Basic Startup Investing Terms Glossary

Basic Startup Investing Terms Glossary

The no-frills guide to startup investing terms.

Angel Investor: Someone who invests in early stage companies.

Account Receivables: The amount of money a company is owed.

Accredited Investor: An investor with a considerable amount of money.

Articles of Incorporation: A document that establishes a company.

Board of Directors: Nominated by shareholders to maximize profits.

Burn Rate**: The rate at which a company is losing money, typically per month or quarter.

Carried Interest: A percentage taken off the profits of an investment.

CIK Number: The SEC uses these numbers to assign attributes to companies.

Cost of Goods Sold: The cost to produce a product or service.

Common Stock: Equity, or a stake in a company.

Convertible Note: A loan that converts to stock at a specified time under certain requirements.

Equity Crowdfunding: A new form of investment introduced in 2016 via the JOBS act, allowing startups to raise up to $1,070,000 from non accredited and accredited investors.

Employer Identification Number: Each business has a specified number for tax purposes.

Fiscal Year End: A 365 day period that a company sets for financial accounting.

GAAP (Generally Accepted Accounting Principles): A standardized method of accounting

Interest Rate: The percent on an initial loan amount that must be paid at predetermined intervals.

IRR: A measurement that allows you to compare returns between investments.

Issuer: An entity that is selling securities.

Liquid Market: A market where the prices to buy and the prices to sell are similar.

Long Term Debt: Debt that is owed more than a year in the future.

Net income: Income -cost of goods -expenses -taxes= Net income.

Post Money Valuation: What a company is valued at after taking money from an investment round.

Pre Money Valuation: What a company is valued at before taking money from an investment round.

Preferred Stock: In a case where funds are scarce, preferred stock is the first to get dividends and assets.

Principal Security Holder: An entity that controls at least 20 percent of voting related decisions.

Revenue: Money a business makes.

Revenue Share: A note that pays based off of revenue generated by the company.

Runway: The length of time a company has to become profitable before they run out of funds to run the business.

SAFE (Simple Agreement for Future Equity): An agreement to give someone the right to equity when a company raises money in the future.

Securities: A tool to making investing easier, a company can sell a security that is debt (a loan) or equity (ownership).

Seed Round: The initial funding obtained by a company or startup.

Series A: The first time a company raises substantial capital is known as the Series A round.

Total Assets: Everything a business owns.

Valuation Cap: When you invest, the valuation cap indicates how much the company values itself.