Definition and Terms
Definition accredited investor
accredited investor - Accredited investor is 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 - Acquisition is 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
Definition add-on service
add-on service - Add-on Services are 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.
Definition adventure capitalist
adventure capitalist - Adventure capitalist is 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.
Definition angel investor
angel investor - Angel or Angel Investor is 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.
Definition annex fund
annex fund - annex funds are side funds that can
provide an extra pool of money to supplement the
original VC Funds.
antidilution provisions - Antidilution Provisions
are contractual measures that allow investors to
keep a constant share of a firm's equity in light
of subsequent equity issues. These may give investors
preemptive rights to purchase new stock at the offering
price. Examples include Broad-Based Weighted Average
Ratchet, Narrow-Based Weighted Average Ratchet,
and Full Ratchet Antidilution.
benchmarks - Benchmarks are 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.
Definition blind pool
blind pool - Blind pool is a form of limited partnership
which doesn't specify what investment opportunities
the general partner plans to pursue.
Definition bridge loans
bridge loans - bridge loan is a 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 - Buyout is defined as 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.
Definition capitalization table
Capitalization table - A Cap Table (or capitalization
table) is the document that shows who owns the company
and what they paid to attain that ownership. In
other words this is a table showing the total amount
of the various securities issued by a firm. This
typically includes the amount of investment obtained
from each source and the securities distributed
-- e.g. common and preferred shares, options, warrants,
etc. -- and respective capitalization ratios.
Definition capital expenditures
capital expenditures - Capital Expenditures is the
money spent by a company to add or expand property,
plant, and equipment assets, with the expectation
that they will benefit the company over a long period
of time (more than one year). Also called capital
capital gain - Capital Gain is 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 types - There are Equity Loan, Financial
Capital, First Round Funding, Human Capital, Later
Stage Funding, Merger and Acquisition Funding, Mezzanine
Funding, Natural Capital, Second Round Funding and
Seed/Startup Funding (see
Definition capital under management
capital under management - Capital under management
is the amount of capital available to a management
team for venture investments.
Definition civilian unemployment rate
civilian unemployment rate - 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 - Closing is the final event to complete
the investment, at which time all the legal documents
are signed and the funds are transferred.
convertible - Convertibles are 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.
Definition corporate venture capital
corporate venture capital - Corporate venture capital
is a subsidiary of a large corporation which makes
venture capital investments.
Definition corporate venturing
corporate venturing - Corporate Venturing is a practice
of a large company, taking a minority equity position
in a smaller company in a related field.
Definition deal flow
deal flow - Deal flow (dealflow) is the rate at
which investment offers are presented to funding
Definition debt financing
debt financing - Debt Financing means 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.
Definition direct financing
direct financing - Direct financing is a financing
without the use of underwriting. Direct financing
is often done by investment bankers.
double dip - Participating preferred stock which
entitles a holder to a liquidation preference and
also to participate in the residual value.
Definition drive-by deal
drive-by deal - Drive-By Deal is a 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.
Definition due diligence
due diligence - Due diligence is the 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.
Definition equity financing
equity financing - Equity financing is a 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
Definition equity offerings
equity offerings - Equity Offerings is raising funds
by offering ownership in a corporation through the
issuing of shares of a corporation's common or preferred
exit - Exit is the sale or exchange of a significant
amount of company ownership for cash, debt, or equity
of another company.
Definition exit route
exit route - Exit Route is the method by which an
investor would realize an investment.
Definition exit strategy
exit strategy - Exit Strategy is 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 - Financier is a person or financial institution
engaged in the lending and management of money and
makes a living participating in commercial financing
Definition first-round financing
first-round financing - First-round financing is
the first investment in a company made by external
Definition first stage capital
first stage capital - First Stage Capital is the
money provided to entrepreneur who has a proven
product, to start commercial production and marketing,
not covering market expansion, de-risking, acquisition
follow-on - Follow-On is a 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.
Definition full ratchet
full ratchet - Full ratchet is 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.
fully diluted basis
Fully diluted basis - Fully diluted basis is a methodology
for calculating any per share ratios whereby the
denominator is the total number of shares issued
by the company on the assumption that all warrants,
options and preferred stocks are exercised.
Definition fundless equity sponsor
Fundless equity sponsor - Fundless equity sponsors
are sourcing and vetting deals without any committed
capital, lining up financial sponsors on a deal-by-deal
Definition fund of funds
fund of funds - Fund of Funds is a 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.
Definition growth capital
growth capital - Growth Capital is a much more flexible
type of financing than credit lines for equipment
and soft cost purchases. The dollars borrowed under
a growth capital line of credit can be used for
any corporate purposes. Growth capital is
a good way to extend a company's runway between
rounds of financing.
ground floor - Ground floor is a term used for the
first stage of a new venture or investment opportunity.
incubator - Incubator is a 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
Definition institutional investors
institutional investors - 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,
Definition investment banks
investment banks - Investment Bank is a 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
Definition invisible venture capital
invisible venture capital - Invisible venture capital
is a venture capital from angel investors.
Definition IPO - initial public offering
IPO - initial public offering - Initial Public Offering
or IPO is the first sale of stock by a private company
to the public. IPOs are often smaller, younger companies
seeking capital to expand their business.
IRR - Internal Rate of Return or 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.
Definition lead investor
lead investor - Lead investor is a company's principal
provider of capital, such as the entity which originates
and structures a syndicated deal.
Definition leveraged buy-out - LBO
leveraged buy-out - LBO - Leveraged Buy-out or LBO
is an 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.
Definition limited partnership
limited partnership - Limited partnership is a 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 - Liquidation is the 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.
Definition liquidation preference
liquidation preference - Liquidity preference is
the right to receive a specific value for the stock
if the business is liquidated. This is usually designated
as a multiple of the Issue Price, for example 2X
or 3X, and there may be multiple layers of Liquidation
Preferences as different groups of investors buy
shares in different series.
Definition liquidity event
liquidity event - Liquidity event is the way in
which an investor plans to close out an investment.
Liquidity event is also known as exit strategy.
Definition lock-up period
lock-up period - Lock-Up Period is the 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.
Definition management buy-in - MBI
management buy-in - MBI - Management Buy-in or MBI
is the purchase of a business by an outside team
of managers who have found financial backers and
plan to manage the business actively themselves.
Definition management buy-out - MBO
management buy-out - MBO - Management Buy-out or
MBO is the 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.
Definition master limited partnership
master limited partnership - Master limited partnership
or MLP is a limited partnership that is publicly
traded. MLP combines the tax benefits of a limited
partnership with the liquidity of publicly traded
Definition mezzanine debt
mezzanine debt - Mezzanine debts are 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.
Definition mezzanine financing
mezzanine financing - Mezzanine Financing is a 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.
Definition mezzanine level
mezzanine level - Mezzanine level is a 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.
Definition minority enterprise small business
investment companies - MESBICS
MESBICS - Minority Enterprise Small Business Investment
Companies or MESBICS are government-chartered venture
firms that can invest only in companies that are
at least 51 percent owned by members of a minority
group or persons recognized by the rules that govern
MESBICs. They provide debt and equity capital to
new, small independent businesses. Criteria for
investment and size and type of investment vary
from one firm to another.
owner-employee - Owner-employee is a sole proprietor
or any individual who has ownership of at least
one-fifth of the capital and/or profits associated
with a given venture.
Definition pari passu
pari passu - Pari-passu is a latin term that means
"of equal step" or "without partiality".
Pari-passu is often seen in venture capital term
sheets, indicating that one series of equity will
have the same rights and privileges as another series
performance based vesting
performance based vesting - Under performance-based
vesting, options Vest only if specified performance
criteria are met. For example, options may vest
if annual earnings per share exceed a certain target
by a specified date.
Definition PIPE or Private Investment in
PIPE or Private Investment in Public Equity - PIPE
or Private Investment in Public Equity is a 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 - Pipeline is the flow of upcoming underwriting
pitch - Pitch is the set of activities intended
to persuade someone to buy a product or take a specific
course of action.
Definition portfolio company
portfolio company - A portfolio company is a 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
Definition post-money valuation
post-money valuation - Post-Money Valuation is the
valuation of a company immediately after the most
recent round of financing. For example, a venture
capitalist may invest $3.5 million in a company
valued at $2 million "pre-money" (before
the investment was made). As a result, the startup
will have a post-money valuation of $5.5 million.
Pre-money valuation - Pre-Money Valuation is the
valuation of a company prior to a round of investment.
This amount is determined by using various calculation
models, such as discounted P/E ratios multiplied
by periodic earnings or a multiple times a future
cash flow discounted to a present cash value and
a comparative analysis to comparable public and
Prepaid Warrant - Prepaid Warrant is a warrant issued
by an issuer entitling the holder to exercise into
a specified number of different securities, for
no additional financial consideration, during a
specified time period.
private equity - Private equities are 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.
Definition private limited partnership
private limited partnership - Private limited partnership
is a limited partnership having no more than 35
limited partners and thus able to avoid SEC registration.
Definition private placement
private placement - Private placement is a 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.
Definition pro forma
pro forma - Description of financial statements
that have one or more assumptions or hypothetical
conditions built into the data. A financial projection
based on assumptions. Also, refers to a statement
of income and balance sheets that exclude non-recurring
Definition raising capital
raising capital - Raising Capital refers to obtaining
capital from investors or venture capital sources.
recapitalization - Recapitalization is a 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.
realized investment refers to returns on private
equity investments and typically done through Initial
Public Offering (IPO), Merger or Acquisition (M&A)
Definition resyndication limited partnership
resyndication limited partnership - Resyndication
Limited Partnership is 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.
Retained earnings are the corporate profits
that are neither paid out in cash dividends to stockholders
nor used to increase capital stock, but are reinvested
in the company.
It is calculated by adding company's net income
to beginning retained earnings and subtracting any
dividends paid to shareholders.
Definition return on investment - ROI
return on investment - ROI - Return On Investment
or ROI is 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.
Definition reverse vesting
reverse vesting - Reverse Vesting is an increasingly
common Vesting schedule in stock option plans offered
by pre-IPO companies. Under this arrangement, an
option holder is allowed to exercise options immediately
they are granted. For each option exercised, the
option holder receives a share of Restricted stock,
which itself is subject to vesting requirements.
The restricted stock may be forfeited if the vesting
requirements are not met..
risk - Risk is the 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.
Definition risk capital
risk capital - Risk capital are funds made available
for startup firms and small businesses with exceptional
Definition risk premium
risk premium - A risk premium is the minimum difference
a person requires to be willing to take an uncertain
bet, between the expected value of the bet and the
certain value that he is indifferent to.
Definition round of funding
round of funding - Round of funding is the stage
of financing a start-up company is in. The usual
progression is from startup to first round to mezzanine
royalty based financing
Royalty Based Financing presumes a fundamental trade-off
between the investor and the business owner. In
lieu of an equity ownership stake given to the investor,
business owners agree to return to the investor
the original principal plus either a predetermined
multiple of the original investment (fixed dollar
payback) or payment of the royalty until a fixed
period of time has elapsed (fixed time payback).
In some cases the royalty is based on a percentage
of sales of a specific product or set of products.
Definition small business investment companies
small business investment companies - SBIC - Small
Business Investment Companies or SBIC are 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.
Definition secondary public offering
secondary public offering - Secondary Public Offering
refers to a 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.
Definition secondary purchase
secondary purchase - Secondary Purchase is purchase
of stock in a company from a shareholder rather
than purchasing stock directly from the company.
Definition second stage capital
second stage capital - Second Stage Capital is the
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.
Definition seed capital
seed capital - Seed Capital is the 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
Definition series a preferred stock
series a preferred stock - Series A Preferred Stock
is the 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.
Definition silent partner
silent partner - A silent partner is 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 partner".
startup - Startup is a new business venture in its
earliest stage of development.
syndication - Syndication is the process whereby
a group of venture capitalists will each put in
a portion of the amount of money needed to finance
a small business.
Definition term sheet
term sheet - Term sheet is a 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
Definition third stage capital
third stage capital - Third Stage Capital is the
capital provided to an enterprise that has established
commercial production and basic marketing set-up,
typically for market expansion, acquisitions, product
Definition tranche financing
tranche - is the French word meaning "slice"
or "portion". In the world of investing,
it is used to describe a security that can be split
up into smaller pieces and subsequently sold to
turnaround - Turnaround is the term used when the
poor performance of a company or the business experiences
a positive reversal.
underwriter - Underwriter is an 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.
up round financing
Up round financing - Up Round Financing refers to
a round of financing in which a company's worth
increased since its prior valuation.
venture - Venture is often use for referring to
a risky start-up or enterprise company.
Definition venture capital
venture capital - Venture Capital is the 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.
Definition venture capital firm
venture capital firm - Venture Capital Firm is an
investment company that invests its shareholders'
money in startups and other risky but potentially
very profitable ventures.
Definition venture capital funds
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.
Definition venture capitalist
venture capitalist - Venture Capitalist is a 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
Definition venture capital limited partnership
venture capital limited partnership - Venture Capital
Limited Partnership is a limited partnership which
is formed to invest in small startup businesses
with exceptional growth potential.
vesting schedule - A Vesting Schedule determines
when you may exercise your stock options or when
the forfeiture restrictions lapse on restricted
Definition vulture capitalist
vulture capitalist - Vulture Capitalist is a 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.