Last Updated: April, 2011
Angel Investor (“Angel”): An individual who invests money in other people’s businesses, usually at the early stage.
Acquisition: Through acquisition, the acquiring company (buyer) obtain control of another company by purchasing its assets, or by purchasing all or a majority of its outstanding shares.
Adventure Capitalist: You belong to this category if you’re an entrepreneur who not only invests but also participates in another entrepreneur’s startup.
Benchmarks: A company is measured by certain performance goals. Using these benchmarks, you can determine what actions to take next, such as whether to re-invest in the company.
Buyout (“Acquisition”): A buyout occurs when a company purchase controlling interest in another public or private company in order to take over its assets and/or operations.
Capital Efficient: Go-to-market (funding) is right around US$2 million, and maybe up to US$4 million to get to cash-flow break-even.
Closing: The final event you complete the investment. In closing, all the legal documents are signed and funds transferred.
Convertible Note (“Convertible Debt”): A debt that can be converted into equity when the startup raises a qualified financing of around US$1 million.
Corporate Venture Capital: A subsidiary of a large corporation that makes venture capital investments, investing either in young firms outside the corporation or units formerly part of the corporation.
Dilution: A reduction in your percentage ownership in a company, which occurs when your portfolio company issues new shares.
Down Round: A round of equity financing at a valuation lower than what you’ve originally paid in a previous round. Down round dilutes your ownership and the value of your holding.
Due Diligence: When you investigate a potential investment deal to ensure that the claims of a startup company or entrepreneur hold up to reality.
Early Stage: In general, the startup’s been in business for less than 30 months. It may or may not be generating revenue. Its product is usually in testing or pilot production.
Exit Strategy: How you cash-in your investment in a venture. It’s typically based on an exit event, such as an M&A or IPO.
Expansion Stage: Typically, the startup’s been in business for three years or longer. Its service or product is commercially available and the company is experiencing significant revenue growth, though it may not be profitable yet.
Flat Round: Valuation or price per share for this round is the same as the one in previous funding round.
Follow-on: The additional capital you provide to a venture in which you’re already invested. Follow-on investment traditionally occurs during a later stage in the venture beyond the first stage.
Internal Rate of Return (IRR): The discount rate that makes the net present value of an investment’s income stream equals to zero. IRR measures the return on capital and helps you compare alternative investments.
Late/Mezzanine Stage: The company is operating at a profitable level and may go public within 12 – 24 months. Investing in late or mezzanine stage companies are typically less risky than startup operations but it’ll also provide you less return.
Lead Investor: Lead investor is typically someone who provides first money and invests the largest amount.
Liquidation Preference: A special right attached to preferred stocks that provides downside protection to your investment.
M&As (“Mergers and Acquisitions”): A merger is the combination of two companies to create a new business entity; an acquisition is the purchase of one company by another, usually bigger, company with no new entity being created. M&As are common exits for angels.
Mezzanine Financing: Capital provided by late-stage investors in the late/mezzanine stage. Funds are usually spent on market expansion initiatives to gear up for an initial public offering (IPO). Proceeds of the IPO are often used to repay mezzanine financing.
Post-Money Valuation = Pre-money + Investment
Pre-Money Valuation = The valuation of the company prior to investors’ investment.
Private Equity Investing: Refers to putting money to work in a privately held company in exchange for ownership of the company. Typical forms include angel investing, venture capital, growth and mezzanine capital, distressed investments, leveraged buyouts, and private equity funds.
Private Placement Memorandum (PPM or Offering Memorandum): A disclosure document that details the risks, terms, and other aspects of the investment opportunity.
Proof-of-Concept: “Proof-of-concept” for the product means at least one of the products has been built, tested and works. “Proof-of-concept” for the business model means that at least one product has been sold for the normal price (give-aways don’t count), and has the expected profit margin.
Research Park (“Technology Park”): A research facility that’s usually linked to a major research university. It leverages university resources and provides technology-based businesses an environment where they can, among other benefits, create new innovations, carry out collaborative researches, and receive assistance on international expansion.
Risk Capital: The money that you invest in high-risk, high-reward startups.
Seed Capital (“Seed Money”): The funds required to start a business. Usually provided by friends, family, founder(s) of a company, or angels.
Staged Investment: You release additional capital to the startup after it’s completed previously agreed upon milestones.
Startup or Seed Stage: The earliest stage of a startup. It’s been in business for less than 18 months. In general, companies in this stage aren’t fully operational. Their products are often still in development.
Syndicated Investor: You and a group of investors jointly invest in one entrepreneurial firm.
Technology Park: See Research Park.
Technology Transfer: The process of transferring technology, knowledge, or scientific findings from research labs to commercial sectors.
Up Round: Valuation or price per share for this round is higher than the one in previous funding round.
Venture Capitalist (“VC”): A venture capitalist is a person who invests, often on behalf of an investment firm, in startups with a solid business model or respected management team. Venture Capitalists normally invest after you, the angel investor. VC’s commonly specialize in specific stages of investment and/or specific industries that they know well. Taking the company public is often their favorite exit strategy.
* For series, references are published in the last installment of the series.