, but a non-refundable one can't create a refund. The ESVCLP offset is non-refundable, so a client needs tax payable to use it (with unused amounts carried forward).
Operating costs: A fund's running costs, such as administration and registry, audit and tax, legal and compliance, and insurance. They are paid from the fund, separately from the management fee, and reduce its net asset value.
Post-money valuation: A company's valuation including the new money just raised. If an investor puts in $2 million at a $10 million post-money valuation, they own 20%.
Power law: The pattern where a small number of investments produce most of a fund's returns, and most others return little or nothing. It is why venture funds build portfolios of many companies and why manager selection matters so much. See How venture returns work.
Pre-money valuation: A company's valuation before the new money goes in. Pre-money plus the amount raised equals the post-money valuation.
Pre-seed: The earliest funding round, often before a product is finished or has paying customers. Cheques are small and the risk is highest. See Stage and fund size.
Priced round: A funding round where the company and investors agree a valuation and new shares are issued at a set price. A SAFE or convertible note defers that price to a later round.
Qualified accountant's certificate: A certificate from a qualified accountant confirming a client meets the wholesale investor test on assets or income. It is valid for two years. See The wholesale investor test.
Reserves: Money a fund holds back from its first investments to back its best companies again in later rounds. How a manager uses them has a large effect on results, so it is worth asking how much is held back and how it gets used.
Restructuring rollover: Proposed relief that would let a discretionary trust move its assets into another structure without the usual tax, between 1 July 2027 and 30 June 2030. In the draft it's all or nothing: every asset goes to one transferee, and relief is lost if a third party such as a fund manager doesn't consent in time. See Venture in a family trust.
SAFE: A simple agreement for future equity: an investor pays now and receives shares at the company's next priced round, usually under a valuation cap or discount. Unlike a convertible note, it isn't a loan and carries no interest.
Secondary: A sale of existing fund interests or startup shares from one investor to another, rather than new money into the company. Secondaries are one of the few ways to get out of venture early, usually at a discount to NAV.
Seed: The round that funds a startup to find product-market fit, usually after pre-seed and before Series A. Seed valuations in Australia have been about half US levels on the Side Stage and Dealroom 2026 count. See Stage and fund size.
Series A: Usually the first large institutional round, for a company with early revenue and a model that looks repeatable. Many seed-backed companies never reach it.
Side letter: A separate agreement between the fund and one investor that changes or adds to the standard terms, such as reporting or fee arrangements. Larger investors are more likely to have them.
Sophisticated investor: Often used to mean someone who meets the wholesale test by accountant's certificate. The law also has a separate route where a licensee assesses a person as experienced enough. See The wholesale investor test.
Start-up CGT concession: The proposed Innovative Business CGT Concession: a 50% discount on gains from shares, options and convertible notes issued directly by a young, innovative Australian company to founders, employees and early investors, held at least three years. Treasury's draft (September 2026) isn't law. It doesn't apply to investing through a venture fund, and an ESVCLP partner's eligible gains are already exempt. See The 2027 CGT changes.
Subscription facility: A short-term loan a fund draws on before calling capital from investors. It delays the calls, which shortens the time investors' money is at work and lifts the reported IRR, so good reports show IRR with and without it.
Tax on super balances over $3 million: A new tax from 1 July 2026 on realised earnings in super for members with balances above $3 million, with a higher rate above $10 million. Relevant if a client holds venture in an SMSF; see Venture in an SMSF.
Tender offer: An offer, usually from a company or a new investor, to buy shares from existing shareholders at a set price. It can give a fund an early, partial exit from a company that is still private.
Trust minimum tax: A proposed 30% minimum tax on discretionary trusts from 1 July 2028, paid by the trustee and not yet law. Individual beneficiaries would get a non-refundable credit; corporate beneficiaries such as bucket companies would not. It applies to the trust's net income, so exempt amounts such as eligible ESVCLP gains are outside it as introduced. Fixed trusts, super funds and most testamentary trusts are outside it (see Venture in a family trust).
TVPI: Total value to paid-in capital: distributions plus remaining value, divided by what investors paid in. A 2.0x TVPI means paper value plus cash returned is twice the money in, most of it unrealised until companies are sold. See Reading a fund report.
Unicorn: A private company valued at US$1 billion or more.
Valuation basis: The method behind each holding's value in a fund report, usually footnoted: cost, a follow-on or third-party round, a calculation from revenue or profit, a write-down on qualitative evidence, or nil where the company has ceased operating.
VCLP: A Venture Capital Limited Partnership: a registered fund for larger venture and later-stage deals. Its main tax benefit is for eligible foreign investors, so Australian individuals get less from it than from an ESVCLP. See ESVCLP, VCLP and unit trusts.
Vintage year: The year a fund starts investing. Funds are compared with others of the same vintage, because market conditions at the start shape results.
Waterfall: The order in which a fund's distributions are split: investors' capital back first, then any hurdle, then any catch-up, then the profit split (often 80/20). Funds use either a whole-of-fund or deal-by-deal waterfall, which changes when carry is paid.
Wholesale client: An investor who can access offers not made to the general public, such as most venture funds. For individuals the usual test is net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years. See The wholesale investor test.
Write-down: A cut in a holding's value, usually because the company is behind plan or short of cash. A write-down to nil is a write-off. Capital losses inside an ESVCLP are disregarded for tax.

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Tall Order is a Melbourne seed fund. Fund III is a registered ESVCLP for wholesale investors. Justine Lum, our Head of IR, works with advisers and their clients.

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