Accelerator: Privately or publicly funded initiatives supporting startups for a predetermined period of time. Accelerators attempt to “fuel” the development process of companies. Their assistance is typically restricted to a few months and generally provided in the form of expertise transmission, coaching or in the form of boot camp events. As remuneration, accelerators often receive a future revenue participation or (even) equity. The boot camps initiated by accelerators often end with “demo days”, during which the business concept is presented to potential investors. 12
Accrual Accounting: An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company’s current financial condition.17
Acquisition: One company buys controlling stakes of another company. The acquisition of stakes can be either “friendly” (mutually agreed upon) or “hostile” (no previous agreement between the parties).
Angel Groups: Organizations, funds and networks formed for the specific purpose of facilitating angel investment in start-up companies. 11
Angel Investors/Business Angels: Sophisticated, accredited private investors who choose to make early stage investments (time, experience and money) into start-up companies. 11
(Women) Business Angel ((W)BA): A (woman) business angel is an individual investor who invests directly (or through her/his personal holding) her/his own money, experiences and knowledge. (Woman) Business Angels predominantly invest in seed or start-up companies with no family relationship. In exchange, (W)BAs become owners of the company’s shares, they bring financial and non-financial support, and they increase the chances of the company’s success and profitable return on investment.
Angel Investment: (High-risk) investments made by business angels providing seed financing for startups. Angels invest by supporting companies financially and in terms of expertise, experience and personal networks in exchange for ownership equity.
Assets: This term refers to all corporate owned financial resources. “Current assets” comprise any form of currency, including traded inventory, investments and checks. “Fixed assets”, or “capital assets”, consist in material goods and company equipment, such as a company’s premises, company buildings and all machinery. The term “intangible assets” generally refers to intellectual property, copyrights, patents, etc. 4
Asset Management: The term defines all systematic and coordinated activities to optimally and sustainably reach company objectives through a cost-effective life cycle management of assets. 10
Asset Management Plan: Long-term plans, from 10 to 20 years or more (for infrastructure assets), that outline asset activities and programs for any service area or resource. Asset Management Plans are applied to provide a defined level of service for each asset in the most cost-effective way.10
Asset Management Policy: A document that broadly outlines the principles and mandated requirements to undertake systematic and coordinated AM across an organization. The asset management policy needs to be consistent with the organization’s strategic plan and provides the framework for the AM strategy and AM Plan. 10
Asset Register: A record of the asset information, typically held in a spreadsheet, database or software system. The asset register also includes asset-attributed data, such as quantity, type, construction cost, etc.
B2B: Is an acronym that reads “business-to-business”. It is a term that describes business relations between at least two companies trying to sell their products or services to each other. The term B2B is not to be confused with the term B2C.
B2B technology: It is also sometimes referred to as “enterprise technology”.
B2C: The term stands for “business-to-consumer” and means selling products or services directly to individual customers. “B2C transactions” occur when a business engages in direct commercial interactions with consumers. In this scenario, the consumer is the end-user of the provided product or services. 6
Balance Sheet: A condensed financial statement showing the nature and amount of a company’s assets, liabilities, and capital on a given date. 3
Benchmarking: The term describes the process of comparing a company’s performance, costs, products and/or strategies to those of leading firms, peers or standards within the industry. Benchmarking is used to for the evaluation of early-stage companies by comparing them to known examples. 12
Bridge Loan: “Bridge loans” are a company’s solution of choice when short-term financing (up to one year) is needed. This type of loan also helps start-ups to have sufficient funds for any eventual future event e.g., long-term financing.2 A short-term loan used in anticipation of a permanent loan or financing in order to meet current obligations.17
Business plan: A business plan is a legal document that business owner’s use to describe their business idea(s) in the specific. It also contains a company’s overall financial objectives. Many investors heavily rely on entrepreneurial business plans when deciding to invest in a company, which is why many prospective business owners work diligently to refine their business plan in order to raise the capital they need to develop. 4
Business Model Canvas: This term defines a business-plan template that is commonly used by startup companies. A BMC is a short and visually more appealing alternative to the traditional business plan that can be specifically geared towards startups. The so-called “Lean Canvas”, and the “Startup Canvas” are special variants of the classical Business Model Canvas.
Business angel investors: Business angels (BAs) are individual investors who invest directly, or through their personal holdings, their expertise, time and money predominantly into seed or start-up companies that they have no family relationship with.
Burn Rate: The amount that a startup is spending, typically expressed as a monthly figure. 2
Buyout: The purchase of company shares that gives the purchaser controlling interest in the company. A common exit strategy.
Capital: Monetary assets currently available for use. Entrepreneurs raise capital from different sources to start a company and continue raising capital to sustain and grow the company.
Capital under Management: The amount of capital that an angel or VC (Venture Capital) Fund’s management team have at their disposal to invest in new startups. 6
Capitalization Table: A table depicting the quantity of shares or unit ownership which is held by each investor in a corporation or LLC (Limited Liability Companies), typically including founders’ equity, investor equity, and advisor/ employee Stock Option Pools. 6
Capitalize: To record an outlay (amount of money spent) as an asset (as opposed to an expense), which is subject to depreciation or amortization. 3
Closing: A transaction that occurs after entrepreneurs and investors legally exchange all required legal documentation and capital that is needed in their business deal. When an investor “closes in on a deal”, they have already negotiated with the entrepreneur the details encompassing corporate ownership and monetary obligation. 4
Closing conditions: Specific conditions precedents that have to be met before one or both parties to an agreement have to honour their obligations in full. The parties concerned have no obligation to proceed with the agreement while closing conditions remain unsatisfied or incomplete. 12
Closing date: The date when a transaction is brought to completion. 12
Co-investment: Investments into a company alongside other investors in the same round (does not necessarily refer to a group of investors stable over time or involved in several investments). 12
Collateral: A sort of insurance that the lender asks the borrower to provide. Often times, when entrepreneurs seek capital from a financial institution, they use their assets (personal belongings and material goods) as a “collateral” or security for their loan. Should the borrower default on payments (i.e. the borrower is unable to repay interests on the lent capital), the lending institution has the legal authority to confiscate those assets. 4
Competition risk: The risk of losing market shares due to changes in market conditions or as a result of actions undertaken by competitors. 12
Condition Assessment: The inspection, assessment, measurement and interpretation of data, to indicate the condition of a specific component in order to determine the need for some preventive or remedial action. 10
Conversion features: Rights to convert an existing type of investment into another. For example, a convertible bond gives the bondholder the right to convert the bond into shares (equity).
Core Asset Management (or ‘Basic AM’): Management of physical assets (buildings, infrastructures and machineries) which relies primarily on the use of an asset register, maintenance management systems, top-down condition assessment, simple risk assessment and defined levels of service, in order to establish a long-term cash flow projection. 10
Corporate Venturing: A term that is used when a company invests internally on development and innovation of a new product, makes an external investment in another company, or creates an alliance with another company for innovation purposes. 12
Corporation: Synonym for “company”, “enterprise”, or “business establishment”. 4
Cost-Effective Management: The proactive, as opposed to reactive, management of the maintenance, repair and rehabilitation activities required to deliver the desired/required level of service while minimizing the life cycle costs of providing the infrastructure.
Co-Working Space: A shared working environment.
Crowdfunding: Collection of small financial contributions from a large group of people. This is an alternative to traditional loans or investment from friends and family, angel investors, and venture capital, to finance production or services.
Current Replacement Cost: The cost the entity would incur to acquire the asset on the reporting date. The cost is measured by reference to the lowest cost at which the gross future economic benefits could be obtained in the normal course of business. In other words, the minimum cost to replace the existing asset with its modern equivalent, allowing the entity to obtain the same quantity and quality of output with the same operating costs. 10
Deal flow: The stream of investment opportunities that reach an investor (in whichever form – business plans, pitches at events etc.).12
Deal Screening: The process of investors to quickly reduce the (usually very large) number of received investment opportunities (deal flow) down to the few most promising ones which warrant further effort. Guided by the criteria of a suitable personal investment strategy prepared in advance. 12
Debt: Money owed by one person/company to another. The borrower has to repay the money at a later date, together with an amount of interests. 14
Demand Management: Actions taken to influence demand for service and assets, often undertaken as part of sustainability initiatives and/or to avoid or defer required asset investment. Demand management may be “SUPPLY-SIDE” (for example: minimizing waste through pipe leak detection) or “DEMAND-SIDE”, to reduce demand for over-utilized assets or vice versa (for example: through pricing, regulation, education and incentives). 10
Dilution: Issuing more shares of a company dilutes the value of those shares, which are held by existing shareholders. 2
Discount rate: The percentage reduction that investors participating in the convertible round would receive on the share price of a future round that triggers conversion. The discount can be seen as a reward for bearing earlier risk. It should be read in conjunction with the longstop date (deadline for the convertible trigger event to occur), as a later longstop date will typically mean a higher discount. 14
Diversification: An investment strategy that involves mixing the amount, values and kinds of investments within a portfolio to spread risk and minimize losses. 14
Dividends: The distribution of a portion of a company’s profits to shareholders. 14
Drag-along right: A contractual obligation that allows majority shareholders to force minority shareholders to join in the sale of a company on the same terms, valuation and conditions of the majority shareholders. 14
Due Diligence: The process through which a potential buyer or investor carries out an in-depth analysis of a target company. Started only after a clear and serious interest has been demonstrated (due to the amount of work involved in such analysis), this process has to be finished before the transaction takes place. 12
Elevator pitches: An extremely concise presentation of an entrepreneur’s idea, business model, company solution, marketing strategy, and competition delivered to potential investors. Should not last more than a few minutes, or the duration of an elevator ride. 3
Escape velocity: The moment a company reaches the growth momentum needed to put it ahead of the competition. For startups, escape velocity has to do with becoming dominant in their market and growing indefinitely. 13 & 16
Equity: Shares or other securities that represent an ownership interest in a company. 14
Equity capital: Shares of a company are bought in exchange for a cash injection; such cash constitutes the Equity capital. The entity buying shares becomes a co-owner of the company, sharing risks and rewards with the other shareholders. It is not a loan, it is an investment. Investment in exchange for company ownership (Equity financing). 13
Exits: Exiting an investment by selling or transferring one’s ownership stake in a company. 13
Exit channels: The different routes available to company owners to sell (usually all of) their shares. Commonly sought exit channels are the sale to a strategic buyer, the sale to a financial buyer, or an initial public offering; other possibilities include a repurchase or simple liquidation. 12
Exit Strategy: A planned action taken by a company that results in the liquidation of the company’s stock, often in the form of an acquisition by a publicly traded company or a public offering. 11
Expansion Stage Company: This term generally refers to a company that has been in existence for at least three years. During this period of development, a company may have been already successfully commercializing many of their products and services but may not be generating the desired amount of profits. An enterprise that is in its expansion stage may resort to seeking additional sources of capital, to minimize the chances of failure. Many venture capitalists invest in companies that are in such stage of their development. 4
Follow-on investing (follow-up investing): These terms refer to the event whereby investors reinvest in a company sometime during its development. Often times, follow-on investments occur when a company is not performing as successfully as originally planned. Angel capitalists tend to avoid making follow-on investments to the same company because of the high risk of additional monetary loss. 4
Funding: This term is used as a synonym of “financing”. It refers to the amount of money that is needed for a business endeavour to take off. For example, a new business owner may seek a certain amount of funding for their startup company. This “raised” capital can be used to launch their endeavour as well as to sustain their company until monetary profit can be generated. 4
Fund of funds: An investment fund that invests in other funds. 12
Incubator: An organization established to support the development of startup companies within their first years of existence. Incubators can provide facilities, offices and lab space shared by supported startups, as well as resources and development programs, potentially including mentoring programs. Incubators differ from accelerators in that the latter typically specialise themselves on assisting startups to growth in a short time frame, whereas the former is focused on the development of the company and its product over a longer period. 6
Initial Public Offering (IPO): it´s the first time the stock of a private company is offered for public purchase. Smaller, younger companies seeking capital to expand often issue iPOs, but they can also be done by large privately owned companies looking to become publicly traded. 17
Intellectual property rights: Legal rights of ownership of intangible assets, for example trademarks, copyrights, patents, designs and trade secrets. 12
Internal rate of return (IRR): A typical measure of how Venture Capital Funds compare performances between investments. It represents the rate at which the present value of a series of investments is equal to the present value of the returns on those investments. For example, a corporation will evaluate an investment in a new plant versus an extension of an existing plant based on the IRR of each project. The project with the highest IRR would be the wiser investment, all other factors (including risk) being equal. 3 & 17
Investment agreement: A contract that states the rights and obligations of each party within an investment. The agreement can be made between investors, investors and an investment manager, etc. 12
Investment Bank: A regulated financial institution that provides various financial and consulting services such as capital-raising, mergers and acquisitions (M&A), stock trading, etc. 12
Investor roles: Different investors can provide different kinds of support to their portfolio companies, especially among business angels. They can act as advisors, board members etc. Economic scientist Roland Engel classifies early-stage investors into five types: Cowboy (provides all resources except materials), Big Boy (financial investor), Landlord (assists startups through infrastructure or tangible materials), Co-founder (actively participates also on the operational level), and Godfather (has a strong network, participates in management). Furthermore, if several investors invest at the same time in the same company, they can cover multiple roles or even exchange roles among themselves during the investment process. 12
Later-stage Company: A company that is considered to be in its mature stages of development. Unlike early and expansion-stage companies, later-stage companies already have successful commercialized products and services that are publicly available and they are able to generate a significant cash flow. Many venture capitalists tend to invest in mature companies since they are already established, less risky, and have proven to be a financial success. 4
Lead Investor: The term indicates the primary investor of a syndicated round of financing (see Syndication/Syndicate). This investor is typically the largest investor of the syndicated round and usually structures and leads the negotiation of terms related to the investment’s documentation. 6
Levels of Service: They indicate a series of statements, which describe the outputs or objectives an organization or activity intends to deliver to its customers. 10
Leveraged buyout (LBO): This is a type of aggressive business practice, whereby investors or larger corporations utilize borrowed funds (junk bonds, traditional bank loans, etc.) or debts to finance their acquisition. The high debt-to-equity ratio enables the investors to “buyout” a smaller company with very little cash. Leveraged buy-outs can be either friendly or hostile, depending on the negotiations made. 4
Liquidation: This event represents the complete or partial closing of a company. During such event, a company’s assets and material goods (securities) are converted into cash and/or distributed for sale to pay off existing corporate debt.4
Liquidity event: This occasion represents a common exit strategy for entrepreneurs and investors. When a corporation is purchased (through merger or acquisition) or when an IPO (Initial Public Offering) is made, equity is converted to cash. 4
Life Cycle Costs: The total cost of an asset throughout its “life”. The life of an asset includes its planning, design, construction, acquisition, operation, maintenance, rehabilitation and finally its disposal costs. 10
Long-Term Financial Plan: A plan for generating, spending and saving future income, raising and repaying borrowings as appropriate. It will cover a period of at least three years and will highlight the financial implications of an entity’s proposed activities and anticipated events.15
Market: Based on supply and demand, this term refers to the societal arrangement whereby consumers purchase goods and services from businesses and individual sellers in exchange for currency. For economic relevance, the “market” can be divided into different industries, such as biotechnology, food, etc. The exchanges between consumers and sellers contribute to a society’s market economy. 4
Market Capitalization: The total dollar value of all outstanding shares of a company. Computed multiplying the number of shares by their current price per shares. Prior to an IPO (Initial Public Offering), market capitalization is derived from estimating a company’s future growth and from comparing a company with similar public or private corporations (see also: Pre-Money Valuation). 3
Market risk: Probability of loss common to all businesses and investment opportunities, and inherent in all dealings in a market. Also called Systemic risk, economic changes or other events that affect large portions of the market. 18
Mezzanine Financing: A blend of debt and equity financing, requiring little to no collateral, which does not necessarily involve giving up interest in the company. This capital is typically used to fund growth or to enable management to buy out company owners for succession purposes. The interest rate is high, ranging from 20-30%. Lenders can convert their stake to equity or ownership in the event of default. 2
Non-Disclosure Agreement (NDA): A legal agreement between parties that formally binds all signing parties not to disclose any confidential information that they have shared with each other. 2
Pipeline: The flow of upcoming underwriting deals. 12
Pivot: A concept popularized by the lean startup movement. It indicates a company deliberately and substantially changing its direction based on what it has learnt in the past. In other words, pivoting implies making use of prior experiences, applying the new insight to different areas.
Pitch: A presentation in which a startup founder attempts to persuade an investor of the viability of their company. The presentation spectrum varies based on the specific purpose of the pitch. Elevator pitches, for example, are brief presentations in which an entrepreneur provides a 30 – 60 second overview of their idea, business model and marketing strategy, with the purpose of attaining a follow-up audience with an investor. Formal, detailed presentations utilizing power point slides, with the specific objective of seeking investment from angel groups or Venture Capitals (VCs), are known as investment presentation pitches. 6
Portfolio: The collection of all of the companies invested in by an angel or Venture Capital (VC). 7
Post-Money Valuation: Company value immediately after funding. If the pre-money valuation equals $2M and the company subsequently raises $500K, the post-money valuation will total $2.5M. 2
Pre-Money Valuation: Company value immediately before funding. If post-money valuation equals $2.5M and the company raised $500K, then the pre-money valuation will be equal to $2M. 2
Raising capital: Refers to obtaining capital from investors or venture capital sources. 12
Redemption rights: The right an investor has to request the company to buy back (redeem) the investor’s shares. 10
Return on investment (ROI): This term is also referred to as rate on return (ROR) or rate of profit. It is a percentage given by the amount of money gained from a past or existing investment divided by the amount of money invested. For example, angels investing in startups and early stage companies will expect a high ROI to compensate for the high risk of such an investment.
Renewal: Replacement of existing assets or facilities with newer ones of equivalent capacity or performance capability. 10
Risk: This word refers to the probability of a loss on an investment. 4
Risk Management: Coordinated activities to identify, direct and control risks in which an organization may incur. 10
Scalability: The ability of a business to grow very large very fast. 13
Seed money/seed capital: This is the initial capital for a newly formed or startup company. Angel investors are usually the primary source of seed capital for new businesses. 4
Seed stage/start-up stage: This is the initial phase of a company’s development, whereby a prospective business is developing new products and services, which have not been fully tested and introduced to the public. This company phase usually lasts an average of 18 -24 months, before entering into its early stage of development. 4
Shareholder agreement: An agreement between a company’s shareholders, detailing their rights and obligations.
Startup: A company in the early stages of development, which seeks to create a new product or service under significant uncertainty. Startups, which demonstrate a large growth opportunity in the first few years, represent the most interesting investing opportunities. 12
Strategic Plan: A plan containing the long-term goals and strategies of an organization. Strategic plans have a strong external focus. They cover major portions of the organization and identify major targets, actions and resource allocations relating to the long-term survival, growth and value of an organization.
Syndication/syndicate: The process whereby a group of venture capitalists/business angels provide a portion of the amount of money needed to finance a small business. 4
Tag-along rights: A contractual obligation, which gives minority shareholders the right, but not the obligation, to join a transaction of shares, on the same terms, valuation and conditions enjoyed by majority shareholders. 4
Terms Sheet: A non-binding document that outlines the general terms of a deal. Once the parties agree, the terms sheet will provide the guideline along which the appropriate legal documentation will be drafted. 2
Ticket size/Entry ticket: The amount of money that goes into an investment transaction. 12
Tranches: Portions of a deal or structured financing that are paid out only under certain condition (typically the achievement of pre-agreed milestones).
Validation: The idea behind a validation is to prove that a business concept is practical and worth investing in. Depending on the desired level of validation, it may provide information over the product/market fit (proof that there are some willing buyers) or traction (proof that there are many/enough willing buyers).12
Valuation: The estimation of the economic worth of companies, assets or liabilities. There is a range of different methods for determining such value, the development stage of a company or the industry in which it operates usually dictate which method to use.12
Venture: Often use for referring to a risky start-up or enterprise company. 4
Venture Capital (VC): is also called risk capital. The term indicates an institutional source of financing for startup companies, made by entities and individuals seeking higher returns for taking greater risks.12
Venture Capital Funds: Venture capital funds pool and manage money from investors seeking private equity stakes in small and medium-size enterprises with strong growth potential.4
Vesting: A process in which you “earn” your stock over time. The purpose of vesting is to grant stock to people over a fixed period, so they have an incentive not to sell their shares. A typical vesting period for an employee or founder might be 3 – 4 years, which would mean they would earn 25% of their stock each year over a 4-year period. If they leave before the vesting period is over, the unvested portion returns back to the company.2
Warrants: are issued by the company and give an investor a contractual right to buy a certain amount of stock at some point in the future (set time or linked to company milestones) at a predetermined price (set price or discount on future value).19
- Source: Crowdfunding Professional Association, website (http://www.crowdfundingprofessionalassociation.org/)
- Source: 37 Angels, website (http://www.37angels.com/glossary/)
- Source: Angel Capital Association, website (http://www.angelcapitalassociation.org/data/Documents/Resources/StartingaGroup/1b%20-%20Resources%20-%20Starting%20a%20Group/10%20Angel_Guidebook_-_Glossary_of_Terms.pdf)
- Source: Go4Funding, website (http://www.go4funding.com/Articles/Angel-Investors/Commonly-Used-Terms-For-Angel-Investors.aspx)
- Source: FundingPost, website (http://www.fundingpost.com/glossary/venture-glossary.asp)
- Source: FundingSage, LLC, website (http://fundingsage.com/entrepreneur-dictionary-for-startups/)
- Source: Angel Investing, by David S. Rose
- Source: Institutional Limited Partners Association
- Source: Venture Choice, website (http://www.venturechoice.com/glossary/)
- Source: INGENIUM and IPWEA (2011) International Infrastructure Management Manual (IIMM), Association of Local Government Engineering New Zealand Inc. and National Asset management Steering Group, Thames, New Zealand.
- Source: Ewing Marion Kauffman Foundation (2000), website (http://www.pnl.gov/edo/media/angel_glossary.pdf) (EMKF)
- Source: Business Angel Institute, website (http://businessangelinstitute.org/resources/glossary/)
- ANGEL ACADEMY (AA), Angel Investing Training Course, website (http://www.angelacademy.co/glossary/)
- Source: SEEDRS, website (https://www.seedrs.com/learn/glossary)
- Source: IPWEA (2010) Australian Infrastructure Financial Management Guidelines (AIFGG), Institute of Public Works Engineering Australia, Sydney, Australia.
- Source: David Cummings on Startups, website (https://davidcummings.org/2012/03/31/escape-velocity-for-startups/)
- Source: Investopedia, website (http://www.investopedia.com/)
- Source: Business Dictionary, website (http://www.businessdictionary.com/)
- Source: Go Beyond early stage investing, web site(https://go-beyond.biz/), video(https://go-beyond.biz/Rising-Tide-Intro-Managing-Follow-on-Rounds-2016-08-02)