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