The Startup Glossary: Bootstrapping and Fundraising

start-guruThe-Startup-Glossary-Bootstrapping-and-Fundraising

This Article below originally published on Founder Institute

The bootstrapping and fundraising stage is where startups attract investment and begin to scale. Successful startups approach investors with a well-organized pitch and a thorough understanding of the investment process. These startups understand what makes their product remarkable and use their raised funds in pragmatic and thoughtful ways.

Startup Bootstrapping and Fundraising

Accelerator – Fixed-term programs that provide mentorship, valuable advice, and training for entrepreneurs. Oftentimes, these programs culminate in a pitch event.

Accredited Investor – An individual who meets the legal requirements for investment in a business venture.

Accrued Interest – The interest accrued on a debt or asset since the most recent interest payment was made.

Advisory Board – A group of external advisors who provide strategic advice.

Amortization – The scheduled process of gradually paying off a debt.

Angel Fund – A group of angel investors who work together and coordinate in the investment process.

Angel Investor – Individual who provides capital for startups in exchange for either debt or equity.

Angel Round – Funding round dedicated to attracting angel investors.

Anti-Dilution Agreement – A legal agreement ensuring that if further investments are made into a company or a sale occurs, the investor’s shares are not diluted. This is primarily performed to protect the interests of early investors.

Bridge Financing – Short-term financing that is expected to be repaid quickly.

Board of Directors – A group of individuals who have been elected by stockholders and chosen to oversee a company’s affairs. Oftentimes, investors request a board seat in exchange for a startup investment.

Bootstrapping – Starting a business without external help or investment.

Buyout – A common exit strategy in which a company’s shares are purchased, granting the purchaser a controlling interest in the company.

Capitalization Table – A table displaying the total amount of securities issued by a company, along with details of the ownership of these securities.

Capital Gain – The difference between the purchase price and selling price of a given asset.

Capital Under Management – The amount of capital available to a management team for venture capital investment.

Carried Interest or “Carry” – The portion of investment gains to which fund managers are entitled without contributing their own capital.

Capped Notes – This refers to the practice during investment rounds where a cap is placed on a company’s valuation.

Closing – The final stage in the investment process, where legal documents are signed and an investment becomes official.

Convertible Debt/Equity – Investments designed to turn into equity at a future point in time, when a company is first valued. This is a useful method for young companies to attract investment prior to valuation.

Crowdfunding – The process of generating money to fund a business via many individual donors across an online platform.

Deal Flow – The rate at which investment opportunities are introduced to a funding institution.

Deal Room – Central location where investment pitches and negotiations take place.

Debt Financing – Money-raising tactic in which a company sells bonds or notes to an investor with the assumption that they will be re-purchased with interest.

Due Diligence – An analysis made by an investor based on the facts and information about a company or product prior to investment.

Early Stage – The earliest stage of the three main startup phases. These are fledgling companies that are often pre-valuation.

Entrepreneur in Residence (EIR) – An experienced entrepreneur who is employed by a venture capital firm and plays an advisory role.

Equity Financing – Money-raising tactic where investment is provided in exchange for a portion of ownership over the company.

Exploding Offer – An investment offer that is retracted if it not accepted after a short time period.

First Refusal – Clause that requires investors and founders to offer their shares to an existing early investor before selling to a third party.

Full-Ratchet – A provision intended to protect investors, preventing extreme dilution of equity/shares.

Fund of Funds – A mutual fund that invests into other mutual funds.

Golden Handcuffs – Benefits or delayed payments offered by a company in order to prevent an employee’s departure.

Golden Parachute – A large compensation or lump payment for the dismissal of an executive, often occurring in the aftermath of a takeover.

Incubator – A company or facility designed to aid entrepreneurs via shared resources, education, expertise, and intellectual capital.

Late Stage – A startup company that has been in existence for a noteworthy period of time and has proven to have a viable product and business model.

Lead Investor – Member of an investment syndicate who holds the largest stake in a given company. Oftentimes, the lead investor is a startup’s principal provider of capital.

Leveraged Buyout – When a person or group of people take on debt in order to buy out the remaining shares of a company and achieve ownership.

Liquidation – The process of turning securities into cash, often as part of an exit strategy.

Liquidity Event – An event that allows venture capital firms realize their gains or losses by liquidating equity in a company.

Limited Partner (LP) – An investor with little control over the management of a partnership or a portfolio company, in exchange for less restrictions on liquidation.

Liquidation Preference – The right to receive a specific monetary value in exchange for equity, especially in the event of a company dissolving.

Management Buyout (MBO) – Funds provided for a management team to acquire a product or business.

Pre-Emptive Right – A clause in an investment agreement that grants investors the right to maintain the same percentage of equity after restructuring.

Post-Money Valuation – The value of a company, determined after an investment has been made.

Pre-Accelerator – Program that offers advice for companies that have not yet entered an accelerator.

Pre-Money Valuation – The value of a company, determined before an investment has been made.

Pre-Sales – A product for which customers have dedicated money and made purchases before the product has actually been shipped. Sometimes, pre-sales take place before products have been produced or finalized.

Preferred Stock – A stock that carries a fixed dividend and takes sale-order priority over other forms of stock.

Principal – The total value of the original sum invested.

Promissory Note – A legal document detailing the amount of debt owed along with an obligatory repayment plan.

Pro-Rata – Division of stocks or equity based on equal proportions.

Recapitalization – A corporate reorganization of capital structure by changing the mix of equity and debt.

Secondary Public Offering – When a company presents stock for sale to the public after an IPO.

Secondary Purchase – The act of purchasing stock from a shareholder rather than from the company itself.

Securities – All types of equity or debt.

Seed Round – The first round of financing for a startup. Usually funds raised in the seed round are intended to be spent on producing a prototype or proof of concept.

Seed Stage – The stage of a startup where profitability is extremely unlikely and seed funds are required to gain customer insights.

Series A – The first major round of venture capital funding wherein preferred stock is issued.

Series B/C/D/E – Later rounds where preferred stock is issued.

Share Consent – A legal clause requiring an investor’s consent in order for a business to sell shares at a later date.

Statutory Voting – A voting method for a Board of Directors in which a board member receives 1 vote for each share they own.

Stock Options – The right to sell or purchase stock for a set price during a pre-defined period of time.

Strategic Investors – Investors who add value to their investments via industry ties or experience.

Syndication – The venture capital practice of each individual investor contributing a small portion of money required to fund a company.

Tag-Along Rights – Agreed stipulation stating that if a founder decides to sell their shares to a buyer, an existing investor can offer their shares to the buyer for the same amount.

Term Sheet – A non-binding agree designed to provide a layout of the basic terms and conditions of an investment. Term sheets are often used as templates for later legal documents.

Uncapped Notes – A funding practice designed to protect founders. Uncapped notes provide no guarantee that investors will be granted a specific amount of equity per dollar invested.

Underwriter – An investment bank with a contractual obligation to take any securities into their own books if the company in which they are vested has failed.

Valuation – The process by which a company’s value is determined.

Venture Capitalist – An individual investor who works at a venture capital firm and makes investment decisions.

Vesting – The act of a company granting stock options to an employee.

Voting Right – A stockholder’s right to vote on matters of corporate management.

Warrant – The right to buy or sell a given security at a certain price during a specified period.

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