| |
| Accredited Investors. Accredited
investers are organizations and/or individuals that
meet a relatively high stated net worth, net income
or other criteria. Such investors are generally considered
to be sophisticated, able to bear the loss of an investment,
and capable of fending for themselves. Therefore, sales
of securities to these persons and organizations may
be simplified under federal and some state securities
laws. An 'accredited investor' as defined in Rule 501
(a) of Regulation D. This definition includes certain
institutional investors and (a) any natural person
whose individual net worth, or joint net worth with
that person's spouse, exceeds $1 million at the time
of purchase; or (b) any natural person who had an individual
income in excess of $200,000 in each of the two most
recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and who
reasonably expects reaching the same income level or
greater in the current year. |
| Acquisition. The
combination of two companies, where both companies
survive after the transaction. Also see Merger. |
| Angel Funding
(Seed Funding). These
firms have acquired some funding, ranging from $100,000-$1,00,000
in seed funding from either an 'angel investor' (a
individual investor) or have acquired funding from
their parent company to a spin off division. |
| Angel Investor. A
wealthy individual or group of individuals who provide
startup capital to very young, typcially startup companies
to help them grow, taking a large risk in exchange
for a potentially large return on investment. Many
Angels are successful former entrepreneurs who want
to help other entrepreneurs grow their businesses.
See Angel Capital
Network, Angel
Investors, and Garage.com. |
| Assets. Any
corporate or business property of value, including
cash, cash instruments, accounts receivable, real property,
furniture and equipment, work-in-progress, and intellectual
property (IP). |
| Capital Call. Notification
to fund investors of required pay-in of specified portion
of investment commitment. |
| Capital Gains. A
gain from sale or exchange of a capital asset; the
excess of capital gains over capital losses is called
net capital gain income. |
| Commitment. A
limited partner's obligation to provide a certain amount
of capital to a fund. |
| Deal Flow. The
investment opportunities made available to a venture
fund. |
| Due Diligence. The
investigation and evaluation of a management team's
characteristics, performance history, investment strategy,
and fund terms and conditions prior to committing capital
to the fund. |
| Early Stage Fund. A
fund investment strategy involving investment in companies
for product development and initial marketing, manufacturing
and sales activities. |
| Expansion Stage
Fund. A
fund investment strategy involving financing for
the expansion of a company which is producing, shipping
and increasing its sales volume; often referred to
as 'Later Stage'. |
| First Round Funding. Companies
that have secured 1st round funding, otherwise known
as series B financing, signify that an official venture
capital firm has funded this company. Funding amount
can range from $1-15 million. |
| Fund Distribution. Cash
or the value of stock disbursed to the limited partners
of a venture fund. |
| Fund-of-Funds. An
investment vehicle designed to invest in a diversified
group of investment funds. |
| Fund Size. The
total amount of capital committed by the limited and
general venture partners of the fund. |
| General Partner. A
general partner manages the business affairs of a partnership
and is personally liable for its debt. (see Limited
Partnership). |
| Internal Rate
of Return (IRR). The
discount rate that equates the net present value
(NPV) of an investment's cash inflows with its cash
outflows. |
| Initial Public
Offering (IPO). The
sale of its securities to the public for the first
time by a private company (and/or in a 'secondary
offering' by its shareholders). |
| Institutional
Investor. Substantial,
usually tax exempt, investors, including public and
private pension funds, university and cultural institution
endowments, and foundations. |
| Investment Focus. Venture
capitalists may be generalist or specialist investors
depending on their investment strategy. With a generalist
strategy, VCs will invest in a variety of industry
sectors, geographic locations, or stages of a company's
life. Alternatively, a specialist may invest in only
one or two industry sectors, or may seek to invest
in only a localized geographic area. Not all VCs invest
in 'start-ups'. While many venture firms will invest
in companies that are in start-up modes, other VCs
will also invest in companies at various stages of
the business life cycle. A VC may invest before there
is a real product or company organized (see Seed Investing"),
or may provide capital to start up a company in its
first or second stages of development (see Early Stage
Investment). A VC may also provide needed financing
to help a company grow beyond a critical mass to become
more successful (see Expansion Stage Investment). Alternatively,
the VC may help a company attract a merger or acquisition
with another company by providing liquidity and exit
for the company's founders. At the other end of the
spectrum, some venture funds specialize in the acquisition,
turnaround or recapitalization of public and private
companies that represent favorable investment opportunities. |
| Later Round Investment.
(Institutional ) Later
round, or round 2 or 3 (C or D) funding are for startups
that are past the most risky stage of their company
life. Typically larger investors are involved, raising
from $5-50+ million. Institutional investing is where
a company is offered debt, or loans that require
payback. Companies can combine funding from investors
or from institutional banks. |
| Limited Liability
Company (LLC). An
unincorporated association providing limited liability
for its equity holders, generally referred to as
'members'. |
| Management Fee. Compensation
for the management of a venture fund's activities,
generally paid quarterly from the fund to the general
partner or management company. |
| Merger. The
combination of two companies where one company survives
the transaction. Also see Acquisition. |
| Mezzanine Funding. Mezzanine
funding is a round of funding for companies close to
an IPO. The funding typically will be sued to support
the IPO, and may be in the form of a loan amount that
gives lender right to take stock in company or assets
if company cannot repay loan. Usually, mezzanine funding
is given to more established startups, that have substantial
assets and professional investment. |
| Offering Memorandum. A
document describing the terms, objectives and potential
risks of an investment program. |
| PIPE. Private
Investment in Public Equity. A transaction in
which accredited investors are allowed to purchase
stock in a public company, usually below the market
price |
| Portfolio Company. A
company in which a venture capital fund holds an investment. |
| Private Placement. Private
Placement is the offering and sale of any security
by a brokerage firm not involving a public offering.
Under the 1933 Act, private offerings are not the subject
of a registration statement filed with the SEC. Private
Placement offerings are issued by either the requirement
of Sections 3(b) or 4(2) of the 1933 Act as described
by the SEC interpretation. |
| Qualified Investor. An
individual investor that must own at least $5 million
in investments. |
| Realization Ratio. The
ratio of the sum of cumulative distributions and remaining
portfolio value to paid-in capital, expressed for example
as 2x or 3x, etc. |
| Residual Value. The
remaining equity which a limited partner has in a fund. |
| Restricted Securites. Public
securities which cannot be traded in public markets
due to SEC regulations, often under 'Rule 144' or 'Rule
145.' Most stock options granted in venture-backed
companies have this restriction. |
| Rule 144. Rule
144 provides for an exemption for the unregistered
public sale of Control and Legended Securities. A seller
who meets the following requirements of Rule 144 has
a safe harbor in selling restricted securities without
registering them under the 1933 Act: Holding Period.
Shares acquired in a private transaction must be held
by non-affiliates for at least 1-year before they can
be sold to the public. Control securities are not subjects
to the Holding Period requirement. Volume. The number
of shares sold in any 3-Month period is limited to
the greater of (i) 1% of the shares outstanding or
(ii) the average weekly volume as calculated over the
four full weeks prior to the filing of the notice of
sale. Manner of Sale. All sales under Rule 144 must
be in unsolicited broker's transactions or directly
to a market maker. Public Information. Adequate current
public information is available regarding the Issuer;
and Notice. Notice of sale is filed on Form 144 with
the SEC and the principal exchange on which the Issuer's
stock is listed. The person filing the notice must
have a bona fide intention to sell the securities within
a reasonable period of time after filing (no more than
90 days). The notice of sale should be filed for the
full share amount when the sell order is placed. |
| Rule 144(k) -
Restricted Securites. Rule
144(k) provides for an exemption for the sale of
securities that have not been registered and have
been held for at least two years by the shareholders
who are not affiliates of the Issuer. These securities
can be sold without Volume or Sale Limitations. |
| Rule 144 - Control
Securities. Rule
144 provides for an exemption for the sale of securities
that are held by an affiliate of the Issuer. If the
control securities are not restricted, they can be
sold publicly subject to the rule 144 restrictions
listed above. If the securities are restricted as
well, they can be sold publicly after a one-year
holding period and subject to Rule 144 Restrictions. |
| Rule 145. Rule
145 provides that public sales of securities acquired
in connection with registered mergers, acquisitions
and similar transactions by affiliates of the target
or acquired company ("Rule 145 Securities") are subject
to the registration requirements of the Act. Rule 145
has an exemption that allows for the immediate resale
of Rule 145 Securities subject to Rule 144 Volume,
Manner of Sale and Public Information requirements.
In addition, if the seller is not an affiliate of the
Issuer, Rule 145 permits free public sale subject to
the Public Information requirements one year after
the merger. |
| Seed Funding. See
Angel Funding. |
| Seed Stage Fund. An
investment strategy involving portfolio companies which
have not yet fully established commercial operations,
and are engaged in continued research and product development. |
| Self Funded. Companies
that are using there own capital to run operations.
No official funding from investors or venture capital
firms has taken place. |
| Takedown Schedule. The
plan stated in the offering memorandum providing for
the actual transfer of funds from the limited partners'
to the general partners' control. |
| Term (venture
capital fund). The
period during which a venture fund is in operation,
usually ten years. |
| Venture Capital. Industry
term for an investment in a new, untried business venture
with all of the financial risks inherent in such an
enterprise. |
| Venture Capital
Fund. An
investment vehicle, usually a 'Limited Partnership',
in to which its passive investors, generally referred
to as 'Limited Partners', contribute capital which
is invested in high risk, high potential commercial
enterprises by the fund's managers known, generally
as its 'General Partners', also known as venture
capitalists. In addition to supplying the necessary
funding for a startup business, a venture capitalist
can also provide the emerging company with assistance
and expertise in business planning and industry knowledge.
Typically, a venture capitalist has the goal of taking
the company public. Most venture capitalists are
not interested in small operations, and are typically
interested in emerging companies that can grow very
big in a relatively short timeframe. |
| Vintage Year. When
in reference to venture capital funds, the year of
fund formation and first takedown of capital. When
used with venture-funded companies, the year of they
received their first venture capital. |
| Write Down. A
reduction in the value of an investment. |
| Write-off. The
write-down of a portfolio company's holdings to a valuation
of zero and the venture capital investors receive no
proceeds from their investment. |
| Write-up. An
increase in the value of an investment, based on rigorous
industry conventions. |
