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Glossary
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A
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As
defined by Section 501 of Regulation D of the SEC,
an individual is generally an individual earning $200K annually, or
a household with income of $300K annually, or having a net worth in
excess of $1M. A venture fund, certain banks and other institutions
may also qualify as accredited investors.
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A
sophisticated accredited investor who is experienced in funding small
private companies. Angel investors are usually actively involved with
the management of the ventures they fund. |
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B
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Financing
that is intended to be temporary, and is to be repaid from the proceeds
of an expected offering or other financing. Sometimes a firm that
is planning an IPO or a public company that has completed
a merger and has not yet completed the financing for it will obtain
such financing to "bridge" the period until more permanent financing
is arranged.
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A
Broker-Dealer, also known as a "Dealer", is a registered member of
the National Association of Securities Dealers, and
acts as a Principal in a securities transaction.
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There
are many types of business plans, including those used for the purpose
of internal operations and raising capital. Business plans used for
raising capital will provide a description of a company, business
strategy and financial projections.
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Rules
governing the internal management of an organization which, in the
case of business corporations, are drawn up at the time of incorporation. |
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D
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A
process of investigation of a company by a prospective investor.
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E
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An
individual who initiates, manages and assumes the risk of a new business
venture.
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Ownership
interest in a company, usually in the form of stock or stock options.
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A
planned action taken by a company that results in liquidity of the
company's stock, often in the form of an acquisition by a publicly
traded company or a public offering. |
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F
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Usually
refers to the first group of investors providing funding to a seed
or start-up company, made up of friends and family of the company's
management. |
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G
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Generally
accepted accounting principles. |
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I
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| Incubator
(Business Incubator) |
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A
business incubator is analogous to a hospital incubator, which helps
nurture a newborn during its early stages. Business incubators are
organizations that nurture private companies by providing office space,
office equipment, consulting services, legal advice, accounting services
and strategic planning.
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An
Initial Public Offering is a corporation's first public offering of
stock. |
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Companies
are classified into one or more industry sectors based upon their
economic activity. Early Capital uses the following sectorial breakdown: |
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•Aerospace
Defense
•Agriculture, Forestry & Fishing
•Automotive
•Chemicals
•Computers
•Electronics & miscellaneous technologies
•Energy & Mining
•Finance, Insurance & Real Estate
•Food & Beverage
•Internet
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•Leisure,
Arts, Entertainment
& Recreation
•Life Sciences
•Manufacturing
•Materials & Construction
•Retail
•Services, non-Financial
•Telecommunications
•Transportation & Warehousing
•Utilities
•Other
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Right
or non-physical resource that is presumed to represent an advantage
to the firm's position in the marketplace, including patents, trademarks,
copyrights and licenses.
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Also
known as a Financial Intermediary, an Intermediary is an individual
or institution empowered to make investment decisions for other persons
or entities.
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An
individual or financial institution that serves as an intermediary
between an issuer of securities and the investing public.
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Compound
Internal Rate of Return. |
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K
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A
life insurance policy bought by a company, usually a small business,
on the life of a key executive, with the company as the beneficiary.
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L
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The initial provider of capital during any given stage of financing.
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Businesses
can take many different forms. The types most commonly used are Sole
Proprietorship, Partnership, Limited Liability Company, S-Corporation
or C-Corporation.
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A
takeover of a company, using borrowed funds. Most often, the target
company's assets serve as security for the loans taken out by the
acquiring firm, which repays the loan out of the cash flow of the
acquired company. |
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M
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A
buyout of all of a company's publicly held shares by the existing
management, which takes the company private.
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A
level of financing provided at a stage in a company's development
just prior to going public. |
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N
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The
National Association of Securities Dealers is a nonprofit organization
that operates under the supervision of the SEC.
The
NASD purpose is to establish and enforce guidelines, standards and
rules to member firms.
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A
contractual agreement whereby companies agree not to compete directly
with each other with a particular product or service, or an employee
agrees not to work for a competitor for a specified period of time
if they leave their current employer. |
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O
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An
underwriting term describing a new stock issue for which there are
more buyers than available shares. |
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P
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Price
Earnings Ratio is a commonly used measure for pricing a stock relative
to earnings. It is calculated by dividing the stock price by its earnings
per share.
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A
right giving existing stockholders the opportunity to purchase shares
of a new issue before it is offered to others.
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A
class of capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends
and the liquidation of assets. Preferred stock does not ordinarily
carry voting rights.
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A
sale of stocks, bonds, or other investments directly to institutional
or accredited investors. A private placement does not have to be registered
with the SEC, as a public offering does, if the
securities are purchased for investment as opposed to resale.
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A
written promise committing the maker to pay the payee a specified
sum of money either on demand or at a fixed or determinable future
date, with or without interest.
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An
offering to the investing public, after registration requirements
of the SEC has been complied with. |
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R
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An
anti-dilution provision where the investor is granted additional shares
of stock without charge if the company later sells the shares at a
lower price.
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SEC
rules concerning private placements and defining related concepts
such as accredited investor.
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Return
on investment, expressed as a percentage, is the amount earned on
a company's total capital, calculated by dividing total capital into
earnings before interest, taxes, and dividends.
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A
percentage split between the general partner and limited partners
of profits, losses, cash distributions, and other income or losses.
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A
right that gives an individual the option of future participation.
In private equity, this may be granted to first round investors to
participate in future rounds of company financing.
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Also
known as venture capital, risk capital is provided to companies in
the early stage of development. |
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S
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A
financial or accounting step that avoids legal or tax consequences.
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The
Small Business Administration is a federal agency. It was created
in 1953 in order to provide financial and management assistance to
businesses that lack the access to capital markets enjoyed by much
larger more creditworthy corporations.
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A
Small Business Investment Company, licensed by the Small Business
Administration (SBA).
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The
Securities and Exchange Commission is a federal agency created by
the Securities Exchange Act of 1934 to administer that act and the
Securities Act of 1933. Its responsibility is to encourage full disclosure
and to protect investors from fraudulent or manipulative practices
in the securities markets.
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Venture
capitalist's first contribution toward the financing of capital requirements
of a start-up business.
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Created
by the Securities Protection Act of 1970, the Securities Investor
Protection Corporation (SIPC) protects customers of broker-dealers
registered with the SEC against losses caused by
the financial failure of the broker-dealer, but not against a change
in the market value of securities in customers' accounts at the broker-dealer.
Small Investment Company, licensed by the Small Business Administration
(SBA).
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Seed/Startup - Product is in development. Probably not
fully operational as a company. Usually in business less than
18 months.
• Early Stage/Growth Stage - Product in testing or
pilot production. May or may not be generating revenue. Usually
in business less than 30 months.
• Later Stage/Mezzanine - New product or product improvement.
Continued revenue growth at or approaching profitable operating
levels.
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A
right to purchase or sell a stock at a specified price within a stated
period.
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A
claim on assets to secure debt where the debt is repayable only after
other debts with a higher claim have been satisfied.
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A
venture investment shared among several investors where each one provides
a portion of the total funding required. Syndications allow investors
to invest capital in more deals and to diversify risk. |
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T
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An
agreement made between an investor and the management of a company
that entitles the investor to penalize the management if the company
does not achieve pre-determined results. |
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U
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A
investment banker that markets and sells securities to the public.
The sale of these securities is traditionally conducted through a
syndicate which agrees to purchase a new issue of securities from
an issuer and distribute them to investors. |
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V
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An
important source of financing for start-up companies or others embarking
on new or turnaround ventures that entails some investment risk
but offers the potential for above average future profits. Venture
capital comes from many sources beyond traditional professional
venture capital firms (VCs). Other sources of venture capital include
individual accredited investors, institutions and some corporations.
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W
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A
type of security, usually issued together with a bond or preferred
stock, that entitles the holder to buy a proportionate amount of common
stock at a specified price. |
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