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Accredited investor
A wealthy investor who meets certain SEC requirements for net worth and income
as they relate to some restricted offerings. Accredited investors include
institutional investors, company directors and executive officers, high
net worth individuals, and certain other entities. Some limited partnerships
and angel investor networks accept only accredited investors. Acquisition
The process through which one company takes over the controlling interest of
another company. Acquisition includes obtaining supplies or services by
contract or purchase order with appropriated or non-appropriated funds,
for the use of Federal agencies through purchase or lease. Add-on service
The services provided by a venture capitalist that are not monetary in nature,
such as helping to assemble a management team and helping to prepare the
company for an IPO. Adventure capitalist
An entrepreneur who helps other entrepreneurs financially and often plays an
active role in the company's operations such as by occupying a seat on
the board of directors, etc. Angel investor
An individual who provides capital to one or more startup companies. Unlike
a partner, the angel investor is rarely involved in management. Angel investors
can usually add value through their contacts and expertise. Benchmarks
Performance goals against which a company's success is measured. Benchmarks
are often used by investors to help determine whether a company should
receive additional funding or whether management should receive extra stock. Blind pool
Form of limited partnership which doesn't specify what investment opportunities
the general partner plans to pursue. Bridge loans
Short-term loan that is used until a person or company can arrange a more comprehensive
longer-term financing. The need for a bridge loan arises when a company
runs out of cash before it can obtain more capital investment through long-term
debt or equity. Buyout
The purchase of a company or a controlling interest of a corporation's shares
or product line or some business. A leveraged buyout is accomplished with
borrowed money or by issuing more stock. Capital gain
The gain to investor from selling a stock, bond or mutual fund at a higher
price than the purchase price. The capital gain is usually the amount realized
(net sales price) less your investment (adjusted tax basis) in the property.
A capital gain may be short-term (one year or less) or long-term (more
than one year) and must be claimed on income taxes.
Capital under management
The amount of capital available to a management team for venture investments.
Civilian unemployment rate
Is calculated by the number of unemployed people divided by the total size
of the labor force and is expressed as a percentage. People who are jobless,
looking for jobs, and available for work are considered unemployed. The
labor force is defined as people who are either employed or unemployed. Closing
The final event to complete the investment, at which time all the legal documents
are signed and the funds are transferred. Convertible
The corporate securities, usually preferred shares or bonds, that can be exchanged
for a set number of another form, usually common share, at a pre-stated
price. Convertibles are appropriate for investors who want higher income
than is available from common stock, together with greater appreciation
potential than regular bonds offer. From the issuer's standpoint, the convertible
feature is usually designed as a sweetener, to enhance the marketability
of the stock or preferred. Corporate venture capital
A subsidiary of a large corporation which makes venture capital investments. Corporate venturing
A practice of a large company, taking a minority equity position in a smaller
company in a related field. Deal flow
Rate at which investment offers are presented to funding institutions. Debt financing
When a firm raises money for working capital or capital expenditures by selling
bonds, bills, or notes to individual and/or institutional investors. In
return for lending the money, the individuals or institutions become creditors
and receive a promise to repay principal and interest on the debt. Direct financing
Financing without the use of underwriting. Direct financing is often done by
investment bankers. Drive-by deal
Slang often use when referring to a deal in which a venture capitalist invests
in a startup with the goal of a quick exit strategy. The VC takes little
to no role in the management and monitoring of the startup. Due diligence
Process of investigation and evaluation, performed by investors, into the details
of a potential investment, such as an examination of operations and management
and the verification of material facts. Equity financing
Term used for company's issuance of shares of common or preferred stock to
raise money. Equity financing is commonly done when its per share prices
are high-the most money that can be raised for the smallest number of shares. Equity offerings
Raising funds by offering ownership in a corporation through the issuing of
shares of a corporation's common or preferred stock. Exit
The sale or exchange of a significant amount of company ownership for cash,
debt, or equity of another company. Exit route
Method by which an investor would realize an investment. Exit strategy
The way in which a venture capitalist or business owner intends to use to get
out of an investment that he/she has made. Exit Strategy is also called
liquidity event. Financier
Person or financial institution engaged in the lending and management of money
and makes a living participating in commercial financing activities. First-round financing
First investment in a company made by external investors. First stage capital
Money provided to entrepreneur who has a proven product, to start commercial
production and marketing, not covering market expansion, de-risking, acquisition
costs. Follow-on
Subsequent investment made by an investor who has made a previous investment
in the company, generally a later stage investment in comparison to the
initial investment. Full ratchet
An investor protection provision which specifies that options and convertible
securities may be exercised relative to the lowest price at which securities
were issued since the issuance of the option or convertible security. The
full ratchet guarantee prevents dilution, since the proportionate ownership
would stay the same as when the investment was initially made. Fund of funds
Mutual fund which invests in other mutual funds. Fund of Funds is an investment
vehicle designed to invest in a diversified group of investment funds. Ground floor
Term used for the first stage of a new venture or investment opportunity. Incubator
Company or facility designed to foster entrepreneurship and help startup companies,
usually technology-related, to grow through the use of shared resources,
management expertise and intellectual capital. Institutional investors
Refers mainly to insurance companies, pension funds and investment companies
collecting savings and supplying funds to markets but also to other types
of institutional wealth like endowment funds, foundations, etc. Investment banks
Financial intermediary that performs a variety of services which includes underwriting,
acting as an intermediary between an issuer of securities and the investing
public, facilitating mergers and other corporate reorganizations, and also
acting as a broker for institutional clients. Invisible venture capital
Venture capital from angel investors. IPO - initial public offering
First sale of stock by a private company to the public. IPOs are often smaller,
younger companies seeking capital to expand their business. IRR
Is often used in capital budgeting, it's the interest rate that makes net present
value of all cash flow equal zero. Essentially, IRR is the return that
a company would earn if they expanded or invested in themselves, rather
than investing that money abroad. Lead investor
A company's principal provider of capital, such as the entity which originates
and structures a syndicated deal. Leveraged buy-out - LBO
Acquisition of a business using mostly debt and a small amount of equity. The
debt is secured by the assets of the business. In LBO, the acquiring company
uses its own assets as collateral for the loan in hopes that the future
cash flows will cover the loan payments. Limited partnership
Business organization with one or more general partners, who manage the business
and assume legal debts and obligations and one or more limited partners,
who are liable only to the extent of their investments. Limited partnership
is the legal structure used by most venture and private equity funds. Limited
partners also enjoy rights to the partnership's cash flow, but are not
liable for company obligations. Liquidation
Sale of the assets of a portfolio company to one or more acquirers when venture
capital investors receive some of the proceeds of the sale. Liquidation preference
The right to receive a specific value for the stock if the business is liquidated. Liquidity event
The way in which an investor plans to close out an investment. Liquidity event
is also known as exit strategy. Lock-up period
Period an investor must wait before selling or trading company shares subsequent
to an exit, usually in an initial public offering the lock-up period is
determined by the underwriters. Management buy-in - MBI
Purchase of a business by an outside team of managers who have found financial
backers and plan to manage the business actively themselves. Management buy-out - MBO
Term used for the funds provided to enable operating management to acquire
a product line or business, which may be at any stage of development, from
either a public or private company. Master limited partnership
Limited partnership that is publicly traded. MLP combines the tax benefits
of a limited partnership with the liquidity of publicly traded securities. Mezzanine debt
Debts that incorporates equity-based options, such as warrants, with a lower-priority
debt. Mezzanine debt is actually closer to equity than debt, in that the
debt is usually only of importance in the event of bankruptcy. Mezzanine
debt is often used to finance acquisitions and buyouts, where it can be
used to prioritize new owners ahead of existing owners in the event that
a bankruptcy occurs. Mezzanine financing
Late-stage venture capital, usually the final round of financing prior to an
IPO. Mezzanine Financing is for a company expecting to go public usually
within 6 to 12 months, usually so structured to be repaid from proceeds
of a public offerings, or to establish floor price for public offer. Mezzanine level
Term used to describe a company which is somewhere between startup and IPO.
Venture capital committed at mezzanine level usually has less risk but
less potential appreciation than at the startup level, and more risk but
more potential appreciation than in an IPO. Owner-employee
Sole proprietor or any individual who has ownership of at least one-fifth of
the capital and/or profits associated with a given venture. Pari passu
At an equal rate or pace, without preference. PIPE or Private Investment in Public
Equity
Term used when a private investment or mutual fund buys common stock for a
company at a discount to the current market value per share. Pipeline
Flow of upcoming underwriting deals. Pitch
Set of activities intended to persuade someone to buy a product or take a specific
course of action. Portfolio company
Company or entity in which a venture capital firm or buyout
firm invests. All of the companies currently backed by
a private equity firm can be spoken of as the firm’s
portfolio. Private equity
Equity securities of unlisted companies. Private equities are generally illiquid
and thought of as a long-term investment. Private equity investments are
not subject to the same high level of government regulation as stock offerings
to the general public. Private equity is also far less liquid than publicly
traded stock. Private limited partnership
Limited partnership having no more than 35 limited partners and thus able to
avoid SEC registration. Private placement
Term used specifically to denote a private investment in a company that is
publicly held. Private equity firms that invest in publicly traded companies
sometimes use the acronym PIPEs to describe the activity. Private placements
do not have to be registered with organizations such as the SEC because
no public offering is involved. Raising capital
Obtaining capital from investors or venture capital sources. Recapitalization
Financing technique used by companies to defend against hostile takeovers.
By recapitalization, a company restructures it's debt and equity mixture
without affecting the total amount of balance sheet equity. Resyndication limited partnership
A limited partnership in which existing properties are sold to new limited
partners, so that they can receive the tax advantages that are no longer
available to the old partners. Return on investment - ROI
The profit or loss resulting from an investment transaction, usually expressed
as an annual percentage return. ROI is a return ratio that compares the
net benefits of a project verses its total costs. Risk
Quantifiable likelihood of loss or less-than-expected returns. Risk includes
the possibility of losing some or all of the original investment. Risk
is usually measured using the historical returns or average returns for
a specific investment. Risk capital
Funds made available for startup firms and small businesses with exceptional
growth potential. Round of funding
The stage of financing a start-up company is in. The usual progression is from
startup to first round to mezzanine to pre-IPO. Small business investment companies
- SBIC
Lending and investment firms that are licensed and regulated by the Small Business
Administration. The licensing enables them to borrow from the federal government
to supplement the private funds of their investors. SBICs prefer investments
between $100,000 to $250,000 and have much more generous underwriting guidelines
than a venture capital firm. Secondary public offering
Public offering subsequent to an initial public offering. A secondary public
offering can be either an issuer offering or an offering by a group that
has purchased the issuer's securities in the public markets. Secondary purchase
Purchase of stock in a company from a shareholder rather than purchasing stock
directly from the company. Second stage capital
Capital provided to expand marketing and meet growing working capital need
of an enterprise that has commenced production but does not have positive
cash flows sufficient to take care of its growing needs. Seed capital
Money used to purchase equity-based interest in a new or existing company.
This seed capital is usually quite small because the venture is still in
the idea or conceptual stage. Series a preferred stock
First round of stock offered during the seed or early stage round by a portfolio
company to the venture capitalist. Series A preferred stock is convertible
into common stock in certain cases such as an IPO or the sale of the company.
Later rounds of preferred stock in a private company are called Series
B, Series C and so on. Silent partner
An investor who does not have any management responsibilities
but provides capital and shares liability for any losses
experienced by the entity. Silent partners are liable
for in any losses up to the amount of their invested
capital and participate in any tax and cash flow benefits.
Silent partner is also known as a "sleeping Startup
New business venture in its earliest stage of development. Syndication
Process whereby a group of venture capitalists will each put in a portion of
the amount of money needed to finance a small business. Term sheet
Non-binding agreement setting forth the basic terms and conditions under which
an investment will be made. The term sheet is a template that is used to
develop more detailed legal documents. Third stage capital
Capital provided to an enterprise that has established commercial production
and basic marketing set-up, typically for market expansion, acquisitions,
product development, etc. Turnaround
Term used when the poor performance of a company or the business experiences
a positive reversal. Underwriter
Investment banking firm committing successful distribution of a public issue,
failing which the firm would take the securities being offered into its
own books. An underwriter may also be a company that backs the issue of
a contract, agreeing to accept responsibility for fulfilling the contract
in return for a premium. Venture
Venture is often use for referring to a risky start-up or enterprise company. Venture capital
Money and resources made available to startup firms and small businesses with
exceptional growth potential. Most venture capital money comes from an
organized group of wealthy investors. Venture capital firm
An investment company
that invests its shareholders' money in startups and other risky
but potentially very profitable ventures. Venture capital funds
Venture capital funds pool and manage money from investors seeking private
equity stakes in small and medium-size enterprises with strong growth potential. Venture capitalist
Term used of an investor who provides capital to either start-up ventures or
support small companies who wish to expand but do not have access to public
funding. Venture capital limited partnership
Limited partnership which is formed to invest in small startup businesses with
exceptional growth potential. Vulture capitalist
Slang word for a venture capitalist who deprives an inventor of control over
their own innovations and most of the money they should have made from
the invention.
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