Angel investor
A person who provides backing to very early-stage businesses or business concepts.
Bridge financing
As the name implies, bridge financing is intended as temporary funding that eventually will be replaced with permanent capital.
Burn rate
The rate at which a company is losing cash, typically expressed as a monthly rate.
Business model
The combination of factors that describe the business, including the market the business will serve, the perceived value delivered to the customer which determines profitability per unit of sale, and the sustaining factors which will allow the company to thrive over the long term.
Buy-sell
An agreement that states under which circumstances one party of an investment must buy out the other party.
Capital take-down
The schedule by which the general partner of a fund draws down capital from the limited partners to be used for investments.  Most general partners today call down capital only as they require it, rather than in pre-set amounts according to a rigid timetable.
Dilution
A decrease in the equity position of a shareholder when additional shares are issued.
Due diligence
Investigation and research carried out in order to evaluate an investment proposition and determine whether to commit funds.  This process includes reviewing: management team, market, competition, track record, finances, etc.
Intellectual property
Intangible assets, such as knowledge, brand names or patents, etc.
Internal rate of return (IRR)
Equivalent to the compound rate of return of an investment.
Options/stock options
Financial instrument which gives the holder the right to buy an underlying instrument (e.g. common stock) at an agreed amount.
Post-money valuation
The valuation or total price of an early-stage company after the investors have placed their capital in the business.  See also pre-money valuation.
Preferred stock
This is one of the most common classes of shares for venture capital and buyout firms to hold.  Preferred stock pays dividends at a set rate, and holders get paid before common stock holders in the event of a liquidation.  Convertible preferred stock is convertible into common stock at a pre-determined price per share.
Pre-money valuation
The valuation or total price of an early-stage company before the investment occurs.  A "3m pre-money valuation" values the company at $3m before the investors put their capital in.  If investors then placed $500k into the company, the post-money valuation would be $3.5m.  This is important because the percentage of the company provided to the investors is based on the post-money valuation.  In the above example, %500k/$3.5m=14%.  So the investors own 14% of the company after they invest.
Return on investment (ROI)
Normally refers to the annual return on capital, i.e. if your savings account pays 4.1% interest, that is the ROI.  If $100 were invested and earned 50% over two years, it would then be worth $225.  Total ROI is the total percentage increase over the life of the investment.
Seed capital
Capital which will finance a company at the conceptual stage.
Warrant
An option to purchase stock in a company, typically exercised over an extended period.
Warranties
True items about a business told to an investor or venture capitalist.
 

 

©1997-2017 Sherpa Partners® LLC. All rights reserved.
5759 Long Brake Circle
Edina, MN 55439