Hi,
Are you having difficulties understanding some concepts as it pertains to fundraising? We have carefully selected some commonly used words that are guaranteed to help you. Check them below.
- Start-Up Valuation: Start-up valuation is the process of determining the current (or projected) worth of a start-up.
- Term Sheet: It refers to the document that lays out the terms of the collateral and investment. It outlines the things your startup is giving and what you are receiving in return. Term sheets are usually non-binding and are a basis for defining a final agreement.
- Cash Flow: It measures the difference between the cash that is available at the beginning and the end of a time period. It is a way to demonstrate the financial health of a company which may be positive or negative.
- Right of First Refusal (RoFR): Right of first refusal is a contractual right, but not the obligation, to enter into a business transaction with a person or company before anyone else can for Fundraising.
- Dilution: Dilution is the reduction of the ownership proportion held by existing shareholders, which arises from the issuance of additional new equity shares by the company.
- Angel Investor: Angel investor refers to wealthy people or groups who fund startups, normally in equity financing.
- Burn Rate: Burn rate is the measurement of how fast a startup is spending its initial capital before starting to make money.
- Runway: Runway refers to the amount of time a startup has before it runs out of money at its current burn rate.
- Pre-emption: A pre-emption right preserves the right of existing shareholders to participate in future financing rounds before the same is offered to new investors.
- Pro-rata rights: The pro-rata rights clause essentially reserves the right of the investor to participate in future financing rounds in a manner to preserves their ownership percentage.
- Preference Shares: Preference shares are shares that enjoy preferential rights as to dividends and repayment of capital in the event of winding up of the company over the equity shares.
- Crowdfunding: It is the practice of funding a venture or a project by raising a small amount of money from a pool of individuals, usually through the Internet.
- Anti-dilution Clause: An anti-dilution clause is a provision that protects an investor from the dilution of an equity stock.
- Equity Shares: An equity share, commonly referred to as ordinary share, represents the form of part ownership of the company. The holders of such shares are members (shareholders) of the company and have voting rights in proportion to their shareholding.
- Cap (Capitalization) Table: Cap table refers to a table showing the breakdown of the ownership structure and equity value of a startup.
- Compulsorily Convertible Preference Shares: Preference shares that are compulsory to be converted into equity shares at a subsequent period in time.
- Warrant: In fundraising terms, a warrant is a security allowing a holder to purchase a stock at a certain price until an expiration date.
- Series A: Series A refers to the first venture capital (VC) funding round of a startup. It usually involves a startup that is past its preliminary stage and is seeking investment to scale its marketing, operations, and sales. Typically, series A funding raises $2 million to $15 million, though amounts may vary.
- Series B, C, D, etc: These series refer to the second and subsequent rounds of venture capital (VC) investment. Typically, each round is for a higher amount of capital compared to the previous one.
- Convertible Notes: A convertible note (or convertible bond) refers to short-term debt that its holder can convert into equity at a preset valuation.
- SAFE (Simple Agreement for Future Equity): It refers to a deal between a startup and an investor, which offers the investor rights for future equity in the startup.
- Veto Rights: Veto rights are rights that may be included within the shareholders' agreement to grant any party to the agreement the final decision-making power with respect to specified matters pertaining to the internal governance of a company.
- Seed Investment: It refers to investment made before the company has gotten off the ground. Usually, it is between Series A and your 'family and friends' round.
- Pitch Deck: A pitch deck is a short presentation used to provide potential investors with information about a company
- Venture Capitalist: It refers to an institutional investor offering capital investment to small businesses or startups with a high-growth outlook. They usually expect a percentage of ownership or equity in the company.
- Pre-Seed Round: This is the earliest stage of funding. The amount raised is usually low, and its main goal is to help the startup get off the ground. Funds often come from the startup's founders and any supporters, family members, and close friends.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
