Common Venture Capital terms

When one corporation acquires a controlling interest in another. It might be friendly (agreed upon) or hostile (no agreement).

A software development philosophy that stresses flexibility while promoting gradual progress.

Angel Investor
Individual who invests a modest amount of money in a startup in exchange for a share in the firm. It generally comes before a Seed Round and occurs when the startup is still in its early stages.

This term refers to a company that sells its products or services to another company. Enterprise technology is another term for business-to-business technology. This is distinct from B2C, which stands for business to consumer and refers to the sale of items or services to individuals.

The method through which a new firm evaluates its present performance. An investor assesses a company’s progress by judging whether or not specific standards have been fulfilled. For example, after two years on the market, business A has achieved the goal of generating X amount of recurring income.

Board of Directors
A board of directors is a group of powerful persons appointed by investors to oversee a company’s operations. A board of directors usually consists of investors and mentors. Although not all companies have a board, most investors want a seat on the board in exchange for financial investment.

When a business is bootstrapped, it is supported entirely by the entrepreneur’s own assets or the company’s own earnings. The term “pulling oneself up by one’s bootstraps” evolved from the phrase “lifting oneself up by one’s bootstraps.”

The acquisition of a controlling stake in a firm by the purchase of its shares. This is a common exit strategy. 

Current monetary assets that can be used. Entrepreneurs raise funds to establish a business and then continue to raise finance as the business grows.

Capped notes
In a round of fundraising, a “cap” is put on investor notes. Entrepreneurs and investors agree to a cap on the company’s worth when notes become equity. When a company raises another round of funding, investors will hold a particular proportion of the company in relation to the cap. Uncapped rounds are often better for entrepreneurs and startups.

Convertible Debt
This occurs when a firm borrows money with the intention of eventually converting the debt into stock in the company at a higher price. This enables businesses to postpone valuation while obtaining funds in the early stages. This is usually done in the early phases of a firm’s life when valuing the company is more difficult and investment is riskier.

Debt Financing
When a corporation generates funds by selling bonds, bills, or notes to an investor with the assurance that the debt would be returned with interest, this is known as debt financing.

Disruptive innovation is another term for it. When an invention or technology “disrupts” an existing market by doing things like contesting market pricing, displacing an old technology, or altering the market audience, it is said to be disruptive.

Due diligence
An investor’s examination of all the facts and data around a possible investment. A study of financial data and a calculation of prospective ROI may be included.

A person who launches a business on his or her own, taking on all possible risk and profit.

Entrepreneur-In-Residence (EIR)
A seasoned entrepreneur who works for a venture capital company, assisting in the vetting of possible investments and mentoring of the firm’s portfolio firms.

This is how entrepreneurs become wealthy. It’s the process through which an investor and/or entrepreneur plans to “sell” their stake in a firm. An IPO or a buyout from another firm are two common choices. While the firm is still expanding, entrepreneurs and venture capitalists frequently prepare an “exit strategy.”

An organisation that assists early-stage enterprises in developing their businesses in exchange for stock in the company. Companies in incubators receive assistance with things like office space, developing teams, hiring, planning expansion, and so forth.

IPO stands for initial public offering. The first time a company’s stock is offered for sale on a stock market or to the general public. A private corporation becomes a public company at this stage (and is no longer a startup).

Lead Investor
A venture capital firm or an individual investor who organises a round of investment for a business. In that round, the lead investor normally puts the most money. “Leading the round” is another term for it.

The procedure of selling off all of a company’s assets in order to dissolve it (making them liquid).

Non-disclosure agreement: an agreement between two parties to keep sensitive or classified information, such as trade secrets, private.

The act of a startup’s business plan rapidly shifting course. A business server startup, for example, may shift to become an enterprise cloud provider.

Portfolio company
A “portfolio company” is a company in which a Venture Capital firm has made a significant investment.

A rearrangement of a company’s capital structure that alters the proportions of stock and debt. To prepare for an exit, decrease taxes, or protect against a takeover, a corporation would normally recapitalize.

Return on investment: It is the amount of money returned to an investor as a proportion of the amount invested in an enterprise. For example, if a VC invests $2 million in a firm for a 20% stake and the company is bought out for $40 million, the VC will have made an $8 million profit.

Depending on the stage of the company, startups raise funding from VC firms in separate rounds. If necessary, the first round is generally a Seed round, followed by Series A, B, and C rounds. In exceptional circumstances, such as with, rounds can run all the way to Series F.

Software-as-a-Service (SaaS):  A software product that is remotely hosted, typically over the internet (a.k.a. “in the cloud”).

The seed round is a startup’s first official round of funding. A “seed stage” firm is one that is soliciting financing for proof of concept and/or the development of a prototype at this level.

The market in which a startup’s product or service fits. Consumer technology, cleantech, biotech, and corporate technology are just a few examples. Venture capitalists are more likely to invest in particular linked areas since they have prior experience in such fields.

The stage of development in which a startup firm is currently operating. Although there is no clear definition for each stage of a firm, seed stage, early-stage, mid-stage, and late-stage startups are common. Most venture capital firms only invest in startups at one or two phases of development. Some corporations, on the other hand, manage various funds aimed at different stages of development.

A startup business is one that is still in its early phases of development. Although most startups aim to address a problem or meet demand, there is no hard-and-fast definition of what constitutes a startup. Until a firm stops referring to itself as a startup, it is regarded as a startup.

Term sheet
A non-binding agreement that covers the key characteristics of a planned investment in a business. A term sheet lays the foundation for the development of comprehensive legal agreements.

The procedure for determining a company’s worth or value. Among other things, an analyst will examine the capital structure, management team, and revenue or projected revenue.

When a company’s employee acquires rights to the company’s stock options and contributions. The rights often increase in value (vest) over time until they reach their maximum worth after a set period of time. For example, if an employee is given 200 stock units over the course of ten years, 20 units will vest each year. Employees are motivated to work well and remain with the organisation for a longer amount of time as a result of this.