Glossary

• Accelerator

  Fixed-term programs that provide mentorship, valuable advice, and training for entrepreneurs. Oftentimes, these programs culminate in a pitch event.

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• Accredited Investor

  An individual who meets the legal requirements for investment in a business venture.

• Accrued Interest

  The interest accrued on a debt or asset since the most recent interest payment was made.

• Add-on/bolt-on

  A private equity transaction where the acquired company is “added on” to an existing portfolio company. In add-on deals, the acquiring company is called the “platform” and the private equity firm is referred to as the “sponsor.” (Bolt-on is often the preferred term in Europe)

• Advisory Board

  A group of external advisors who provide strategic advice.

• Amortization

  The scheduled process of gradually paying off a debt.

• Angel Fund

  A group of angel investors who work together and coordinate in the investment process.

• Angel Investor

  Individual who provides capital for startups in exchange for either debt or equity.

• Angel Round

  Funding round dedicated to attracting angel investors.

• Anti-Dilution Agreement

  A legal agreement ensuring that if further investments are made into a company or a sale occurs, the investor’s shares are not diluted. This is primarily performed to protect the interests of early investors.

• Benchmark

  Performance goals against which startups are measured if they want more investment money. These include things like revenue and market penetration.

• Blind Pool

  A form of limited partnership that doesn’t specify what type of investments if will pursue.

• Bridge Financing

  Short-term financing that is expected to be repaid quickly.

• Board of Directors

  A group of individuals who have been elected by stockholders and chosen to oversee a company’s affairs. Oftentimes, investors request a board seat in exchange for a startup investment.

• Bootstrapping

  Starting a business without external help or investment.

• Burn Rate

  The rate at which a business spends money (especially VC money) in excess of revenue.

• Buyout

  A common exit strategy in which a company’s shares are purchased, granting the purchaser a controlling interest in the company.

• Capitalization Table

  A table displaying the total amount of securities issued by a company, along with details of the ownership of these securities.

• Capital Gain

  The difference between the purchase price and selling price of a given asset.

• Capital Under Management

  The amount of capital available to a management team for venture capital investment.

• Carried Interest or “Carry”

  The portion of investment gains to which fund managers are entitled without contributing their own capital.

• Capped Notes

  This refers to the practice during investment rounds where a cap is placed on a company’s valuation.

• Closing

  The final stage in the investment process, where legal documents are signed and an investment becomes official.

• Common Stock

  A class of ownership that has lower claims on earnings and assets than preferred stock. It is riskier to own common stock because in the event of liquidation, common stock shareholders are the last to claim rights to assets.

• Convertible Debt/Equity

  Investments designed to turn into equity at a future point in time, when a company is first valued. This is a useful method for young companies to attract investment prior to valuation.

• Corporate Venture Capital

  Corporations can have a venture capital team that looks to invest in companies that may align with the parent company’s goals. Often times these investments lead to partnerships between the investor and the company raising money.

• Crowdfunding

  The process of generating money to fund a business via many individual donors across an online platform.

• Deal Flow

  The rate at which investment opportunities are introduced to a funding institution.

• Deal Room

  Central location where investment pitches and negotiations take place.

• Debt Financing

  Money-raising tactic in which a company sells bonds or notes to an investor with the assumption that they will be re-purchased with interest.

• Dilution

  Issuing more shares of a company dilutes the value of holdings of existing shareholders.

• Due Diligence

  An analysis made by an investor based on the facts and information about a company or product prior to investment.

• Early Stage

  The earliest stage of the three main startup phases. These are fledgling companies that are often pre-valuation.

• Entrepreneur in Residence (EIR)

  An experienced entrepreneur who is employed by a venture capital firm and plays an advisory role.

• Equity Financing

  Money-raising tactic where investment is provided in exchange for a portion of ownership over the company.

• Exploding Offer

  An investment offer that is retracted if it not accepted after a short time period.

• First Refusal

  Clause that requires investors and founders to offer their shares to an existing early investor before selling to a third party.

• Friends and Family

  A common way for a startup to fund their initial round of capital before raising an institutional round.

• Full-Ratchet

  A provision intended to protect investors, preventing extreme dilution of equity/shares.

• Fund of Funds

  A mutual fund that invests into other mutual funds.

• Golden Handcuffs

  Benefits or delayed payments offered by a company in order to prevent an employee’s departure.

• Golden Parachute

  A large compensation or lump payment for the dismissal of an executive, often occurring in the aftermath of a takeover.

• Incubator

  A company or facility designed to aid entrepreneurs via shared resources, education, expertise, and intellectual capital.

• Initial Public Offering (IPO):

  The initial sale of a privately held company’s stock to the public.

• Late Stage

  A startup company that has been in existence for a noteworthy period of time and has proven to have a viable product and business model.

• Lead Investor

  Member of an investment syndicate who holds the largest stake in a given company. Oftentimes, the lead investor is a startup’s principal provider of capital.

• Leveraged Buyout

  When a person or group of people take on debt in order to buy out the remaining shares of a company and achieve ownership.

• Liquidation

  The process of turning securities into cash, often as part of an exit strategy.

• Liquidity Event

  An event that allows venture capital firms realize their gains or losses by liquidating equity in a company.

• Limited Partner (LP)

  An investor with little control over the management of a partnership or a portfolio company, in exchange for less restrictions on liquidation.

• Liquidation Preference

  The right to receive a specific monetary value in exchange for equity, especially in the event of a company dissolving.

• Management Buyout (MBO)

  Funds provided for a management team to acquire a product or business.

• Merger

  When two companies decide to come together into one company. This can be to acquire new talent, technology, or market share.

• Post-Money Valuation

  The value of a company, determined after an investment has been made.

• Pre-Emptive Right

  A clause in an investment agreement that grants investors the right to maintain the same percentage of equity after restructuring.

• Pre-Accelerator

  Program that offers advice for companies that have not yet entered an accelerator.

• Pre-Money Valuation

  The value of a company, determined before an investment has been made.

• Pre-Sales

  A product for which customers have dedicated money and made purchases before the product has actually been shipped. Sometimes, pre-sales take place before products have been produced or finalized.

• Preferred Stock

  A stock that carries a fixed dividend and takes sale-order priority over other forms of stock.

• Principal

  The total value of the original sum invested.

• Promissory Note

  A legal document detailing the amount of debt owed along with an obligatory repayment plan.

• Pro-Rata

  Division of stocks or equity based on equal proportions.

• Recapitalization

  A corporate reorganization of capital structure by changing the mix of equity and debt.

• Return on Investment (ROI)

  The profit or loss resulting from an investment transaction as a percentage of the original investment, usually expressed on an annualized basis.

• Secondary Public Offering

  When a company presents stock for sale to the public after an IPO.

• Secondary Purchase

  The act of purchasing stock from a shareholder rather than from the company itself.

• Securities

  All types of equity or debt.

• Seed Round

  The first round of financing for a startup. Usually funds raised in the seed round are intended to be spent on producing a prototype or proof of concept.

• Seed Stage

  The stage of a startup where profitability is extremely unlikely and seed funds are required to gain customer insights.

• Series A

  The first major round of venture capital funding wherein preferred stock is issued.

• Series B/C/D/E

  Later rounds where preferred stock is issued.

• Share Consent

  A legal clause requiring an investor’s consent in order for a business to sell shares at a later date.

• Statutory Voting

  A voting method for a Board of Directors in which a board member receives 1 vote for each share they own.

• Stock Options

  The right to sell or purchase stock for a set price during a pre-defined period of time.

• Strategic Investors

  Investors who add value to their investments via industry ties or experience.

• Syndication

  The venture capital practice of each individual investor contributing a small portion of money required to fund a company.

• Tag-Along Rights

  Agreed stipulation stating that if a founder decides to sell their shares to a buyer, an existing investor can offer their shares to the buyer for the same amount.

• Term Sheet

  A non-binding agree designed to provide a layout of the basic terms and conditions of an investment. Term sheets are often used as templates for later legal documents.

• Uncapped Notes

  A funding practice designed to protect founders. Uncapped notes provide no guarantee that investors will be granted a specific amount of equity per dollar invested.

• Underwriter

  An investment bank with a contractual obligation to take any securities into their own books if the company in which they are vested has failed.

• Valuation

  The process by which a company’s value is determined.

• Venture Capitalist

  An individual investor who works at a venture capital firm and makes investment decisions.

• Vesting

  The act of a company granting stock options to an employee.

• Voting Right

  A stockholder’s right to vote on matters of corporate management.

• Warrant

  The right to buy or sell a given security at a certain price during a specified period.

• Waterfall Chart

  A chart that shows in what order all private equity investors get paid.