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Bankruptcy |
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An inability to pay debts. Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt.
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| Barriers to entry |
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Factors influencing the ability to get into a business including economies of scale, product differentiation, capital requirements, cost disadvantages independent of size, access to distribution channels, and government policy.
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See Creating Your Pitch: Competition.
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| Bear Hug |
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An offer made directly to the Board of Directors of a target company. Usually made to increase the pressure on the target with the threat that a tender offer may follow.
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| Best Efforts |
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An offering in which he investment banker agrees to distribute as much of the offering as possible, and return and unsold shares to the issuer.
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| Blue Sky Laws |
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A common term that refers to laws passed by various states to protect the public against securities fraud. The term originated when a judge ruled that a stock had as much value as a patch of blue sky.
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| Bond |
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Specific type of debt instrument most commonly sold by government entities.
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| Book Value |
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Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.
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| Bridge Financing |
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A limited amount of equity or short-term debt financing typically raised within 6-18 months of an anticipated public offering or private placement meant to "bridge" a company to the next round of financing.
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| Burn Out / Cram Down |
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Extraordinary dilution, by reason of a round of financing, of a non-participating investor's percentage ownership in the issuer.
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| Burn Rate |
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The rate at which a company expends net cash over a certain period, usually a month.
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| Business Development Company (BDC) |
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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.
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| Business Judgment Rule |
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The legal principle that assumes the board of directors is acting in the best interests of the shareholders unless it can be clearly established that it is not. If the board was found to violate the business judgment rule, it would be in violation of its fiduciary duties to the shareholders.
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| Business plan |
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A well researched and ever changing document that provides direction and focus for both the day-to-day operations and the future growth of the business. A good business plan will include components covering management, the product and/or service, a marketing plan, financials, operations and control systems, and a growth plan and exit strategy.
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A document that describes the entrepreneur's idea, the market problem, proposed solution, business and revenue models, marketing strategy, technology, company profile, competitive landscape, as well as financial data for coming years. The business plan opens with a brief executive summary, the most important element of the document due to the time constraints of venture capital funds and angels.
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See Business Plan Guide.
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| Call Option |
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The right to buy a security at a given price (or range) within a specific time period.
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| Capital Gains |
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The difference between an asset's purchase price and selling price, when the selling price is greater. Long-term capital gains (on assets held for a year or longer) are taxed at a lower rate than ordinary income.
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| Capital (or Assets) Under Management |
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The amount of capital available to a fund management team for venture investments.
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| Capitalization Table |
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Also called a "Cap Table", 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.
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| Capitalize |
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To record an outlay as an asset (as opposed to an Expense), which is subject to depreciation or amortization.
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| Carried Interest |
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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.
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| Cash Position |
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The amount of cash available to a company at a given point in time. Claim Dilution A reduction in the likelihood that one or more of the firm's claimants will be fully repaid, including time value of money considerations.
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| Chapter 11 |
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The part of the Bankruptcy Code that provides for reorganization of a bankrupt company's assets.
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See "Bankruptcy"
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| Chapter 7 |
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The part of the Bankruptcy Code that provides for liquidation of a company's assets.
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See "Bankruptcy"
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| Clawback |
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A clawback obligation represents the general partner’s promise that, over the life of the fund, the managers will not receive a greater share of the fund’s distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund’s cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund’s limited partners an amount equal to what is determined to be "excess" distributions.
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| Close-end Fund |
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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.
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| Closing |
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The final segment of an investment presentation.
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An investment event occurring after the required legal documents are implemented between the investor and a company and after the capital is transferred in exchange for company ownership or debt obligation.
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See Creating Your Pitch: Closing.
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| Co-investment |
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The syndication of a private equity financing round or an investment by an individuals (usually general partners) alongside a private equity fund in a financing round.
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| Collar Agreement |
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Agreed upon adjustments in the number of shares offered in a stock-for-stock exchange to account for price fluctuations before the completion of the deal.
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| Committed Capital |
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The total dollar amount of capital pledged to a private equity fund.
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| Common Stock |
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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.
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| Competition |
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- Any rivalry between two competitors; or
- When two or more parties acting independently try to secure the business of a third party by offering the best terms available.
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See Creating Your Pitch: Competition.
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| Compound Annual Growth Rate (CAGR) |
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The year over year growth rate applied to an investment or other aspect of a firm using a base amount.
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| Conversion Ratio |
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The number of shares of stock into which a convertible security may be converted. The conversion ration equals the par value of the convertible security divided by the conversion price.
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| Convertible [Note] [Debenture] |
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Debt instrument that automatically or voluntarily converts to some other security, either debt or equity.
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| Convertible Preferred Stock |
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Preferred stock that may be converted into common stock or another class of preferred stock, either voluntarily or mandatorily.
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| Convertible Security |
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A bond, debenture or preferred stock that is exchangeable for another type of security (usually common stock) at a pre-stated 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.
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See "Commonstock", "Dilution", "Preferred Stock"
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| Corporate Charter |
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The document prepared when a corporation is formed. The Charter sets forth the objectives and goals of the corporation, as well as a complete statement of what the corporation can and cannot do while pursuing these goals.
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| Corporate Resolution |
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A document stating that the corporation's board of directors has authorized a particular individual to act on behalf of the corporation.
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| Corporate Venturing |
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Venture capital provided by [in-house investment funds of] large corporations to further their own strategic interests.
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| Corporation |
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A legal, taxable entity chartered by a state or the federal government. Ownership of a corporation is held by the stockholders.
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| Covenant |
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A protective clause in an agreement.
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| Cumulative Preferred Stock |
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A stock having a provision that if one or more dividend payments are omitted, the omitted dividends (arrearage) must be paid before dividends may be paid on the company's common stock.
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| Cumulative Voting Rights |
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When shareholders have the right to pool their votes to concentrate them on an election of one or more directors rather than apply their votes to the election of all directors. For example, if the company has 12 openings to the Board of Directors, in statutory voting, a shareholder with 10 shares casts 10 votes for each opening (10x12= 120 votes). Under the cumulative voting method however, the shareholder may opt to cast all 120 votes for one nominee (or any other distribution he might choose).
Compare to "Statutory Voting" |
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