Startup And Fundraising Urban Dictionary
This is a form of vesting which takes place at a much faster rate – think of it as the Lamborghini of vesting. This allows the option holder to receive the monetary benefit from the option much sooner than usual.
Accredited Investor (USA):
An accredited investor is usually a bank, an insurance company, a corporation, a trust or a director. If the investor is an individual, he must either have:
- $1,000,000 or more in net worth. His primary residence is excluded;
- Or $200,000 in annual income for the last two years.
If the individual earns jointly with his wife, they must have $300,000 of income for the previous two years. They must have a reasonable expectation to keep the same income level for the current year.
Similar to a venture capitalist, but more accessible. Adventure Capitalists invest in startups. They are less common than a traditional capitalist and they have less money. However, they tend to take more risk and invest in risky startups. Usually they also play a role in the management of the company.
The process of distribution to give an amount or share of a business to someone or some entity.
Angel Capital Association (USA):
A North American professional association composed of angel and accredited investors. This association helps investors to invest in potential successful startups.
The money provided by an angel investor to invest it in a startup. That money comes from one’s personal earnings rather than from a common fund.
A group of angel investors who collaborate together to invest in startups.
Thanks to this group, angel investors consolidate their funds, share their expertise and coordinate their investments.
An investor who puts his or her own money into startups or entrepreneurs. Often angel investors will be family or friends, or someone you may meet on your startup journey. They tend to give you a one-time injection of money to support and carry your business. There are small angels that do 1-2 deals a year and larger ones who can do 20 deals a year.
Only angel investors are part of this round. This means that founders or other potential investors such as friends are excluded.
An Annex fund is side of capital in case the startup needs new funds. It is like an emergency fund.
This provision is a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage of ownership in a company by buying a proportionate number of shares of any future share issue OR by not having to sell his or her portion of equity to future investors.
This situation occurs when a company cannot pay its debts. Usually it lasts around one year. A company has the possibility to stay in business while it negotiates its debts with its creditors.
A process to measure the success of a startup. It is a goal that a startup needs to achieve. For instance, if a startup succeeds in reaching a certain amount of money for a certain period of time, the startup meets the benchmark. This tool allows investors to determine if the startup needs more funds or not.
This is of the quality of a business’s policies, products, or strategies. They tend to be used as a comparison to weigh your business against peers.
An underwriter, who is usually an investment bank, commits to distribute as much as it can in securities offering. The unsold securities are returned to the company which has issued the shares.
A type of limited partnership which doesn’t specify its investment goals. Investors are ‘blind’ in a blind pool and don’t benefit from many safeguards.
Ever heard the phrase ‘pulling yourself up by your bootstraps?’ This phrase defines what bootstrapping is. It basically means, starting a business with no money — or, at least, very little money.
A short-term loan used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow.
A temporary short-term loan.
A broker is a third party that does transactions on securities or assets between buyers and sellers. When a transaction is done, the broker receives a commission.
The rate at which the business is spending its investment before generating a positive cash flow.
A business plan is a written document that describes your business’s objectives, strategies, sales, marketing, and financial forecasts. A business plan helps you: clarify your business idea, spot potential problems (and find potential solutions), set out your goals and measure your progress.
CAGR (Compound Annual Growth Rate Of An Investment):
The CAGR provides the rate of return of an investment over one year.
The right for an investor to buy an asset (such as a share) at a specified price and time.
New securities are issued in a company. Basically, you want to convert your convertible note into equity at a pre-set price. The cap is an investor protection. It sets up the highest valuation at which your convertible note can be converted.
In a VC fund, investors commit to contribute a portion of their capital to the fund. The capital call is the moment when investors have to respect this commitment and give the portion of the money promised.
The money spent by a company in order to acquire an asset for instance a building, a piece of equipment or a property.
Capital Under Management (CUM):
Also known as an Assets Under Management, the CUM refers to the amount of capital that a management team of a VC firm manages and gets to invest.
Usually an excel sheet that describes the owners of a company and their percentage of shares.
Capped notes occur when entrepreneurs and investors place a ceiling on the company’s valuation.
Refers to a portion of gain which is allocated to the general partner without having to contribute to the fund.
In a startup you usually acquire your shares on a vesting schedule. A cliff is the period during which you cannot acquire your shares. You have to wait until the end of the cliff period. For example, you will vest your shares over a total period of four years, plus a 1-year cliff. At the end of the first year, you will receive the first one-fourth, called the “cliff”, because if you leave before one year, you get nothing.
The last stage in the investment procedure. The closing occurs when all the legal documents are signed between investors and the company and the funds are transferred.
Several (more than one) investors invest on the same terms and conditions.
Money that an investor has to invest in a venture-capital fund. The money can be invested at a given time or during a certain period.
A debt instrument that can be converted into equity under certain conditions. For instance, the convertible note can be converted into preferred stock or common shares. A convertible note is used by angels that want to delay the establishment of the startup valuation. To protect the investors that take risk in investing in startups, clauses such as caps are usually included in the convertible note.
Corporate Venture Capital:
A corporation invests its own funds into external startup companies. The investment does not come from angels or High Net Worth Individuals.
Cram Down Round:
Also known as a burn-out. A cram down round is a financing round during which the founders, management and previous investors in a company experience a dilution in ownership, such as their preferential rights for example. During a cram down round, new investors often take control of the company.
This is a way of raising money that involves a large number of people, usually by utilising online platforms. Crowdfunding is a form of alternative financing. It has been used to fund a wide range of for-profit entrepreneurial ventures such as artistic and creative projects, medical expenses, travel, and community-oriented social entrepreneurship projects.
The rate at which investment proposals are presented to investors.
The sheet in which the investor and the startup define the terms of the investment.
Way of financing by selling bonds or loans to investors. In return, the investors receive the assurance that their loan will be repaid. The debtor offers some guarantees, usually a surety that a third party will repay on behalf of the company or startup that took the loan.
If you are an entrepreneur or a startup founder, the demo day is THE day you can’t miss. Indeed, startups, after their incubator or accelerator session, try during this day, to convince angels and VC firms to invest in their company.
As an investor, you invest in numerous companies belonging to different areas.
Double Bottom Line:
As a startup founder, with a single bottom line you focus on the financial and tax aspects of the company. When you have a Double Bottom Line, you also focus on the positive social impact that your startup can provide to its environment.
A down-round is not a good news for your startup. During a down round, the valuation of your startup has decreased compared to the previous financing round.
An investor invests into the company little by little. The company doesn’t get a large amount of money at one time, but rather receives it in tranches.
When venture capitalist invests in a startup with the willingness to exit the company quickly. Therefore, the investor doesn’t get so involved in the company.
The money at the disposal of an angel investor or a VC fund. With this reserve of capital, the investor is able to invest in startups.
An investigation of a potential business or contractor before entering into a contract.
When a business is bought out before the founders and investors expected.
A startup development has different stages:
1) Seed stage: this money is provided by family, friends and angel
2) Early stage: this money is provided by a VC firm;
3) Later stage: this money is also provided by a VC firm.
During the early stage, the startup experiments its products and improves its strategy and management.
A brief presentation by you, as an entrepreneur or a startup founder, to convince an investor to invest in your company. The pitch should lasts a few minutes.
Equity = Assets – Liabilities
Equity refers to the ownership of a company such as shares or other securities. The name of the type of equity depends on the structure of the entity.
A process of fundraising. An investor invests in a startup in exchange for common or preferred stock in the company.
An equity kicker is an equity incentive. Equity is bought at a cheaper price. Usually it is used with a mezzanine financing.
A process of fundraising. The startup issues shares and sells them. The buyers receive ownership in the company.
Funds held by a third party on the behalf of two other parties. The funds are held until the transaction between the two parties is concluded.
European Business Angels Network:
This association encompasses European angel investors. Basically, it is the equivalent of the American’s Angel Capital Association based in Europe.
A short document which provides financial information and some details about the company. This document is useful for investors who want to invest in the startup.
When a founder or an investor sells his equity. They leave the company.
A contingency plan that is typically executed by an investor, trader, venture capitalist or business owner to liquidate or dispose of business assets. Usually an exit strategy is executed for the purpose of exiting a non-performing investment or closing a business that is not generating profits or experiencing a dispute.
Fair Market Value:
Fair market value (FMV) is the price that a person, reasonably interested in buying a given asset, would pay to a person who is selling it. It is the price that the asset would fetch at the market.
First Stage Capital:
The funds received by an entrepreneur to develop his idea (production and marketing).
The first investment that a startup receives from investors.
When an investor or a founder must offer their shares to an existing shareholder before selling them to a third party.
Occurs when a round of financing closes at the same valuation as the previous round.
When a startup needs more money after its first round so it sets up an additional fund round in order to raise more money.
Friends & Family Rounds:
Occurs when you are setting up a startup and you need funds to develop it. Usually, as a founder you are the first person who invests in the startup and then your family and friends constitute the next round of investment.
This describes the highest potential amount of common stock a startup will have outstanding, regardless of vesting provisions, and assuming all options to assume the highest share count possible.
Fund Of Funds:
A fund that invests in another fund and not in a company.
Refers to the amount of capital that investors have invested in a venture capital fund.
The money that a startup needs in order to develop its business.
Through this platform, investors can invest in private companies.
Fundless Equity Sponsors:
An individual or group looking for acquisition targets without having up-front financing.
You need money to develop your company. To get this money you sell shares by making a public offer. This sale allows you to find funds for your company.
Funds or products often given by a government agency or other organisations such as a foundation. These funds or products don’t need to be repaid.
The first stage of a startup. For angels or other investors, it is a good time to invest in the startup.
In a startup, it is the second stage of the funding life cycle. The startup is more established and the entrepreneurs are looking for higher investments especially from angel investors.
The period of time an investment is held by the investor. It is the time between the purchase and the sale of the investor ownership.
The minimum rate of return required by an investor.
Illiquid means that you cannot get cash from the investment you have made in a company. Usually you have to wait 5 to 10 years before having the right to sell your shares and get your investment ‘liquid’.
An investment made in a business. The particularity of this investment is the fact that you don’t only expect financial return but also environmental and social benefits.
Training program provided by a company that helps startups to develop their project by supplying services, management training, office space, mentorship. However, to be a part of incubator programs, startups must usually give away equity of their startup.
Periodically, a startup has to provide financial information to minority shareholders. Usually this provision is found in an investors’ rights agreement.
Initial Public Offering (IPO):
A private company offers stocks to the public for the first time.
A professional entity that invests capital on the behalf of other companies. Usually they are insurance companies.
→ see ‘Broker’
Investment banks are the intermediate of a financial institution. This institution raises capital and performs services such as advising on a merger.
A letter signed by an investor in which he commits not to resell his securities for a specific period of time. Usually for one year.
Internal Rate Of Return (IRR):
Thanks to the IRR, the profitability of potential investment can be measured. IRR is a rate that makes the net present value of all cash flows from a project equal to zero.
A graph that shows the value progression of the company’s fund during the early stage.
The investor that does the largest investment in a financing round.
An investor acquires a company by buying a majority share of the equity. To purchase the company, the buyers use a large amount of borrowed money.
Mafia refers to a group of former founders or employees of a very successful technology company such as Paypal, Facebook or YouTube.
The term ‘Major investor’ is used in financing documents. It refers to an investor who puts a certain amount of money during a round. Thanks to this major investment, the investor is allowed to get specific information and voting rights.
When the management team of another company with funds, buys a company and becomes the management team of the acquired company.
It is a fund granted to a management team in order to acquire a business or a product.
A fee, paid by a fund to an investment advisor of the fund, in order to compensate some costs. This fee is equal to a percentage of the total fund.
Refers to the people who manage all the activities of a VC fund.
The last financing round before the startup becomes an IPO.
A stage in the life cycle of a company. This company stage is between the startup and the IPO.
Micro-VC is like a super angel. It is a venture fund but smaller and with less partners.
Minority Enterprise Small Business Investment Companies:
Companies that are only allowed to invest in companies that are at least 51 percent owned by members of a minority group or a economically disadvantaged group.
→ see ‘Open-End Fund’
Negative Control Provisions:
These provisions are for the purpose of protecting investors from damage actions such as the dissolution of the company.
An investor who is not accredited.
NVCA Model Documents:
Investment documents for the round Series A. Usually, these documents are prepared by major law firms.
Also called a mutual fund, this fund doesn’t have any restrictions about the number of shares that can be issued.
Pay To Play:
An investor commits, during a round, to participate in future rounds. If he doesn’t participate in future rounds, he will be faced with punitive consequences.
Similar to crowdfunding but for lending. Through online websites, lenders can lend money to borrowers directly.
You can obtain the investment only if you reach specific performance criteria. For instance, you have to earn a certain amount of money per shares to get the investment.
A presentation made by startup entrepreneurs in order to persuade investors to invest in their startup.
Pooled Investment Vehicle (PIV):
An entity that pools funds from many investors.
The aim of a placement agent is to find investors who invest in VC funds or private equity funds. In exchange the agent receives a commission.
All the companies in which an angel or fund investor has invested.
A company in which an angel or fund investor has invested.
Post-Money Cap Table:
A cap table established after an investment has been made by new investors.
The value of the startup after a round of financing.
When an investor invests in a startup, he has in return a percentage of equity. If the startup raises more money, the investor’s percentage of equity in the startup will decrease. Thanks to the Pre-emptive right, the investor can maintain his current percentage of equity in the startup.
The value of the startup before a round of financing.
A type of investment in companies which are not publicly traded on a stock exchange. Usually this investment is made by private funds and investors.
A placement made by investors that is not registered with organizations such as the United States Securities and Exchange Commission.
Private Placement Memorandum:
A document in which all the information and risks about an investment in the company are explained.
A description of the financial statements for a startup.
A legal document that details the amount of debt the borrower has to repay to the lender. Usually a repayment plan is included in the promissory note.
Proprietary Deal Flow:
Thanks to a proprietary deal flow, an investor is able to have access to deals before other potential investors.
A document that contains all the information about an offer that sells securities. The prospectus must detail the business and any risks with which the company might deal.
Fundraising for your company. Most of the time this money comes from your friends, family, investors, or crowdfunding at the beginning.
When an investor and a broker make a deal, they do a reconfirmation to confirm the transaction.
Return On Investment:
The profit from an investment during a certain period of time.
In a startup, co-founders usually receive shares according to a vesting schedule. When a founder, fully vested, asks for VC funding, the investor can ask him to repurchase his shares. If the founder leaves the company before the end of the reverse-vesting period, other shareholders can buy back the founder shares not yet vested.
When an investor, such as an angel investor or a VC firm, invests in a company, he accepts to lose a certain amount of money. If the investor accepts to invest in a risky startup, the risk tolerance is higher. In exchange he expects a high investment return.
During a round, a startup raises funds from investors such as angels or venture capital firms. The name of the round depends on the stage of the startup. For instance the first round is called the Seed round.
Royalty Based Financing:
When an investor provides funds to your startup. In return, he expects to receive the initial amount plus a multiple. Usually the startup has 4 or 5 years to return the money.
Simple Agreement for Future Equity (SAFE):
This agreement tends to replace the convertible note. This contract is used by startups, developed by a YCombinator, to raise money during the seed stage. This contract is more flexible compared to a convertible note. For instance, an investor can receive equity on certain events such as the sale of the company. This contract between the startup and the investor is more ‘friendly’.
The evolved form of a startup; contrary to a startup, a scaleup is an established entity. Its main challenge is growth, especially in market access, partnerships, investors’ money number of employees, etc.
Thanks to that process, investors, such as angel investors or venture capital funds, can evaluate the interest of their investment.
Refers to equity, debts and rights.
Initial capital you may need to start your company. Usually, it may come from your friends and family or investors such as angel investors.
This is an investment fund that focuses on investing in startups at the seed round stage.
The first round of investment for startups usually provided by angel investors.
When you create a startup you need to find funds to develop the project. The seed stage is the first stage of fundraising.
Usually when your company is looking for funds, there are different rounds of financing (series A, B, C…). Each round refers to a stage of development of the startup.
First major round of startup financing. Usually the investments are made by angel investors and venture capital firms and not friends or family.
Series A Preferred Stock:
During a Series A Round of financing, a startup issues this type of stock for angel investors and venture capital firms.
Series B, C, D:
Investment rounds that occur after the Series A financing round. It is done usually by VC firms and private equity firms. The company is already in a developed stage.
First investment round usually made by angel investors.
With this clause, an investor has to consent to the sale of the shares when the company wants to sell them.
An investor who provides just capital to startups. This investor is not involved in the management of the society. His liability is limited to the amount of his investment.
Small Business Administration:
An Administration that provides loans to small Business Investment Companies.
Social proof refers to how people endorse your company. This endorsement can come from investors, the media, advisors and customers. Social Proof improves the value of your company and allows you to receive funds more easily. Investors can rely on the social proof to grant investment.
Spray And Pray:
The idea is: the more you invest in companies the more you have a chance that one of them will succeed. So the process is to invest in as many companies as the investor can.
An investor who adds value to his investment thanks to his industry connections and experience.
If the financing transaction is a success, the intermediary who played a role in that transaction receives a commission for that success. The instance a broker is an intermediary.
An angel who is very active in terms of investments and has a lot of knowledge. For instance, Dave McClure is considered as a super Angel.
A group of investors (such as VC firms or investment banks), in which each investor puts a small amount of money to invest in a startup.
Tag Along/Drag Along:
This is a right designed to make the sale of a business easier. Minority shareholders are not able to block the deal, if the majority shareholder wishes to sell.
Usually a non-binding document that outlines the terms and conditions of a business agreement. The Term Sheet is a tool used to prepare the final agreement. In this template, you will develop all the details of this agreement such as the amount of the transaction or the price of share.
An entity, for instance an investment bank, that has a mission to sell securities to the public on the behalf of another company. If it doesn’t succeed, it undertakes to hold the unsold securities on its own books until they can sell at a good price.
During a financing round, shares are bought at an agreed price. If during the following round, shares are purchased at a higher price, it is an up-round.
Valley Of Death:
The period of time between the initial investment received by a startup and its first revenue. The startup has sustainable cash to survive.
Capital invested in high potential but high-risk startups.
A group of investors that invest their money in startups.
Venture Capital Financing:
A type of private equity investment provided by VC firms to startups during the early stage of the business. Usually, VC firms start to provide funds to startups during their “Growth period”. Thanks to this fund, startups are able to develop their products and focus on marketing. This financing round is also called the Series A that is followed by subsequent rounds (Series B, C, D…).
Venture Capital Firm:
A firm that invests its money in risky startups. In exchange of that money, the firm receives equity in the company. From this risky investment, the firm is looking for high return.
Venture Capital Funds:
Investment funds that invest in startups or small companies.
Venture Capital Limited Partnership:
A partnership that invests in high potential startups.
A type of debt financing. Venture debt is provided by ventured-backs firms that invest in startups and growth companies. The loan is usually provided with warrants to compensate the lender for the risk he takes.
A vesting schedule is set up by a company to determine when you’ll be fully vested, or acquire full ownership, of certain assets.
Weighted Average Anti-Dilution:
A system which protects investors against dilution. The mechanism is to lower the price of the shares. This engenders an increase in the number of the shares received.
World Business Angels Association:
An international, non-governmental organisation made up of national federations. Their mission is to represent the angel network and promote knowledge exchanges in the financing area.
Also known as a closed fund, a zombie fund is a VC firm that cannot raise money or make investments. This fund doesn’t have any activity.