| A |
| Accumulation |
When an institutional investor buys large
amounts of stock, but does this over a period of time so as not to affect
the stock market. |
| Acquisition |
The act of one company taking over controlling interest in another company. Investors often look for companies that are likely acquisition candidates, because the acquiring firms are often willing to pay a premium to the market price for the shares. |
| Adjusted
Gross Income (AGI) |
A computation used to help determine an
individual's federal taxes. Basically, AGI is the amount of money a person
makes (such as wages, dividends, social Security, etc.) minus certain
deductions (such as IRA, Keogh and SEP contributions, etc.) |
| Advance/Decline
Line |
A market indicator that shows the number of
stocks going up compared to those stocks going down. The advance/Decline
indicates the general direction of the stock market. |
| Allocation |
The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process depending on market demand for the securities.
|
| All-or-none
Offering |
A company has a minimum number of shares it
will sell on an offering. If the minimum is not sold, then the offering
will be canceled. |
| Angels |
Private, usually high net-worth investors,
usually individuals or groups of individuals known as "angel
networks," who provide start-up financing. |
| Angel Financing |
Capital raised for a private company from independently wealthy investors. This capital is generally used as seed financing. |
| Appreciation |
The increase in the value of a stock. |
| Ask
Price |
The price at which the client buys a stock. |
| Asset
value |
The value of the assets owned by a company.
Net asset value is the value of the assets minus the value of any
liabilities. |
| Asset-based
financing |
Debt financing in which the business uses
company assets - such as inventory, equipment and accounts receivable - as
collateral for capital loans. |
| B |
| Balanced Fund |
A venture fund investment strategy that includes the investment in portfolio companies at a variety of stages of development. |
| Balance
Sheet |
This shows a company's assets, liabilities
and capital. |
| Bellwether
Stock |
The stock of a company that has an enormous
influence on the direction of the market. |
| Bedbug
Letter |
Once a filing for your public company is
made with the Securities and Exchange commission (SEC), they will review
it. If the SEC finds problems that cannot be resolved, it will write a
bedbug letter. |
| Bid
Price |
The price at which a client sells a stock. |
| Blind
Pool |
A public offering, in which the company does
not disclose how it will use the proceeds. |
| Blue
Sky Laws |
The state laws that regulate the issuance of
initial public offerings. |
| Book
Value |
This shows the equity or net worth of a
firm, which is equal to its assets minus liabilities. |
| Bootstrapping |
A means of finding creative ways to support a start-up business until it turns profitable. This method may include negotiating delayed payment to suppliers and advances from potential partners and customers.
|
| Break-even |
The level of sales necessary for a company
to cover all its fixed and variable costs. |
| Burn
rate |
The rate at which a company consumes cash
each month. |
| Business
Angel |
An individual who invests capital in small
business, and who will often be actively involved in helping the business
grow. |
| Business
Development Company (BDC) |
A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.
|
| Buy-back |
A right to buy back previously issued stock,
usually at a price which will show a good return to the investor. |
| C |
| Capital
Gain |
When an investor sells a stock, bond or
mutual fund at a higher price than he or she paid for it. |
| Capitalization |
A figure equal to a company's stock price
multiplied by the number of shares owned by the public (that is,
outstanding shares). For example, if a company is selling for $20 per
share and has 1,000,000 shares outstanding, then the capitalization is
$20,000,000 ($20 multiplied by 1,000,000). |
| Capital
loans |
Loans made for the purchase of long-term
assets such as manufacturing equipment. |
| Carried Interest |
The portion of any gains realized by the fund to which the fund managers are entitled, generally without having to contribute capital to the fund. Carried interest payments are customary in the venture capital industry, in order to create a significant economic incentive for venture capital fund managers to achieve capital gains.
|
| Cash
flow |
Cash receipts less cash disbursements over a
period of time. Cash flow projections help managers plan how much cash
will be required to keep a company operating. |
| Certified
Development Company (CDC) |
A state or local authority that assembles
funds from various public and private sources into financial packages for
capital improvements to existing businesses. The Small Business
Administration backs CDCs under its 504 program. The Virginia Small
Business Financing Authority is a CDC. |
| Closed-end Fund |
A type of fund that has a fixed number of shares outstanding, which are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock. The market price of a closed-end fund fluctuates in response to investor demand as well as changes in the values of its holdings or its Net Asset Value. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis. |
| Closely
Held Company |
A company that has a few people who own
large amounts of stock. |
| Common
Shares |
These are securities that represent equity
ownership in a company. Common shares let an investor vote on such matters
as the election of directors. They also give the holder a share in a
company's profits via dividend payments or the capital appreciation of the
security. |
| Common
Stock |
A unit of ownership of a corporation. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings. Investors who purchase common stock hope that the stock price will increase so the value of their investment will appreciate. Common stock offers no performance guarantees. Additionally, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. |
| Contrarian |
An investor who does the opposite of what
most investors do. For example, if most people are selling airline stocks,
then a contrarian will buy airline stocks. |
| Convertible Security |
A financial security (usually preferred stock or bonds) that is exchangeable for another type of security (usually common stock) at a prestated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together with greater appreciation potential than regular bonds offer |
| Coverage |
A company's ability to take on debt. |
| Current
assets |
Assets of a company, such as cash, inventory
and accounts receivables, which can be readily converted into cash. |
| Current
Yield |
A stock's dividend divided by its stock
price. For example, if a stock has an annual dividend of $1 and a stock
price of $10, then its current yield is $1 divided by $10 or 10 percent. |
| D |
| Deal
flow |
The number of investment opportunities or
"deals" which an investor receives each year. |
| Debt
financing |
Money that business owners must pay back
with interest. There are myriad types of debt financing, from simple
commercial loans to bridge/swing loans in which a lender makes a
short-term loan in anticipation of equity financing at a later stage in
the development of a business. |
| Deficiency
Letter |
When a company files to go public with the
Securities and Exchange Commission and state authorities, these agencies
will issue a deficiency letter, which makes suggestions on what to do with
the offering. Although these are "suggestions," your company
should follow them. |
| Dilution |
When a company issues new shares, this will
lower the percentage of ownership for current shareholders. |
| Direct
Public Offering |
When a company bypasses an underwriter and
goes public on its own. |
| Dow
Jones Industrial Average |
The most widely watched indicator of the
stock market. This average is composed of 30 major stocks, like IBM and
Phillip Morris. |
| Due
diligence |
The process of investigating a company's
market, competitors, management track record, and accounts, etc. Investors
will usually do substantial due-diligence on a company before investing
and Underwriters will make a reasonable investigation of a company before
committing to an underwriting. |
| E |
| Early Stage |
A fund investment strategy involving investments in companies to enable product development and initial marketing, manufacturing and sales activities. Early stage investors can be influential in building a company’s management team and direction. While early stage venture capital investing involves more risk at the individual deal level than later stage venture investing, investors are able to buy company stock at very low prices and these investments may have the ability to produce high returns. |
| Effective
Date |
This is when the registration statement has
become effective with the Securities and Exchange Commission and state
agencies. Then the company can distribute a prospectus to potential
customers of the new issue of stock. |
| Equity
financing |
Selling an interest in your business to an
outside party to raise money. |
| Exit
route |
The method by which an investor will realize
an investment. |
| Exit
Strategy |
A fund's intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company’s shares after an initial public offering (IPO), a sale of the portfolio company or a recapitalization. |
| Expansion
capital |
Capital to fund the development of an
established business. A typical investment will be between $600,000-$2m,
with fewer risks and a lower potential return than a start-up investment.
The investor may exit in 2-5 years. |
| F |
| Financial
structure |
The combined debt, equity and financial
instruments used to finance company. |
| Flipping |
The act of buying shares in an IPO and selling them immediately for a profit. Brokerage firms underwriting new stock issues tend to discourage flipping, and will often try to allocate shares to investors who intend to hold on to the shares for some time. However, the temptation to flip a new issue once it has risen in price sharply is too irresistible for many investors who have been allocated shares in a hot issue. |
| Fundamental
Analysis |
A method of valuing stocks by considering
financial data, such as cash flow earnings, sales, market share, debt
levels, etc. |
| Fund Size |
The total amount of capital committed by the investors of a venture capital fund. |
| G |
| Good
Will |
The intangible assets of a company, such as
reputation, brand names, commitment to the community, etc. |
| H |
| Holding Period |
The amount of time an investment must be held to qualify for capital gains tax benefits. |
| Hot
Issue |
A newly issued stock that is in great public demand. Hot issues usually experience a dramatic rise in price at their initial public offering because the market demand outweighs the supply.
|
| I |
| Illiquid |
An investment that cannot be easily
converted into cash, such as real estate (which typically takes months to
sell). |
| Initial
Public Offering (IPO) |
When a corporation offers stock to the
public for the first time. |
| Issuer |
This is the company that issues new stock to
the public. |
| J |
| K |
| L |
| Later Stage |
A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume. Later stage funds often provide the financing to help a company achieve critical mass in order to position itself for an IPO. Later stage investing can have less risk than early stage financing because these companies have already established themselves in their market and generally have a management team in place. Later stage and Mezzanine level financing are often used interchangeably. |
| Lead
investor |
An investor who is the first to invest from
a group or syndicate of investors in a given round of financing. A lead
investor may receive more favorable investment terms than follow-on
investors. |
| Leveraged Buyout (LBO) |
A takeover of a company, using a combination of equity and borrowed funds (or loans). Generally, the target company’s assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds, using the assets of the company as collateral, in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares.
LBO funds are important players in the U.S. private equity markets. Leveraged buyout funds have generated returns by acquiring profitable, stable businesses in more mature sectors of the economy, or businesses characterized by high cash flows. Leveraged buyout firms also play an important role as consolidators of large, highly fragmented industries. Although traditionally LBO funds invested exclusively in mature economic sectors, recently several prominent LBO firms have extended their focus to more dynamic industries such as health care services and telecommunications.
|
| Limited Partnerships |
An organization comprised of a general partner, who manages a fund, and limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, the general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners receive income, capital gains, and tax benefits. |
| Liquidation |
Liquidation has two meanings in finance. The first is converting securities into cash. The second is the sale of the assets of a company to one or more acquirors in order to pay off debts. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. |
| Lock-up Period |
The period of time that certain stockholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups of at least 180 days from large shareholders (1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners and such large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed. |
| M |
| MBI |
Management Buy-In. Purchase of a business by
an outside team of managers who have found financial backers and plan to
manage the business actively themselves. |
| MBO |
Management Buy-Out. When the exiting
management of a company raises capital to buy the business from the
previous owners. |
| Management Fee |
Compensation for the management of a venture fund's activities, paid from the fund to the general partner or investment advisor. This compensation generally includes an annual management fee.
|
| Merit
Review |
In many states, the authorities will require
that there be a review of an offering for its fairness. |
| Mezzanine Financing |
Refers to the stage of venture financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine level financing can take the structure of preferred stock, convertible bonds or subordinated debt (the level of financing senior to equity and below senior debt). |
| Mutual Fund |
A mutual fund, or an open-end fund, sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund’s outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor usually sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor must buy newly issued shares directly from the fund. |
| N |
| National
Association of Securities Dealers (NASD) |
This private organization helps regulate the
stock and bond markets. |
| Net Asset Value (NAV) |
NAV is calculated by adding the value of all of the investments in the fund and dividing by the number of shares of the fund that are outstanding. NAV calculations are required for all mutual funds (or open-end funds) and closed-end funds. The price per share of a closed-end fund will trade at either a premium or a discount to the NAV of that fund, based on market demand. Closed-end funds generally trade at a discount to NAV. |
| New Issue |
A stock or bond offered to the public for the first time. New issues may be initial public offerings by previously private companies or additional stock or bond issues by companies already public. New public offerings are registered with the Securities and Exchange Commission. |
| O |
| Offering
Circular |
This is a disclosure of material financial
information for potential investors in a Regulation A new offering. |
| Open-end Fund |
An open-end fund, or a mutual fund, generally sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund’s outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor generally sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor generally buys newly issued shares directly from the fund. |
| Option Pool |
The number of shares set aside for future issuance to employees of a private company. |
| P |
| Plow
Back Earnings |
Growth companies usually do not pay
dividends because they want to use their profits to plow back into the
corporation and increase investment in plant, equipment and research. |
| Portfolio Companies |
Portfolio companies are companies in which a given fund has invested. |
| Post-money valuation |
The valuation of a company immediately after the most recent round of financing. This value is calculated by multiplying the company's total number of shares by the share price of the latest financing.
|
| Preferred Stock |
A class of capital stock that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets. Many venture capital investments use preferred stock as their investment vehicle. This preferred stock is convertible into common stock at the time of an IPO.
|
| Pre-money Valuation |
The valuation of a company immediately prior to the most recent round of financing. |
| Price-Earnings
Ratio |
PE ratio is calculated by dividing the stock
price by the earnings per share. For example, if a company is selling for
$50 and has earnings per share of $5, then the PE ratio is 10 ($50 divided
by $5). Many analysts use the PE ratio to indicate if a stock is
undervalued (e.g., if the PE ratio is over 5 or 10) or overvalued (50 to
100). |
| Private Equity |
Private equities are equity securities of companies that have not “gone public” (in other words, companies that have not listed their stock on a public exchange). Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. In addition, there are many transfer restrictions on private securities. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a recapitalization. |
| Private Securities |
Private securities are securities that are not registered and do not trade on an exchange. The price per share is set through negotiation between the buyer and the seller or issuer.
|
| Prospectus |
A formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Companies offering securities, mutual funds, and offerings of other investment companies including Business Development Companies are required to issue prospectuses describing their history, investment philosophy or objectives, risk factors and financial statements. Investors should carefully read them prior to investing. |
| Q |
| Quote |
The price of a stock or bond. |
| R |
Recapitalization |
The reorganization of a company’s capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility. Recapitalization can be an alternative exit strategy for venture capitalists and leveraged buyout sponsors. |
Registration |
The SEC’s review process of all securities intended to be sold to the public. The SEC requires that a registration statement be filed in conjunction with any public securities offering. This document includes operational and financial information about the company, the management and the purpose of the offering. The registration statement and the prospectus are often referred to interchangeably. Technically, the SEC does not "approve" the disclosures in prospectuses. |
Restricted Securities |
Public securities that are not freely tradable due to SEC regulations. |
| Revenue |
Money earned by a company from sales of
products or services. |
| Red
Herring |
A preliminary prospectus that has been filed
with the Securities and Exchange Commission, but is used before the
effective date. |
| Regulation
A |
A less onerous means of going public, for
those companies under $5 million. There is no requirement to file a
registration statement with the Securities and Exchange Commission. |
| Road
Show |
The promotional activities to generate
interest in a new offering. |
| ROI |
Return On Investment. Profit on an
investment, expressed as a percentage of the investment. |
| S |
| Securities and Exchange Commission (SEC) |
The SEC is an independent, nonpartisan, quasi-judicial regulatory agency that is responsible for administering the federal securities laws. These laws protect investors in securities markets and ensure that investors have access to all material information concerning publicly traded securities. Additionally, the SEC regulates firms that trade securities, people who provide investment advice, and investment companies.
|
| SCOR |
Small Corporate Offering Registration is a
do - it - yourself securities registration document designed so that
knowledgeable business people can create the documents needed to sell
state-registered securities to the general public - a direct public
offering. |
| Secondary
Offering |
When an already public company issues more
stock to the public. |
| Seed
capital |
Capital provided at an early, often
pre-incorporation stage. Funding to build a prototype, conduct a market
feasibility study, write a business plan, and build a management team. A
typical seed investment will be between $10,000-$200,000. It carries the
highest risk and highest potential returns of alt investment capital,
which may not be seen for 5-8 years. |
| Series A Preferred Stock |
The first round of stock offered during the seed or early stage round by a portfolio company to the venture investor or fund. This 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. |
| Short-term
loans |
Loans scheduled for repayment in three years
or less. Examples include seasonal lines of credit, working capital loans
and factoring. |
| Small
Business Investment Company (SBIC) |
A private investment company licensed and
partially funded by the SBA to provide venture capital to small
businesses. Typically, SBICs finance new, risky or high-tech ventures. |
| Start-up
capital |
Capital to fund a start-up is usually used
for renting offices, hiring personnel and initiating sales. The business
plan with market research should be completed, products or services
developed, and a management team in place. Atypical start-up investment
will be between $200,00-$1 m. The risk is high and the investor may not
see a return for 4-6 years. |
| Stock Options |
There are two definitions of stock options.
1. The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies.
2. A widely used form of employee incentive and compensation. The employee is given an option to purchase its shares at a certain price (at or below the market price at the time the option is granted) for a specified period of years. |
| Sweat
equity |
Equity or stock in a company which
represents the founder's effort expended in starting the company. |
| Syndicate |
Underwriters or broker/dealers who sell a security as a group. |
| T |
| Trade
credit |
Credit advanced to a business owner by
suppliers and other vendors. They provide services or inventory in
advance, and then wait for the business owner to pay them in 30, 60 or 90
days after delivery. Businesses use trade credit to maintain cash flow as
they collect on invoices from clients and customers, and then pay their
own bills. |
| Tombstone |
This is an announcement-usually in a paper,
such as the Wall Street Journal-of a new offering. |
| U |
| Undercapitalized |
A company that does not have sufficient cash
to run properly. |
| V |
| Value
Investor |
A person who tries to find companies that
are selling below their actual worth. |
| Venture
capital |
Money used to purchase equity-based interest
in a new or existing company. A venture capitalist's return usually comes
from preferred stock, a share of profits, royalties or capital
appreciation of common stock. Most venture capitalists look for companies
with high growth potential. |
| W |
| Warrant |
A security that allows an investor to
purchase a fixed number of shares for a fixed price over a period of time
(usually 10 to 15 years). |
| Write-up/Write-down |
An upward or downward adjustment of the value of an asset for accounting and reporting purposes. These adjustments are estimates and tend to be subjective; although they are usually based on events affecting the investee company or its securities beneficially or detrimentally.
|
| X |
| XBRL |
XBRL is a type of XML (extensible markup language), which is a specification that is used for organizing and defining data. XBRL uses tags to identify each piece of financial data, which then allows it to be used programmatically by an XBRL-compatible program,making it easier to compile and share this data. |
| Y |
| Z |