TheVentureCode

accredited_investor

2008-09-08T20:42:29-08:00

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.

accurate_market_size

2008-09-05T06:23:13-08:00

In developing business plan, companies of all sizes face the challenge of determining the right size of their markets, particularly if they are competing in new or rapidly evolving markets. Companies have to clearly distinguish between total available and servable markets and accurately estimate their market size. The servable or target market represents segmentation characteristics within the total available market.

acquisition

2008-09-08T10:57:36-08:00

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 lease.

add-on_service

2008-09-08T10:59:07-08:00

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.

adventure_capitalist

2008-09-08T11:01:00-08:00

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.

angel_investor

2008-09-05T06:23:37-08:00

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.

annex_fund

2008-11-29T09:33:27-08:00

annex funds are side funds that can provide an extra pool of money to supplement the original VC Funds.

anti-dilution_provisions

2008-09-17T11:58:24-08:00

Contractual measures that allow investors to keep a constant share of a firm’s equity in light of subsequent equity issues. These measures may give investors pre-emptive rights to purchase new stock at the offering price. In the event a company sells stock at a lower price than the investors paid, then an adjustment is made to the number of shares held by the investors of that round.

antidilution_provisions

2008-09-08T11:05:17-08:00

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.

asset_and_collateral

2007-01-20T12:38:25-08:00

A company’s asset serves as protection if the business fails. Investors take a greater risk and are less likely to recover depending on the gap between investment amount and company’s asset. Among others assets include: * Cash and cash equivalents

attractive_profit

2008-09-05T06:23:47-08:00

The projected profit has to justify a business existence and demonstrate enough growth potentials. That is driven by pricing strategy, profit margin and future prospects. Ultimately profit margin dictates the business capital requirement, time to breakeven and positive cash-flow.

automatic_conversion

2008-09-17T12:03:26-08:00

Immediate conversion of an investor’s priority shares to ordinary shares at the time of a company’s underwriting, before an offering of its stock on a public exchange.

available_cash_and_asset

2008-09-05T06:23:12-08:00

At the early stages, a business is like an egg that has not yet hatched -- and the incubation process can be expensive. The assessment process has to provide a clear picture of available, accessible and required cash of the company. It is important to know:

barriers_to_entry

2007-01-20T12:35:35-08:00

“Barrier to entry” is an insurance for small companies. It is the obstacle and difficulty of duplicating the core competencies that will discourage or slow down competitors. Barriers to entry established through: Response/lead time Legal, contractual advantage Contracts and networks Key people Proprietary protection Geographical leverage It is important to know:

benchmarks

2008-09-08T11:06:27-08:00

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.

blind_pool

2008-09-08T11:09:13-08:00

Blind pool is a form of limited partnership which doesn't specify what investment opportunities the general partner plans to pursue.

board_of_advisors

2008-09-17T12:04:53-08:00

An early-stage company should form a board of advisors comprised of people who can directly impact the development of the organization either via industry experience, fiscal experience for setting the stage for the financial operation and forecast, and/or via their ability to identify investors and customers. Advisors may be executives in other companies who might become employees as the company gets funding. They may be seed stage investors, or key people from companies that might form an allia…

board_of_directors

2008-09-17T12:05:58-08:00

Directors are elected by shareowners to make policy decisions and to appoint executives to carry them out. For a private company, the Board of Directors is hand- picked by its initial backers. As the company engages more outside investors and the securities transactions come under the registration interests of the SEC, the SEC may require that corporate governance performed by the Board include “outside” non-employee and non-heavily vested directors.

board_rights

2008-09-17T12:06:52-08:00

Rights which allow an investor to take a seat on the firm’s Board of Directors, thus guaranteeing a vote in key decisions regarding operations and fiscal issues.

bootstrapping

2008-09-17T12:07:55-08:00

A means of financing a small firm by employing highly creative ways of using and acquiring resources without raising equity from traditional sources or borrowing money from the bank. This can be done with barter, or hiring key people in exchange for shares, or using W-2 income to finance product development and beta testing and other Start-up milestones.

bottom_up_modeling

2008-09-28T18:58:23-08:00

Bottom up modeling means basing the assumptions on business ability to deliver, rather than market capacity to supply. For example a retail store may assume number of sales people and number of items sold by each sales person rather than number of potential buyers in x miles radius and expected market share to grab.

break-even_point

2008-09-17T12:08:43-08:00

The level of sales at which revenue is equal to operating expenses, resulting in zero net income. This is a critical milestone in a business’s life cycle and the first step toward profitability.

bridge_loan

2008-09-08T11:11:06-08:00

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.

bridge_loans

2008-09-17T12:09:32-08:00

Bridge loans are short-term financing agreements that fund a company's operations until it can arrange 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.

business_plan

2008-09-17T12:11:37-08:00

There are two types of business plans: 1) the business plan that is necessary to run the business which is a living document that must be modified on an annual or semi-annual basis to reflect changes in expectation and forecast, and what has actually happened. This is sometimes called the business operation plan. 2) the business plan that the company provides to the investor or lender. It is more extensive than an executive summary but not as detailed as the business operation plan. It is the ke…

buyback_provision

2008-09-17T12:12:35-08:00

An agreement mandating that a firm purchase a leaving entrepreneur’s stock at a preset price.

buyout

2008-09-08T11:12:34-08:00

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.

capital_expenditures

2008-09-08T11:19:01-08:00

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 outlay.

capital_gain

2008-09-08T11:30:26-08:00

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_structure

2008-09-17T12:13:52-08:00

The mix of a firm’s debt (short-term and long-term) and owner’s equity (used to fund the firm’s operation).

capital_types

2008-09-08T11:31:59-08:00

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 .

capital_under_management

2008-09-08T11:35:18-08:00

Capital under management is the amount of capital available to a management team for venture investments.

capitalization_table

2008-09-09T13:07:00-08:00

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.

cash_flow

2008-09-17T19:02:56-08:00

The flow of cash in and out of a business. “Cash flow” is different from the terms “break-even” or “profitable”. In the early days, a company may have negative cash flow for some period but still look profitable on the books. Or, a company may have a positive cash flow and yet still lose money (for a time) because of a carry-over debt. Managing cash flow is crucial in an entrepreneurial firm to meet varying short- term cash needs.

civilian_unemployment_rate

2008-09-08T11:36:55-08:00

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.

clear_target_market

2008-09-05T06:23:00-08:00

There has to be a clear description of target customer. Same product can have different tangible and perceived value for different markets. Even if a product/solution would fit the needs of multiple market segments, it is not practical for a startup to try capturing all those right away. Clear targeting helps in better planning and more accurate projections.

clear_value_proposition

2008-09-05T06:24:37-08:00

Value proposition describes the single largest influence on the buying decision. Startups should be able to describe it in very few sentences. It is important to know: What is the product description and differentiations? What needs are addressed?

closing

2008-09-08T11:38:15-08:00

Closing is the final event to complete the investment, at which time all the legal documents are signed and the funds are transferred.

common_stock

2008-09-09T13:19:16-08:00

Common Stock includes all stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies or the operation of voluntary contractu…

compensation_plan

2008-09-05T06:22:41-08:00

People are the most important asset and the key success factors of a startup. That includes team members, advisors and business partners. They all have to be inspired, motivated and properly rewarded for a venture to succeed. It is important to know:

competition_awareness

2008-09-08T20:29:03-08:00

Absence of good analysis and lack of appreciation for competition are of the most common mistakes made by entrepreneurs. It is important to know: Are existing and future competitors well analyzed, understood and prepared for? What are the strengths and weaknesses of each of them?

conduct_market_research

2008-09-05T06:23:32-08:00

Come up with a rough financial that demonstrates your manufacture and deliver

confidence_and_commitment

2008-09-05T06:22:52-08:00

Every great startup needs someone who walks through walls to make their vision a reality. Those are who have the guts and fortitude to undertake enormous risk and fully commit themselves to achieving incredibly lofty goals, and who also have a strong belief in their own ability to achieve those goals.

controllable_expenditure

2008-09-05T06:23:51-08:00

In resource-poor startups any downturn, delay or shift in projected income can prove fatal. To survive management has to take control of the burn-rate. It is important to know: How much control does the management have on spending? (i.e. salary liability, long term lease, . . )

convertible_debt

2008-09-17T12:17:48-08:00

An interest in a company, like preferred stock, that can be converted into another form of interest, such as common stock or cash. There’s usually a rate or an amount attached to it, which can be part of an exit payoff. So if an investor provides $100K, the investor chooses for that amount plus interest to be converted to shares rather than paid back as a loan.

convertibles

2008-09-08T11:40:08-08:00

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.

convincing_revenue_model

2008-09-05T06:23:56-08:00

A solid revenue model is the foundation for a sustainable business. It defines the path to profit and should reflect cyclicality, seasonality and growth. It is important to know: Are the existing and projected revenues clearly defined and understood?

corporate_venture_capital

2008-09-08T11:44:24-08:00

Corporate venture capital is a subsidiary of a large corporation which makes venture capital investments.

corporate_venturing

2008-09-08T11:45:28-08:00

Corporate Venturing is a practice of a large company, taking a minority equity position in a smaller company in a related field.

covenant

2008-09-17T12:19:19-08:00

A promise added to a term sheet, like a founder agreeing to meet certain financing landmarks or an investor agreeing not to sell shares before a certain time.

deal_flow

2008-09-17T19:02:09-08:00

Deal flow (dealflow) is the rate at which investment offers are presented to funding institutions.

defensible_future_capitalization_need

2008-09-05T06:23:33-08:00

For many reasons (including unnecessary dilution) startups may plan multiple rounds of financing. Such decision might benefit the company and investors, if carefully planned. However it could as well put the company at risk, if mismanaged. It is important to know:

define_execution_plan

2007-06-01T17:12:48-08:00

You should be able to clearly visualize it, otherwise you are not ready Write down the most important three qualifications, criteria that your want your business to have. Mission/Vision Imagine where you want to be in 5 years from now. Don’t limit your imagination and don’t criticize or question any ideas. List three best scenarios that you can think of.

define_problem_and_target_customer

2007-06-01T16:30:07-08:00

What market segment to target first? the product/service with a price below your selected selling price. What is your value add proposition?

demand_validation

2008-09-05T06:22:36-08:00

There should be a clear distinction between what potential customers want and what the founders (or engineers) “think” the customers should have. Regardless of how good an opportunity seems, until there is a validation, everything is based on “assumptions”. While common sense may qualify an idea as an opportunity, market conditions may reject it for various reasons.

dilution

2008-09-17T12:20:28-08:00

The value of an investor’s stock is diluted when new money comes in and more stock is handed out. If an Angel’s investment is diluted, he/she has less “say” about the exit and receives less. In the ideal situation, the value of your stock should increase because the value of the company has increased by accomplishing key milestones, so although the percentage you own may decline, the overall value of the stock and your investment is greater. Many entrepreneurs and investors worry too much about …

direct_financing

2008-09-08T11:48:52-08:00

Direct financing is a financing without the use of underwriting. Direct financing is often done by investment bankers.

double_dip

2008-09-08T11:50:14-08:00

Participating preferred stock which entitles a holder to a liquidation preference and also to participate in the residual value.

drive-by_deal

2008-09-08T11:51:37-08:00

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.

due_diligence

2008-09-08T11:57:07-08:00

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.

entrepreneurship

2008-09-08T10:29:15-08:00

Entrepreneurship is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities. According to Kauffman Foundation Entrepreneurship is a process through which individuals and groups pursue opportunity, leverage resources, and initiate change to create value.

eqity

2008-09-05T06:24:21-08:00

is raising funds by offering ownership in a through the issuing of shares of a corporation's or .

equity_financing

2008-09-08T11:58:22-08:00

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 of shares.

equity_gap

2008-09-17T12:21:32-08:00

A stage of business financing, usually involving less than $500K in which outside funds are difficult to obtain. This absence of small amounts of risk capital is due to the high fixed costs of appraisal and monitoring which those institutional investors must assume, making it uneconomical for them to invest in small, young firms. The gap is further widened by banks’ reluctance to make unsecured loans to small ventures. Business Angels make investments that fall in the equity gap, partly relievin…

equity_offerings

2008-09-08T12:00:17-08:00

Equity Offerings is raising funds by offering ownership in a corporation through the issuing of shares of a corporation's common or preferred stock.

ethics_and_integrity

2008-09-05T06:24:31-08:00

Entrepreneurs, team members and their investors should view their relationships “like a marriage”. They will have to get along for a long time and they have to operate from a common set of guiding principles in an atmosphere of trust, integrity and respect.

execution_plan

2007-04-10T13:01:43-08:00

Each organization needs to establish a strategic framework and a tactical execution plan to obtain significant success. In most cases it is not the lack of a strategy that causes a business to fail but rather the organization’s inability to act upon a chosen strategy.

executive_summary

2008-09-17T12:22:18-08:00

A synopsis of the key points of a business plan.

exit

2008-09-08T12:03:34-08:00

Exit is the sale or exchange of a significant amount of company ownership for cash, debt, or equity of another company.

exit_route

2008-09-08T12:04:16-08:00

Exit Route is the method by which an investor would realize an investment.

exit_strategy

2008-09-08T12:05:46-08:00

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.

financial_engine

2008-09-06T12:52:10-08:00

Mapping out a finance strategy is a vital and often overlooked part of business planning. It's easy to project growth in sales and staff, but until those sales are made and paid, where will the cash come from to buy raw materials, pay salaries and provide overhead?

financial_resources

2008-09-17T19:02:10-08:00

Fix and variable costs Burn Rate Accuracy Deal flow Use of Fund Future Capitalization Valuation Backup

financier

2008-09-08T12:06:28-08:00

Financier is a person or financial institution engaged in the lending and management of money and makes a living participating in commercial financing activities.

financing

2007-06-01T16:45:25-08:00

In order to start your financing process you need to have three (3) documents ready: Executive Summary (XS), Presentation File (PF) and Business Plan (BP). Executive Summary is the first document investors would like to see. The Presentation File is a more elaborated version of XS, usually used in the first investors’ meeting. Business Plan is used as supporting document to validate the claims in XS and PF. Ideally you should keep your XS at 1 or 2 pages, and PF at 7-12 slides.

first-round_financing

2008-09-08T12:07:11-08:00

First-round financing is the first investment in a company made by external investors.

first_stage_capital

2008-09-08T12:08:32-08:00

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 costs.

follow-on

2008-09-08T19:19:29-08:00

Follow On or Follow On Round 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.

formulate_the_solution_and_revenue_model

2008-09-05T06:23:27-08:00

Describe your end product/service as detail as you can in the form you want to present to end-customers. A brochure or sales ad. Try to come up with a price that is acceptable to your customers. Who is going to pay and why?

full_ratchet

2008-09-08T12:11:08-08:00

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

2008-09-08T12:12:11-08:00

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.

fund_of_funds

2008-09-08T12:15:25-08:00

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.

fundless_equity_sponsor

2008-09-08T12:14:31-08:00

Fundless equity sponsors are sourcing and vetting deals without any committed capital, lining up financial sponsors on a deal-by-deal basis.

getting_rejected

2007-06-01T16:55:04-08:00

Scott Cook (from Intuit) has been 39 times rejected before getting funded. Cisco got funding from Sequoia after approaching 76 other VCs Here is an interesting list of opportunities Bessemer Venture rejected:

goal_vs_objective

2008-09-07T11:45:29-08:00

The words Goal and Objective are often confused with each other. They both describe things that a person may want to achieve or attain but in relative terms may mean different things. Both are desired outcomes of work done by a person but what sets them apart is the time frame, attributes they're set for and the effect they inflict.

grant

2008-09-07T11:29:05-08:00

Grants are funds dispersed by one party (Grant Makers), often a Government Department, Corporation, Foundation or Trust, to a recipient, often (but not always) a non profit entity, educational institution or business. Such application processes, generally require some form of Grant Writing often referred to as either proposals or submissions. For more information regarding successful grant submissions see Grant Writing

grant_writing

2008-09-06T07:53:40-08:00

Grant writing refers to the practice of completing formal and or informal application processes by one party, often a non profit entity, educational institution or business - but also by individuals to another party such as a Government department, Corporation, Foundation or Trust. Such application processes are often referred to as either grant proposals or “submissions”.

growth_capital

2008-09-08T12:16:42-08:00

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.

h2v

2008-09-08T19:38:21-08:00

There are many books and articles written on “How to start your business”, “how to write a business plan”, and “how to raise money”. So why bother writing this one? Because apparently they are not working!!! According to studies over 1 million businesses start every year in US. Less than 10% survive the first 5 years. And over 88% of all business failures are due to management mistakes. We are reviewing 40-50 business plans a month and don't have any problem believing in that statistic.…

hockey_stick

2008-09-17T12:23:48-08:00

The question, “How much of a hockey stick is in the plan?” refers to a financial projection which starts modestly for a number of months and then rapidly accelerates. “Hockey Stick” projections are an indication that the entrepreneur’s team has not thought through the actual process of manufacturing, distributing and selling their product, because with a rapid increase in sales comes a rapid increase in every other operation.

holding_period

2008-09-17T12:25:09-08:00

The length of time an investment remains in the investor’s portfolio. This most often refers to the time a stock is held to calculate capital gains or losses for tax purposes. The SEC also has rules regarding holding periods for employees and “members” that own stock. We saw this impact during the dot-com bubble and new “millionaires” saw their stock value disintegrate after an IPO and their holding period was still in effect

holistic_supply_chain

2008-09-05T06:24:42-08:00

The coordination of activities, information and resources involved in producing the solution in physical or virtual manner has to be fully considered. It is important to know: What has to be in place for the company to successfully produce the product/service?

human_capital

2008-09-05T06:23:01-08:00

One of the most important assets of a business is its people, which include the management team, key employees, board members and advisors. No matter how good an idea, in the end the team will be the reason for success or failure of a business. There should be an understanding of missing key personal and plan of filling those positions within the execution plan.

human_resources

2008-09-05T06:23:04-08:00

Commitment Objectivity Reliable Expertise Experience Motivations and Alignment Roles and Responsibilities

incubator

2008-09-05T06:24:04-08:00

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 intellectual capital.

innovation

2008-09-05T06:24:05-08:00

In economics, business and government policy,- something new - must be substantially different, not an insignificant change. In economics the change must increase value, customer value, or producer value. Innovations are intended to make someone better off, and the succession of many innovations grows the whole economy.

institutional_investors

2008-09-08T12:18:27-08:00

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, etc.

intellectual_property

2008-09-17T12:26:48-08:00

A venture’s intangible assets, such as patents, copyrights, trademarks and brand names. Investors use this to judge barriers to entry against competition. It is difficult to put a value on Intellectual Property because it is worth nothing without an organization that creates revenue from it, but it is necessary for the company to have any sort of competitive advantage in the marketplace.

investment_bank

2008-09-08T12:19:18-08:00

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 institutional clients.

investment_protection

2008-09-05T06:23:50-08:00

Surprising Events Competition Sustainability Subordination Collaterals Intellectual Property Mitigation Plans

invisible_venture_capital

2008-09-08T12:20:44-08:00

Invisible venture capital is a venture capital from angel investors.

ipo

2008-09-08T12:21:48-08:00

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

2008-09-08T12:22:47-08:00

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.

iso

2008-09-17T12:35:16-08:00

A form of stock options which does not incur taxes at the time the option is exercised. ISOs are preferred by employees because of favorable tax treatment; however, there is a ceiling on the maximum number of ISOs that can be granted to a single employee in 1 year.

knowledge_retention

2008-09-05T06:23:55-08:00

Companies spend a significant amount of their time and resources in acquiring Knowledge. The ability to learn, innovate and improve directly impacts company's value, if retained in-house. Knowledge retention can be achieved through management practice, communication, documentation, measurement metrics and business processes.

lack_of_suitable_solution

2008-09-05T06:24:14-08:00

The value of a solution can be only measured by comparing it to its potential substitutes and their degree of fitness. No matter how far the current solutions are from being a remedy, they will be all considered as reference points and competitions in customers’ view.

later-stage

2008-09-17T12:36:10-08:00

Also called the expansion stage, firms at this level of development are mature and profitable and often still expanding. Those with continued high growth rates may get listed on a stock exchange.

lead_investor

2008-09-08T12:24:03-08:00

Lead investor is a company's principal provider of capital, such as the entity which originates and structures a syndicated deal.

lemon

2008-09-17T12:37:56-08:00

An investment that has a poor or negative rate of return. An old Venture Capital adage claims that “lemons ripen before plums.”

leveraged_buy-out_-_lbo

2008-09-08T12:24:45-08:00

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.

lifestyle_firms

2008-09-17T12:39:43-08:00

Category comprising around 90 percent of all Start-ups. These firms merely afford a reasonable living for their founders, rather than incurring the risks associated with high growth. These ventures typically have growth rates below 20% annually, have five-year revenue projections below $10M, and are primarily funded internally and rarely seek outside equity funds.

limited_partnership

2008-09-08T12:25:40-08:00

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_and_exit_planning

2008-09-05T06:22:56-08:00

The whole venturing process is about creating wealth, Unless you are looking for a hobby. What is your strategic buyer or exit strategy? Envision the exit and plan accordingly

liquidation_preference

2008-09-08T12:27:11-08:00

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.

liquidation_seniority

2008-09-05T06:22:49-08:00

Under liquidation, those investors whose investments are backed by collateral are paid first. Other investors may take a greater risk and are less likely to recover due to subordinate position or other liquidation preferences. It is important to know:

living_dead

2008-09-17T12:41:51-08:00

The term given to Venture Capital investments that are not generating very healthy returns, but are managing to survive.

lock-up_period

2008-09-08T13:00:18-08:00

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.

main

2008-09-08T20:54:11-08:00

TheVentureCode Wiki is an Encyclopedia dedicated to Entrepreneurs, Business Executives, Angel Investors, Venture Capitalists and Investment Bankers. This Wiki is editable and open to anyone to add to and modify the content as they see fit. In doing so however, there are a few ground rules that need to be followed:

manageable_debt_and_obligation

2008-09-05T06:23:07-08:00

Not all startups are debt-free. Companies with great deal of long-term debt introduce additional risk. Accordingly any existing obligation or liability has to be carefully examined when evaluating investments. It is important to know: Are there any existing debt or commitments?

management_buy-in_or_mbi

2008-09-08T13:01:22-08:00

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.

management_buy-out_or_mbo

2008-09-08T13:02:03-08:00

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.

margin_of_safety

2007-01-20T12:33:24-08:00

There are numerous outside factors that can affect a company’s destiny. Each business and each entrepreneur is unique. It's important to understand the risks and be prepared to withstand potential shocks. Consequently, various protections have to be carefully evaluated.

market_acceptance

2008-09-05T06:23:08-08:00

No matter how good a solution, it has to be accepted by its target market in order to become successful. Real world example: The collapse of Iridium LLC is perhaps the largest startup failure in U.S. business history. Iridium was a 1990s era phone company that developed a satellite-based, worldwide phone service. The tough technical problems were daunting, but solved. The huge and expensive undertaking of building and getting the satellites into orbit was knocked off. Expenses ran into the b…

market_opportunity

2007-01-20T11:24:30-08:00

An investment opportunity is described as “a business concept that, if turned into a tangible product or service, will result in financial profit”. An opportunity is a favorable set of circumstances that creates the need for a new product or service. An idea is a thought, impression, or notion. It may or may not meet the criteria of an opportunity. Many businesses fail, not because the entrepreneurs that started the businesses didn’t work hard—they fail because there was no real opportunity to…

market_research

2008-09-05T06:24:39-08:00

Is there a clear description of the opportunity resulting from an exhaustive and comprehensive research of the industry segment available?

market_timing

2008-09-05T06:23:23-08:00

Market timing is everything. A great product is worthless if the market is not ready to buy it or if the market has become saturated. It is crucial to be ready when the customer is ready. Once the market for a new product is established, its window of opportunity opens, and new entrants flow in. At some point, the market matures, and the window of opportunity for new entrants closes.

marketable_intangibles

2008-09-05T06:24:17-08:00

Intangible assets including brand, goodwill, customers, partners and intellectual property contribute to a company’s intrinsic value. Marketable intangibles can serve as additional protection of investment. The analysis and appraisal of intangible assets is complicated, due to the nature of these assets.

marketing_and_promotion_plan

2008-09-05T06:23:57-08:00

A marketing plan describes how the product/service is promoted in the marketplace and how to ensure it generates attention. Beside direct marketing startups may leverage partnership to collaboratively promote the product/service to market. It is important to know:

master_limited_partnership_or_mlp

2008-09-08T13:02:48-08:00

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 securities.

matching_services

2008-09-17T12:44:16-08:00

Organizations that match investors looking for investment opportunities with entrepreneurs looking for investment funds

mezzanine_debts

2008-09-08T13:03:46-08:00

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.

mezzanine_financing

2008-09-08T13:04:54-08:00

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.

mezzanine_level

2008-09-08T13:05:38-08:00

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.

middle_market_firms

2008-09-17T12:46:02-08:00

Firms with growth prospects of more than 20% annually and five-year revenue projections between $10M and $50M. Less than 10% of all Start-ups annually, these entrepreneurial firms are the backbone of the U.S. economy and are attractive to Angel Investors and financial institutions as they realize the projections.

milestones_and_measurements

2008-09-05T06:23:22-08:00

As Mark Twain famously said: “The secret of getting ahead is getting started. The secret of getting started is breaking your complex overwhelming tasks into small, manageable tasks, and then starting on the first one.” The execution plan has to outline the milestones and proper measurement systems for tracking the progress.

minority_enterprise_small_business_investment_companies_or_mesbics

2008-09-08T13:06:23-08:00

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.

mission_and_vision

2008-09-05T06:22:44-08:00

Startups are formed when people come together and choose to invest for greater return. There is time, money, brainpower or reputations that is invested. In startups every single contributor counts and if aligned “the whole is going to be greater than the sum of individuals”.

moderate_startup_capital_need

2008-09-05T06:23:26-08:00

Startup capital is usually defined as the amount of money needed to develop an idea into a finished product and then initiate the marketing activities. Initial overspending can burn working capital the may be needed for marketing or pay future salaries as the business grows. While the business has to project a professional image and attract customers, but the spending has to be realistic and conservatively planed.

motivation_and_alignment

2008-09-05T06:23:31-08:00

Alignment of objectives between management accelerates value creation. Misalignment on the other can easily cause problem. It happens when team members have different interests at stake. Needless to say that alignment is required between all stakeholders. For example investors may be part of different rounds of financing. One requiring to sell the company for $20M to turn a profit, another who needs the company to sell for $50M to justify the investment.

need_or_desire

2008-09-05T06:23:48-08:00

Is there a ‘Day-in-a-Life’ story that demonstrates the need and desire of the targeted market?

net_present_value_npv

2008-09-17T12:47:04-08:00

A firm or project’s net contribution to wealth. This is the present value of current and future income streams, minus initial investment.

new_market_tax_credit_nmtc

2008-09-17T12:48:20-08:00

A federal government program designed to encourage private investment into companies that will create jobs in specific markets. Financial institutions that operate venture funds applied for and were granted tax credits to pass along to their investors. When the venture fund provides equity or debt capital to a company located in an identified area for job creation (zip code based), then taxes on the capital gains from that investment are reduced by 35% over seven years.

non-compete_clause

2008-09-17T12:49:30-08:00

Prohibiting an entrepreneur from competing with his or her former firm for a certain amount of time.

objective_rational

2008-09-05T06:22:53-08:00

The biggest problem is when you have an entrepreneur who is sentimentally attached to his company to the point where he won't let go and accept help. It is important to know: Is the leader coachable and willing to sacrifice and compromise in favor of the venture?

opportunity

2006-11-15T15:05:46-08:00

For all practical purposes an investment opportunity can be viewed as a machine that consumes certain resources, and produces a return within a timeline while carrying certain risk. This general view of Investment Opportunity, as shown in the above diagram, applies to all investments in the private sector or ventures. This concept is detailed throughout the paper.

owner-employee

2008-09-08T13:07:28-08:00

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.

pari-passu

2008-09-08T13:08:25-08:00

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 of equity.

pay_to_play

2008-09-17T12:50:45-08:00

The term used for a participating anti-dilution clause, meaning that an investor has to pay more money into a company to keep playing and participating in the company’s promising future at the same level. This is a particularly important characteristic for Venture Capitalists. In the “wolf-eat-dog world” of big game finance, VCs will unceremoniously dilute early investors as part of their terms negotiation, unless the investor is willing to step up and participate in the current round they are s…

performance_and_forfeiture_provisions

2008-09-17T12:51:44-08:00

Agreements that require entrepreneurs to surrender part of their equity to investors in the event the firm fails to reach previously agreed-upon financial targets and milestones. These provisions allow investors to protect their investment if the company performs poorly, and to align the incentives of the entrepreneurs with those of the investors.

performance_based_vesting

2008-09-08T13:09:32-08:00

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.

persistent_focus

2008-09-05T06:24:24-08:00

Too many entrepreneurs fail to maintain their focus and try to be all things to all people instead of focusing solely on those things that add the most strategic value to their companies and developing the skills that will put them at the leading edges of their market segments.

piggyback_rights

2008-09-17T13:31:38-08:00

Investors’ rights to include their shares in a public offering at no cost to the investor. They piggyback on top of the company selling the shares, which picks up all the costs. This clause is for investors with IPO aspirations who will be making a substantial investment with the company to warrant this type of special consideration.

pipe_or_private_investment_in_public_equity

2008-09-08T13:11:08-08:00

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

2008-09-08T13:12:07-08:00

Pipeline is the flow of upcoming underwriting deals.

pitch

2008-09-08T13:12:53-08:00

Pitch is the set of activities intended to persuade someone to buy a product or take a specific course of action.

plum

2008-09-17T13:33:13-08:00

An investment that has a very healthy rate of return. The inverse of an old Venture Capital adage (see Lemons) claims that “plums ripen later than lemons.”

portfolio_company

2008-09-08T13:17:11-08:00

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 firm’s portfolio.

post-money_valuation

2008-09-08T13:18:25-08:00

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.

potential_return

2007-01-20T13:50:04-08:00

Before making a significant investment of time and money, one should know the potential return should were successful. The potential return or payback is a function of the total available market, revenue model, pricing, profit margin and time-span. While investment bankers analyze the information by crunching the numbers, some other investors use instincts instead.

pre-money_valuation

2008-09-08T13:19:37-08:00

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 private companies.

predictable_dilution

2008-09-05T06:23:59-08:00

Raising capital in multiple rounds has two major benefits when planed properly: managing dilution for existing shareholders and mitigating investment risk. Measures such as anti-dilution clauses and focus on value creation can improve the predictability and mitigate dilution risk.

preference_shares_preferred_stock

2008-09-17T13:36:44-08:00

Shares of a firm that encompass preferential rights over ordinary common shares, such as the first right to dividends and any capital payments. In bankruptcy, Preferred shares or stock is considered second to debt. They can be converted to common stock which has more flexibility for sale or transfer.

prepaid_warrant

2008-09-08T13:20:30-08:00

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

2008-09-08T13:21:40-08:00

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.

private_placement

2008-09-08T13:22:36-08:00

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.

pro_forma

2008-09-08T13:25:57-08:00

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 items.

product_roadmap

2008-09-05T06:24:18-08:00

“One-trick-pony company” may succeed in short-run. However investors prefer platform business model, which allow companies to deliver products and services beyond their initial offerings as follow-up products, services and new products. It is important to know:

product_solution

2007-01-20T11:49:05-08:00

The solution can be an idea, technology, product, service or a business model. The assessment will verify that the solution directly addresses the opportunity and will be accepted by target users. The examination sections include: Clear Value Proposition

production_and_quality_plan

2008-09-05T06:23:41-08:00

Another important aspect of assessment relates to production and quality control plan. It is important to know: Are the research & development processes defined and well understood? Are production/manufacturing requirements determined? Are there any quality control processes in place?

proof_of_concept

2008-09-05T06:24:00-08:00

Betting that engineering management will make a business profitable is not necessarily the best bet. Engineers are focused on improving the product's technology and not on selling the product. However they are the engine of innovation and responsible for bring the vision down into life.

prospectus

2008-09-17T13:40:08-08:00

Legal document used in a public sale of stock to communicate factual and required information about the company, current status and future prospects. Information contained in a prospectus is subject to oversight by the SEC and must be the sole marketing document.

raising_capital

2008-09-08T13:27:03-08:00

Raising Capital refers to obtaining capital from investors or venture capital sources.

ratchets

2008-09-17T13:41:55-08:00

A financial arrangement that allows one party to increase the share of their equity stake in a venture depending on the performance of the enterprise. Venture Capitalists often use such agreements to increase their equity stake (and thus gain more control) in investments that are performing poorly.

realistic_exit_plan

2008-09-05T06:22:37-08:00

Perhaps the single most important event for investors is a successful exit. A well thought out exit plan is indispensable in the financing process. It is important to know: Is there a credible exit/return plan for investors in place? Is the company open to a range of exits (acquisition, mergers, or IPO)?

realistic_market_share

2008-09-05T06:22:48-08:00

As a general rule, a company is better off to achieve dominance in a smaller market, than owning a small share in a larger market. Companies able to obtain greater than 30% market share are almost always profitable. At the same time it is not possible to capture 10%+ market share without getting noticed by big players. Accordingly company’s plan should take the potential reactions into account.

reasonable_fixed_costs

2008-09-05T06:23:35-08:00

The heavy burden of fixed costs (overhead) is mainly contributed by salaries, lease, maintenance fees and marketing expenses. It is important to know: Are all potential expenses identified and categorized? Are the burn rate and residual expenses reasonable and accurately projected?

reasonable_valuation

2008-09-05T06:23:28-08:00

The way in which a business conducts its operations is an important element to take into consideration when evaluating a company's value. For instance, companies that are devoting significant resources to creating a new product may have relatively weak earnings now. But, if that new product catches on, profits could quickly rise and the earnings may begin to soar. Meanwhile, companies that have great earnings now, but are not investing in new innovation and/or new products to ensure their contin…

recapitalization

2008-09-08T13:31:57-08:00

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.

redemption_or_redeemable_shares

2008-09-17T13:43:29-08:00

A company’s right to buy back stock from an investor at a specified time and at a predetermined price. This is akin to an automatic or forced exit for an investor.

registration_rights

2008-09-17T13:46:18-08:00

Investors’ right to include their stock at the same price as the owner’s share as part of a general pool of stock a company offers for sale in a public offering or when the company is acquired. This may seem like a good move for the private investor. However, it may impact the company’s attractiveness to an investment banker who might manage the IPO or sales transaction, because it adds a level of complexity if many private investors are trying to influence registration rights.

regulatory_and_legal_protection

2008-09-05T06:23:36-08:00

For startups, early identification and planning for potential risks can mean the difference between success and failure, especially in the pharmaceutical area. It is important to know: Are the liabilities that the solution poses and potential regulatory requirements taken into consideration?

resource_allocation

2008-09-05T06:22:46-08:00

For startup companies the biggest dilemma is usually about inadequate resources. Nevertheless inappropriate resource allocation is still one of the most commonly made mistake by entrepreneurs. It is important to know: Are adequate resource requirement analysis, planning and allocation done?

resyndication_limited_partnership

2008-09-08T13:34:11-08:00

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

2008-09-08T13:35:33-08:00

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.

return

2008-09-05T06:24:35-08:00

Returns, in economics and political economy, are the distributions or payments awarded to the various suppliers of the factors of production. In classical economics the factors of production are labour, land, and capital.

return_of_investment

2008-09-05T06:24:03-08:00

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.

revenue

2008-09-06T07:56:08-08:00

Revenue is a term for the amount of money that a company earns from its activities in a given period, mostly from sales of products and/or services to customers. In Europe (including the UK) the term is turnover. For individuals, the equivalent term is income. For government, revenues refers to the gross proceeds received from taxes, fees, and the like. For non-profit organizations, revenue from products and services can be expanded to include proceeds from donations, grants, trade in lieu of ca…

reverse_merger

2008-09-17T13:48:05-08:00

A promising private company becomes a public company by acquiring or merging with the already public company, which is usually dormant or flat in growth. There are many pros and cons for pursuing a reverse merger and therefore should be fully explored before using this as an alternative to an IPO. Reverse Mergers are not shortcuts to the public market and a decision to do so or to invest in one that is planning to take that action should be analyzed and pursued for strategic business reasons.

reverse_vesting

2008-09-08T13:48:01-08:00

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.

rights_of_first_refusal

2008-09-17T13:49:40-08:00

The right of the investors to have the first choice in whether they want to purchase additional company stock that’s being offered to new investors. This is fairly common with institutional investors, however Super Angel and Active Angels may be able to negotiate this if their investment is large enough to consider special considerations or they have the potential to take the entire round being offered.

risk

2008-09-05T06:23:05-08:00

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.

risk_capital

2008-09-08T13:51:04-08:00

Risk capital are funds made available for startup firms and small businesses with exceptional growth potential.

risk_premium

2008-09-08T13:52:29-08:00

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.

risk_reward

2006-12-22T14:14:31-08:00

Risk/Reward model – all investment factors drive this universal model. The concept of investment is embedded within “Risk/Reward” model of wealth creation. It is commonly accepted that a higher risk tolerance correlates to a higher potential of reward.

roles_and_responsibilities

2008-09-05T06:24:08-08:00

It’s not just the people - it’s the team. Investors look for a balance between all the key functions. The members of a team have to offer complementary skills and experiences. If there is no team in place, the founder should have a clear description of missing key positions, and ways to fill those.

round_of_funding

2008-09-08T13:53:52-08:00

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 to pre-IPO.

royalty_based_financing

2008-09-08T13:55:14-08:00

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…

royalty_fund

2008-09-17T13:52:27-08:00

A venture fund, usually established through limited partnership with Angel Investors, which “loans” money to Start-up and Early-Stage companies. Funds are used to take a product to market so sales are directly generated from the influx of capital. The company pays the fund a percentage or royalty on sales until an agreed-upon amount is paid back to the fund for the loan. This falls within the realm of private equity because it is in effect secured by equity. This is a good investment option f…

sales_and_distribution_plan

2008-09-05T06:24:25-08:00

Entrepreneurs generally fail to consider distribution channel until it’s too late. Many companies with great products fail regularly because of poor channel selection, development or maintenance. Startups need to control channels decide for direct selling or through intermediaries. Distribution channels need to have sufficient coverage to reach adequate number of customers, but also being cost effective to develop and maintain.

scalable_variable_costs

2008-09-05T06:23:53-08:00

Variable Cost includes the cost of goods sold (materials, supplies and delivery) and its direct labor costs (i.e. customer service), which represents the business productivity. Of course, productivity and variable costs are inversely related, so the variable costs will decrease as the productivity increases.

second_round

2008-09-17T13:51:14-08:00

Working capital for the initial expansion of a company that typically has a product but needs funding for its initial sales rollout. Could also simply be the round following the first institutional round.

second_stage_capital

2008-09-08T13:59:28-08:00

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.

secondary_public_offering

2008-09-08T13:57:46-08:00

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.

secondary_purchase

2008-09-08T13:58:34-08:00

Secondary Purchase is purchase of stock in a company from a shareholder rather than purchasing stock directly from the company.

secret_sauce

2008-09-17T13:53:30-08:00

The special attribute or function of the company’s product which differentiates them from the competition and cannot be easily duplicated. It is the reason “why” somebody will buy the company’s product.

seed_capital

2008-09-08T14:00:38-08:00

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 stage.

senior_debt

2008-09-17T13:54:34-08:00

Lower cost financing from banks or insurance companies, generally a secured loan, on a first priority status by company assets.

series_a_preferred_stock

2008-09-08T14:02:21-08:00

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.

sidebarorig

2008-09-05T06:22:45-08:00

Whitepaper Resources

silent_partner

2008-09-17T19:02:10-08:00

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 Deal flow benefits. Silent partner is also known as a “sleeping partner”.

situation_analysis

2008-09-07T11:26:14-08:00

Situation Analysis is aimed at (1) identification of internal and external forces that may influence the organization's performance and choice of strategies, and (2) assessment of the organization's current and future strengths, weaknesses, opportunities, and strengths. See also PEST analysis and SWOT analysis.

skills_and_experience

2008-09-05T06:23:20-08:00

Quality of management team is a key decision factor in the investment process. Each key function requires specific industry expertise and experience. A balanced team should cover innovation, discipline, drive and experience. It is important to know:

small_business_investment_companies_or_sbic

2008-09-08T13:56:52-08:00

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.

snowballing

2008-09-17T13:56:08-08:00

The process of using contact with one business Angel to find many more such investors through personal referral. Angels in particular often personally know many others, some of whom may be interested in new investment opportunities.

solution

2008-09-05T06:23:11-08:00

sqep

2008-09-07T10:12:38-08:00

SQEP is an acronym, standing for Suitably Qualified and Experienced Person. It is usually used to designate:- * a professionally-qualified person (usually Chartered Engineer) * who has several years as a practitioner, * is registered in their area of expertise within the organisation and so

stability

2008-09-05T06:23:46-08:00

Is the target market steady and stable or growing?

staging

2008-09-17T13:57:20-08:00

The process of providing an investment amount in increments dependent on time or performance quotas being reached. Staging gives investors the option to revalue, abandon or expand commitment to the investment. Often, institutional investors will take a large investment and break it into stages to keep the investee firm focused on achieving the agreed-upon milestones.

start-up

2008-09-17T19:00:35-08:00

Startup (or Start-up) is a new business venture in its earliest stage of development. A new business that is usually completing its product development and initial marketing. It can be of any size, but usually small. “Start-up” comes after “seed stage.”

stochastic

2008-09-06T12:54:09-08:00

A stochastic process is A non-deterministic one, in that a state does not fully determine its next state.

subordinated_debt

2008-09-17T14:00:44-08:00

Debt which generates higher interest rates than Senior Debt in exchange for higher risk. This type of debt gets paid off after Senior Debt at the point of liquidation and is sometimes packaged with warrants.

subscription_warrant

2008-09-17T14:01:30-08:00

A security that can be converted into or exchanged for company stock.

sufficient_benefit_over_substitutes

2008-09-05T06:23:19-08:00

Companies must make sure customers fully understand the differences between theirs and competitors’ product and perceive those differences as valuable. Having developed a great product is not enough. Job is not done until target customers actually perceive the differences between their product and competition.

sustainability

2008-09-05T06:24:01-08:00

Startups are betting on market stability or a positive trend. Unless the trend last long enough for the startup to profit from, there is no point of going after it. It is important to know: Is the target market stable or growing? When and why is the market window open?

sweat_equity

2008-09-17T14:02:19-08:00

Equity shares of a venture given to its founder(s) in recognition of his or her effort (sweat) expended to start and build the venture. Entrepreneurs tend to value their sweat equity more than investors. Sweat equity to create an idea and develop a business plan is not very valuable because that is the “expected” behavior for an entrepreneur. Sweat equity that gets a product developed or a first customer on board is significant.

swot_analysis

2008-09-07T11:31:44-08:00

SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It is a simple framework that helps in analyzing and generating strategic alternatives from a situation analysis.

syndication

2008-09-05T06:23:42-08:00

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.

tag_along

2008-09-17T14:04:28-08:00

Investors’ right to also sell their shares if the founder or another investor is selling.

takedown_schedule

2008-09-17T14:03:25-08:00

The plan stated in the fund prospectus or offering memorandum specifying the actual transfer of funds from the Venture Capital fund’s limited partners to the general partners’ control.

target_market

2008-09-05T06:24:33-08:00

Is there a clear definition and well-defined profile of the target user and customer in place? (users and customers may or may not be the same. E.g. google)

team_and_board_completion

2008-09-05T06:22:57-08:00

It is not just about having a complete team, but about having the right team. Don't rush to friends to just add headcount.Make sure it is the best time for bringing new team members on board. Somtimes you would be better off postponing it “until business plan calls for it”.

term_sheet

2008-09-08T14:05:47-08:00

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 legal documents.

test_and_validation_the_market

2008-09-05T06:23:16-08:00

Now approach some of potential customers and present your product. See how they react. Get feedback about it usefulness, pricing and lacks.

test_plugins

2008-09-05T06:23:43-08:00

third_stage_capital

2008-09-08T14:06:25-08:00

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 development, etc.

timing

2008-09-05T06:22:39-08:00

Are the target customers ‘ready’ to buy without any aggressive demand creation requirement?

tips_and_rules

2007-06-01T16:52:24-08:00

* Investors have very short attention-span. If you cannot get their attention with the first few minutes, you are risking your chances. * You have only one chance with each investor. Don’t blow it by approaching them when not ready. * Be realistic and reasonable, while considering the potentials.

tranche_financing

2008-09-08T14:07:40-08:00

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 investors.

turnaround

2008-09-08T14:09:19-08:00

Turnaround is the term used when the poor performance of a company or the business experiences a positive reversal.

up_round

2008-09-04T06:48:54-08:00

Up round financings refers to a round of financing in which a company's worth increased since its prior valuation.

validation

2008-09-05T06:23:24-08:00

Is there a validation that the opportunity is real and a market demand exists?

valuation_growth_plan

2008-09-05T06:24:09-08:00

In addition to managing production and sales, entrepreneurs have to plan for continues increase of company’s value. Extraordinary value can be created through intangible assets. Intellectual capital and other intangible assets are recognized as the most important metric and foundation for the market dominance and continuing profitability of successful companies.

value-adding_use_of_fund

2008-09-05T06:22:43-08:00

Beware; it is very easy to spend money. There is really no room for excess of any kind in a young business. A well-prepared plan will demonstrate how the sought capital will increase the value of company. There has to be a strong justification for use of the proceeds.

venture_capital

2008-09-05T06:22:59-08:00

Venture capital Venture capital (also known as VC or Venture) is a type of private equity capital typically provided to immature, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company.

venture_capital_firm

2008-09-08T14:10:45-08:00

Venture Capital Firm is an investment company that invests its shareholders' money in startups and other risky but potentially very profitable ventures.

venture_capital_funds

2008-09-08T14:12:16-08:00

Venture capital funds pool and manage money from investors seeking private equity stakes in small and medium-size enterprises with strong growth potential.

venture_capital_limited_partnership

2008-09-08T14:14:04-08:00

Venture Capital Limited Partnership is a limited partnership which is formed to invest in small startup businesses with exceptional growth potential.

venture_capitalist

2008-09-08T14:13:10-08:00

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 funding.

ventures

2007-01-19T15:01:30-08:00

Venture is often use for referring to a risky start-up or enterprise company.

vesting_schedule

2008-09-08T14:15:11-08:00

A Vesting Schedule determines when you may exercise your stock options or when the forfeiture restrictions lapse on restricted stock.

viability

2008-09-05T06:24:07-08:00

In the context of economic development, viability indicates the ability of benefits to cover costs in development projects.

vision_mission

2008-09-05T06:23:03-08:00

Is there a clear vision and mission statement in place that targets the opportunity?

vito_letter

2008-09-19T19:37:51-08:00

VITO stands for Very Important Top Officer. Basically, the VITO letter is supposed to get you in front of that hard to reach executive. It is a marketing tool. A well crafted message followed by a phone call is always be a good practice. Following is a sample from http://salesho.com

vivid_pain_or_desire

2008-09-05T06:23:09-08:00

Unless there is a clear description of problem on hand, the company will easily become distracted from self-described mission. In such situation team members will start working as individuals and on different aspect of the problem. Many by engineers founded startups fall into “creeping elegance” trap. They keep developing increasingly better features, without first selling the more-than-adequate initial products. That can easily push small technology companies into bankruptcy, as all their mon…

voting_rights

2008-09-17T14:06:23-08:00

Rights given to stockholders to vote on a company’s operations and financial transactions, including its repurchase of stock, mergers and seeking more money. These rights give investors a loud say in a company’s future, including exit events.

vulture_capitalist

2008-09-08T14:16:14-08:00

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.

walking_dead

2008-09-17T14:07:04-08:00

Refers to companies who after 3-5 years have neither gone public, been acquired or filed for bankruptcy.

warrants

2008-09-17T14:08:03-08:00

An option given to an investor to buy stock in a company at a predetermined time and a predetermined cost. Warrants may not have an expiration date. Outstanding warrants can postpone an investor’s exit, enabling him or her to become more, not less involved with the company. Warrants are often included in private loans which investors make as their “icing,” and sometimes are added as part of an early investor’s option for later investments. Warrants seem harmless as an incentive at the time they …

zopa_zone_of_possible_agreement

2008-09-17T14:09:04-08:00

The range of investment terms or amounts open to possible negotiation, ranging from the lowest the entrepreneur is willing to accept (the minimum) to the most the investor is willing to pay (the maximum).