Startup, Business, And Venture Capital Glossary

venture capital glossary

Essentially these individuals both have the finances and desire to provide funding for startups. This is welcomed by cash-hungry startups who find angel investors to be far more appealing than other, more predatory, forms of funding.

Determined by dividing the current cash position by the burn rate. if a company’s cash position is $100,000 and it costs $10,000 per month to run the company (that’s the burn rate), then the runway is 10 months. Shares acquired in a private placement are considered restricted shares and may not be sold in a public offering absent registration, or after an appropriate holding period has expired. Non-affiliates must wait one year after purchasing the shares, after which time they may sell less than 1% of their outstanding shares each quarter. Reorganizations are significant changes in the equity base of a company such as converting all outstanding shares to Common Stock, or combining outstanding shares into a smaller number of shares . The SEC’s review process of all securities intended to be sold to the public. The SEC requires that a registration statement be filed in conjunction with any public securities offering.

For example, if a VC invests $2 million for a 20 percent share in a company and that company is bought out for $40 million, the VC’s return is $8 million. This is when a company raises money by selling bond, bills, or notes to an investor with the promise that the debt will be repaid with interest. Refers venture capital glossary to a “cap” placed on investor notes in a round of financing. Entrepreneurs and investors agree to place a cap on the valuation of the company where notes turn to equity. This means investors will own a certain percentage of a company relative to that cap when the company raises another round of funding.

A company that a specific venture capital firm has invested in is considered a “portfolio company” of that firm. Start-up Funding provided to companies once the product or service is fully developed, to start mass production/distribution and to cover initial marketing. Companies may be in the process of being set up or may have been in business for a shorter time, but have not sold their product commercially yet.

How To Raise Seed Capital And Grow Your Startup

Alon is the Managing Partner of Stacked Capital, an early-stage industry agnostic venture capital fund. Previously Alon was the co-founder, Chief Financial Officer, and Chief Technical Officer of venture capital glossary crowdfunding platform RocketHub, acquired in 2015. Alon is a founding member of the Forbes Technology Council, and a Strategic Advisor to Zombie Soup ; he has twice testified in front of U.S.

acquiring a company with mostly debt and a little bit of equity. The venture capital glossary debt is secured by the assets of the business doing the acquiring.

Venture Capital Glossary

the available stock that founders can award to employees in the form of options (i.e. the ability to buy shares at a pre-set price). These options vest over time, so that employees accumulate them gradually and are incentivized to remain at a growing company. If the company is doing well, the underlying stock will rise in value even as the strike price remains the same, and so the options will be more valuable. An extremely concise presentation of an entrepreneur’s idea, business model, company solution, marketing strategy, and competition delivered to potential investors. Should not last more than a few minutes, or the duration of an elevator ride. Contemplate that the company must initiate and pursue the registration of a public offering including, although not necessarily limited to, the shares proffered by the requesting shareholder. The total dollar amount of capital pledged to a private equity fund.

venture capital glossary

We welcome any feedback, support and sharing from the entrepreneurship community. A company that has received capital from investors but has only generated sufficient revenues and cash flow to maintain its operations venture capital glossary without significant growth. a chart that shows in what order all private equity investors get paid. A financing round whereby previous investors, the founders, and management suffer significant dilution.


CrowdCheck provides due diligence, disclosure and compliance services for online capital formation. Over 35 years of experience in Information Technology with the majority of time being spent in the Financial Services industry. Possesses detailed knowledge of all aspects of the online capital formation/crowdfunding, international brokerage, hedge fund and asset management businesses. Able to recruit and motivate strong teams capable of solving mission critical business problems. A charge levied by an investment manager for managing an investment fund.

The right to vote may be delegated by the stockholder to another person. investors who have venture capital glossary collected a fund of money for investments and spread it around to burgeoning companies.

Common Stock – just good old equity in a company; these shares don’t get to vote like preferred stockholders do. A maximum amount set to the valuation of a company on its subsequent funding round, venture capital glossary included as a clause during SAFE investment vehicles. The cap offers current investors a safety legal platform so that the valuation in the next round won’t climb to undesirable levels for them.

Technically, the SEC does not “approve” the disclosures in prospectuses. A shareholder’s right to acquire an amount of shares in a future offering at current prices per share paid by new investors, whereby his/her percentage ownership remains the same as before the offering. The inverse of an old venture capital adage claims that “plums ripen later than lemons.” The amount of common shares of a corporation that are in the hands of investors. Founded in 1792, the largest organized securities market in the United States. The Exchange itself does not buy, sell, own or set prices of stocks traded there. micro-VCs are smaller venture firms that primarily invest in seed stage emerging growth companies, often have a fund size of less than $50M and may invest between $25,000 and $500,000 in a given company.

Investors Who Invest In Investors

Ownership of shares in a company resulting from work rather than investment of capital–usually founders receive “sweat equity”. A series of preferred stock has a “senior” liquidation preference when it is entitled to receive its liquidation preference before another series of preferred stock. The sale of private or restricted holdings in a portfolio company to other investors.

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. Capital Under Management- The amount of capital available to a management team for venture capital investment.

Invest In Venture Capital With A Self

Congress on equity crowdfunding, co-authored three acclaimed whitepapers on the JOBS Act, and was selected to lead FINRA’s Capital Markets Series on crowdfunding. Alon oversaw RocketHub’s partnerships with the White House, U.S. Department of State, Fulbright Foundation, Cisco, Microsoft, Chrysler, and others. Alon has led large speaking engagements for organizations including American Express, TEDx, Campaign Summit, Re.Comm, and Make Innovation. Alon earned his M.Sc from Columbia University and was a fellow at the Earth Institute’s Advanced Consortium of Cooperation, Conflict, and Complexity; he specialized in genocide prevention and social network theory. Sara Hanks, co-founder and CEO of CrowdCheck, is an attorney with over 30 years of experience in the corporate and securities field.

venture capital glossary

This number is important because Cumulative Dividends, the Liquidation Preference and Conversion Ratios are all based on Issue Price. The most common example is where a company does a bridge financing and sells debt that is convertible into the next series of Preferred Stock sold by the Company at a discount to the Issue Price. Technically, it is when the secondary market price on the effective date is above the new issue offering price. Hot issues usually experience a dramatic rise in price at their initial public offering because the market demand outweighs the supply. The number of shares representing total company ownership, including common shares and current conversion or exercised value of the preferred shares, options, warrants, and other convertible securities.

  • In return, the private equity firm usually receives a stake in the business.
  • A company that specializes in finding institutional investors that are willing and able to invest in a private equity fund or company issuing securities.
  • A private equity firm will often provide financing to enable current operating management to acquire or to buy at least 50 per cent of the business they manage.
  • This is one of the least risky types of private equity investment because the company is already established and the managers running it know the business – and the market it operates in – extremely well.
  • A fund set up to distribute investments among a selection of private equity fund managers, who in turn invest the capital directly.
  • Sometimes the “issuer” will hire a placement agent so the fund partners can focus on management issues rather than on raising capital.

This kind of funding has gotten increasingly complicated recently. It generally signals that things aren’t going that great for a startup.

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