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83 Cards in this Set
- Front
- Back
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A Round
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A funding round in which Series A P/S is issued and sold to outside investors; typically the first venture financing round
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Accredited Investor
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Investors such as banks, insurance companies, employee benefit plans, charities, corporations or partnerships with assets exceeding $5MM (or very wealth individuals and families) to whom a company may sells its securities without having to register
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Anti-Dilution Provision/Protection
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A provision in an option, warrant, or convertible that intends to protect the holder from losing ownership interests that may result from future sales or issuance of capital stock by the issuer
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Automatic Conversion
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A feature of a security whereby, upon the occurrence of certain specified events of transactions, it automatically converts into shares of common stock
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B Round
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A funding round following the first round in which Series B P/S is issued and sold to one or more outside investors, either to new or outside investors
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Basket
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Specific dollar limitations on indemnity claims or other provision provided under an agreement
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Board of Directors
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The governing body of a corporation, charged with oversight of the management and direction of the corporation
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Bridge Financing
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Temporary (and sometimes emergency) limited funding that will eventually be replaced by permanent capital; a note may be converted into P/S in the next financing round
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Broad Based Weighted Average Ratchet
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The most commonly used form of anti-dilution provision in venture capital transactions; the effect of the issuance is spread over a large number of shares including unexercised options and outstanding convertibles
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Burn Rate
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The rate at which a business expends it net cash over a defined period
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Call Option
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The right to buy a security at a specified price within a specified time period
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Cap or Ceiling
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A maximum limit on indemnity claims or other provisions under a definitive agreement
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Capital Call
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When a VC fund manager requests or requires that an investor in the fund provide additional capital to the fund
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Capitalization/Cap Table
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A table showing the types of securities issued by the company and the identity and security/share ownership of each security holder
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Carried Interest or Carry
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The general partner's share of the profits generated through the funds performance; an amount generally based on a percentage of profits which incentivizes performance
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Certificate of Designation
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Filed by a corporation attesting to the board of directors' terms, rights, preferences, and limitations of a series of blank check P/S; once filed, becomes part of the charter
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Charter
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The principal governing document of a company, as provided under the governing corporate law of the state of organization, prepared and filed when the company first formed
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Clawback
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A provision in a PE or VC's governing documents which provides that over the life of the fund, the managers will not receive a greater share of the funds's distributions than what they agreed and bargained for; often a certain percentage of the fund's cumulative profits
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Club Deal
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An investment transaction in which several fund investors invest side by side in the same round
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Committed Capital
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The total amount of capital pledged to a PE or VC fund and available for the purchase of or investment in portfolio companies
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Conversion Ratio
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The ratio used to determine the number of shares of stock into which a convertible security may be converted
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Conversion Rights
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Rights under which shares of P/S convert into shares of common stock; may be automatic, mandatory, or voluntary and may be protected by anti-dilution provisions
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Convertible P/S
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A type of P/S that is convertible into or exchangeable for shares of C/S at a specified conversion ratio; the most commonly used form of security for VC investment transactions
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Convertible Security
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A security of a company that by its terms is convertible into another security of the same company
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Covenant
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A legal promise in a definitive agreement that obligates a party either to take an action or refrain from taking an action; may require the maintenance or achievement of some defined economic, operating, or financial measure
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Cram-Down Round
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A funding round in which new investors demand that they receive contractual provisions, contractual concessions, and new securities that significantly reduce the ownership percentage of previous investors
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Cumulative Dividends
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The right of a holder of P/S to receive accrued and previously unpaid dividends at a fixed rate in full before any dividends may be paid to the holders of any other junior classes of capital stock; rights often waived if the P/S converts to C/S prior to an IPO or other significant transaction
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Dilution
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A reduction in the percentage ownership or the value of equity security holdings of a given shareholder caused by the issuance of additional securities
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Down Round
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A round of financing in which the valuation of the company is lower than the valuation utilized in a previous round; the conversion price on this round is lower than the conversion price in a prior round
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Drag Along Rights
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Contractual rights that allow one or more investors/shareholders to force all other shareholders to agreement to and/or participate in a specific action alongside the initiating investor/shareholder; prevents minority shareholders from blocking a sale of the company by refusing to sell their shares
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Elevator Pitch
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A very concise oral presentation lasting only a few minutes by an entrepreneur to a potential investor concerning the business model, strategy, market, and solution of the company in question
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Exercise Price
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The price at which an option or warrant can be redeemed
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Exit/Exit Strategy
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The means or plan by which a VC fund monetizes and realizes a return on its investment in a portfolio company; may include being sold, an IPO, or recapitalization
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Follow-On Funding; Follow-On Investment
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An additional investment in a company made by its existing investors
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Founders' Shares
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Share of C/S owned by the company's founders upon the company's organization
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Founder Vesting
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A requirement imposed by outside investors that founders' shares be earned over a period of years before they are fully owned (and may be sold or transferred); discourages founders from immediately cashing out
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Full Ratchet
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A type of anti-dilution protection that is favorable to the investor and most unfavorable to the company; adjusts the exercise price or conversion ratio of a security to the lowest price at which securities are issued after the issuance of the subject security; investors owning C/S are diluted
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Gatekeepers
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Intermediaries whom VCs use as sounding boards and advisers in sourcing and gaining introductions to potential portfolio company invesments
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General Partner
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The person responsible for all aspects of managing the VC fund, including communicating, raising funds, making investment decisions, nurturing portfolio companies, and assisting with exits; earns a management fee and carried interest
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Hurdle Rate
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The minimum preferred return to limited partners in a VC fund to be achieved before the general partner's carried interest is permitted
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Institutional Investors
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Large, asset rich organizations that invest their funds in a variety of investments and asset classes and in an ongoing , professional basis; banks, insurance companies, pension funds, investment companies, mutual funds, and endowments
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Intellectual Property (IP)
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A business's intangible but often valuable assets such as patents, trademarks, copyrights, and brand
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Internal Rate of Return (IRR)
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The discount rate at which a specific amount of capital invested today would have to grow in order to reach a specific value at a specific time in the future; standard and accepted benchmark VC funds utilize to measure and compare their relative performance
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Investor Rights Agreement
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A key definitive agreement in a VC investment transaction typically providing for various obligations of the issuer and existing owners and rights of new investors
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Lead Investor
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The person or VC fund that organizes a round of financing, leads the round in such matter as due diligence, valuation, LOI preparation, negotiations, documentation, and closing, and usually contributes the largest amount of capital to the round
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Letter of Intent (LOI)
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A written expression of two or more parties' intentions to effect an investment transaction; summarizes the material terms of the deal and serves as the basis for preparing a definitive agreement; generally not legally binding
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Limited Partners
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High net worth individuals and institutional investors that contribute capital to the fund and are not involved with the management of the fund
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Limited Partnership
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A legal entity comprised of a GP which manages the fund and an LP who contribute capital but have liability only to the extend of their contribtion
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Liquidation Preference
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The right to receive a specific value or amount for shares of P/S if the company is liquidated in priority to amounts to be distributed on other securities
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Management Fee
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An annual fee, typically fixed at a fixed percentage of the LP's capital commitment to the fund, designed to cover overhead
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Mandatory Redemption
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The right of a security holder to require the repurchase by the issuer of some or all of the security held at a specified price and time; the price is generally the original investment price plus any accrued and unpaid dividends
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Minority Protections
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Rights provided to minority shareholders affording protection against action taken by majority or controlling shareholders
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Multiple Liquidation Preference
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When the liquidation preference of a P/S is fixed at a multiple of the amount invested
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Narrow Based Weighted Average Rathcet
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More favorable to the investor, the effect of the share issuance in the down round is spread over a smaller number of shares (generally just issued and outstanding shares)
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No Shop
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An agreement whereby the issuer gives an investor an exclusive right during a limited time period to negotiate and enter into a definitive agreement with the issuer, and agrees not to solicit or encourage other investment proposals during that period or to talk to other potential investors
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Option
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The right to purchase equity securities in a company at a specified price within a time period; awarded to management and key employees
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Option Pool
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The number of shares of C/S that are set aside for issuance upon the exercise of options or other equity-based incentives to be granted by the board of directors in the future to management and key employees`
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Pari Passu
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Equally, proportional, and without preference; generally used to describe securities that are to be treated as being of equal priority
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Participating Preferred Stock
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A type of P/S that is entitled to share with holders of C/S in dividends and/or liquidation payments after and in addition to collecting any state liquidation preference or dividend rights
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Payment in Kind (PIK)
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A feature of a security payment to which dividends or interest are paid in the form of additional securities of the same type instead of cash
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Pay-to-Play Provision
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A contractual provision requiring an existing investor to participate on a pro rata basis in a subsequent investment round, especially a down round; if the investor does not participate, then it suffers specific adverse consequences, including automatic conversion to commons stock, loss of the right to participate in future, loss of anti dilution protection, loss of veto rights, and loss or board representation rights
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Post Money Value
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The value of a portfolio company immediately after a funding round; pre + amount of funds invested in the current round
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Preemptive Rights
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The right of a stockholder to participate in future issuance of equity securities by a company, through the purchase of additional equity securities to allow that stockholder to maintain its proportionate ownership interest
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Pre Money Value
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The agreed upon or theoretical value of a company immediately prior to the current investment round; value determined by negotiation and and is calculated by multiplying the number of outstanding shares before the current round times the agreed purchase price per share in the round
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Put Option
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The right to sell a security at a specified price within a time period
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Qualified IPO; QPO
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An IPO that meets certain contractually defined criteria (i.e., minimum gross proceeds or minimum price multiple); designed to ensure a sufficiently robust IPO such that the shares will trade on a major exchange; may trigger certain events on the stock
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Redeemable Preferred Stock
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P/S which by its terms enables the stock holder to require that the issuer repurchase the P/S for a specific amount at a certain time
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Registration Rights
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Rights of a holder to have securities registered with the SEC in connection with a later public offering by the issuer
Demand Rights require the holders hares to be so registered Piggyback Rights permit the holder to add its shares onto another person's or the issuers registration statement |
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Right of First Offer
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A provision that prohibits a shareholder from selling their shares for a defined period unless they have first offered to sell them to the other shareholders at the price and on the terms fixed by the selling shareholder
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Right of First Refusal
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A provision that prohibits a shareholder from accepting a bona fide offer made by a third person to purchase the shareholder's shares unless other specified shareholders are first given the opportunity to purchase the shares at the same price and on the same terms
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Round
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An investment transaction in which a private company receives funding from outside investors
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Shareholders' Agreement
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An accord among shareholders of a company regulating the governance of the company, the ownership and transfer of its equity securities, and other matters
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Small Business Investment Community (SBIC)
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An investment firm licensed by the SBA to obtain matching federal loans for its VC/PE equity investments; generally has access to $2 in credit for every $1 that it invests in a portfolio company that meets certain requirements
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Staged Investing
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An investment in a company structured to be funded in installments with the initial installment at the first closing and then subsequent installments at certain milestones or agreed upon periods
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Strategic Investors
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Corporate or individual investors that add strategic value to their equity investments through industry experience, expertise, and contracts
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Subordinated Debt
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Debt that is inferior in right of payment to other senior debt in the event of liquidation, insolvency, or bankruptcy
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Sweat Equity
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Equity ownership received as a result of and in exchange for work, deliverables, or expertise as opposed to cash investment
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Tag-Along Rights; Co-Sale Rights
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Contractual right of a minority investor to sell their stock along with and at the same price as the founder or majority shareholder if either the founder or majority shareholder elects to sell stock to a third party
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Ten Bagger
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An investment that returns to its investors at least 10 times the initial amount of capital invested
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Veto Rights
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Rights granted to certain shareholders to vote on or approve certain specified transactions by an issuer, and without the consent of the shareholders, the action may be blocked
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Warrant
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A security that provides the holder with the right to purchase stock at a specified price over a time period; typically issued to third parties in connection with the issuance of debt securities
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Washout Round
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A financing round whereby previous investors, founders, and management suffer substantial dilusion
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Weighted Average Ratchet
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A type of anti-dilution provision which applies a formula to adjust the conversion ratio of a security downward based on the sale price and number of common equivalent shares issued by the company after the issuance of the first security
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