Capital Raise Dictionary

  • Anti-Dilution Protection
    As you raise additional capital and issue new shares in your company to an investor, the ownership percentage that you have in your company will be reduced, or, diluted. When raising capital and issuing shares to an investor, they will often require that their shares have special rights which ensure that their shares are not diluted in the event of a future capital raise or any other corporate action. Investors use anti-dilution protection to protect how much value they can get out of their investments.

    Acquihire
    When a company acquires a business with the primary objective of acquiring the business’s talent and team.

    Acquisition
    When an individual or company buys an ownership stake in a specific company. An acquisition may be for a minority stake (less than half of the total ownership in the company), a majority stake (more than half of the total ownership in the company), or a 100% acquisition (all of the ownership in a company).

    Angel Investor
    Early stage investors who typically fund pre-seed and seed stage companies to help get off the ground.

  • B2B (Business to Business)
    A type of company which sells its products/services to a business or enterprise. Examples of B2B businesses are QuickBooks (accounting software) and Slack (team communication and collaboration).

    B2C (Business to Consumer)
    A type of company which sells its products/services to a individual person/consumer. Examples of B2C businesses are apparel, video and entertainment streaming, retail stores etc.

    Board of directors
    In a corporation, the board of directors is an elected group of individuals who are granted governing influence over a company and have the ability to make decisions regarding the operations and governance of that company. In most scenarios, the board of directors are elected by the shareholders. Often, investors (such as angel investors, venture capital firms etc.) may require a board seat as a condition of funding your company.

    Board Seats
    Investors may ask you to provide them with a seat on the board of directors of your company as a funding condition. If you provide a third party with a board seat, they will have the ability to control what company funds are used for and influence company decision making. If you can avoid giving out board seats, you will keep more control over your company.

    Bootstrap, Bootstrapped, Bootstrapping
    A method of funding a business where the founders solely use their own funds, with no outside capital, to run and grow a business.

    Bridge loan
    A short term loan provided to a business with the objective of helping the company achieve a specific milestone, at which point another major capital raise (either debt or equity) would pay out loan. Proverbially, this type of loan helps a company get over a short term “bridge” at which point they will be on “solid ground” to repay the loan.

    Buyout
    The purchase of a controlling share in a company.

    Burn Rate
    The rate at which your company is using or “burning” cash - usually expressed as a monthly figure.

  • Capital
    Money a business has on hand or has access to.

    Capital Under Management (also called Assets Under Management)
    The amount of capital that an investment firm is managing - this includes the capital they have already invested, and capital they have on hand to invest. Investment firms typically allocate portions of their capital for specific investment mandates based on set criteria. Criteria may include industry sector, type of business model (service, software etc.), geographic region, capital raise amount, and various others.

    Capitalization Table (Cap Table)
    A summary of who owns equity shares in your company. A cap table is usually shown in a grid or table format and identifies the number of shares and the different types of shares in your company owned by individuals or groups.

    Churn Rate
    Your customer “churn rate” is a measure of how many customers you lost in a period of time. For example, if you had 20 customers at the beginning of the month and 18 customers at the end of the month, your churn rate would be 10% for that month - you lost 10% of your customers [(20-18)/20]=0.1 or 10%

    Common Stock / Common Share
    A common stock or share is one unit of ownership in a company. Stock or shares also provide the holder with voting rights proportionate to the total ownership. For example, if you own 30% of all the shares in a company, then you have 30% of the total vote in corporate matters (typically votes happen when making decisions at shareholder meetings). Typically, if there is a forced liquidation event (from bankruptcy or other distressed causes), common share holders are only paid after debt holders and preferred share holders in a company – in distressed situations, preferred shares and debt take priority in being paid out.

    Convertible Note / Convertible Debt
    A type of investment typically provided as a loan with additional rights given to the investor based on certain scenarios. Usually, a convertible note may be converted from a debt loan into ownership of shares in your company if the company achieves certain growth milestones. In this case, the debt from the loan is no longer required to be paid and the investor would have shares/ownership in your company instead.

  • Debt financing
    A form of funding a company where a lender will provide a loan, line of credit, or other forms of debt. Debt financing often is provided to a borrower at a specific interest rate (the cost of borrowing the money). Debt financing is typically provided to companies which have a strong form of security or collateral (e.g. real estate, accounts receivable, inventory, machinery, equipment, other valuable assets, track record of cash flows to pay down financing, etc.).

    Dilution
    As you raise additional capital and issue new shares in your company to an investor, the ownership percentage that you have in your company will be reduced, or, diluted.

    Disruptor / Disruption / Disruptive innovation
    A new service or product offering which changes or improves the current way a problem is solved or changes the way a sector operates. Disruptions may be from new technologies, improved pricing, accessing a new market, and various others. An example of disruption is the company Uber – the company changed mindsets and behaviours regarding the use of taxis.

    Due Diligence
    After an investor issues a term sheet, they will look to understand your company, and you, at a very detailed and intimate level. This will often comprise of numerous discussions and review of information in areas including but not limited to corporate structure, intellectual property ownership, review of key contracts, management’s background and experience, business strategy, banking information, financial statements and other financial information, customer interviews and various others.

    In a metaphor, if your pitch deck, investor presentations, and other things in the raise process are like seeing a fancy car in a showroom… then due diligence is opening the hood of the car to look at the beauty of the machine.

  • EBITDA
    A finance term for profitability. EBITDA is the measure of a company’s profitability from ongoing operations, not including expenses which are outside of the scope of the business’s business model, strategy, management team, and certain other things specific to the business. EBITDA stands for Earnings before Interest, Taxes, Depreciation, and Amortization. (interest, taxes, depreciation, and amortization are subtracted from net profit to show us the profitability in terms of EBITDA).

    Enterprise
    A business or company.

    Entrepreneur
    An individual who assumes all risk and reward in starting a business.

    Entrepreneur in Residence (EIR)
    An experienced entrepreneur who is employed by an investment firm to assist in identifying and assessing potential investment opportunities and providing advisory and mentorship to companies which the investment firm has invested in.

    Elevator Pitch
    A very short business pitch. Imagine you’re in an elevator and your dream investor walks in. You have a short amount of time until they get off at their floor to pitch the opportunity of a lifetime - your company. This “elevator” pitch is a very short speech introducing your business opportunity to hook an investor into wanting to know more. An elevator pitch for practical use cases is typically 1-minute long, but may be as short as a few sentences or as long as a few minutes. An elevator pitch should make an audience think and feel “now that is a million dollar idea” every time.

    Equity financing
    A form of funding a company in which an investor provides capital in exchange for shares (also referred to as equity) in a business. Most startup capital raises are in the form of equity financing. Equity financing is typically provided to companies which are able to prove that they can grow substantially, which in turn, provides investors the ability to realize a strong return on their investment into the company.

    Executive Summary
    A summary highlighting the core elements of your business and operating strategy. A strong executive summary will also clearly outline the key reasons why your company is an attractive investment.

    Exit
    You may eventually choose to sell all of the shares you own in your company. You may sell all of your shares and exit your company through a merger or acquisition, through an IPO, another shareholder may buy your shares, or a number of other scenarios.

  • Family Offices
    A type of private investor group which works for and invests on behalf of one or more wealthy families. Often, the family will be involved in the investment selection process either on a day-to-day basis or as providing final approval for investments. A family office’s investment strategy is specific to each family – this strategy will be reflected in the types of businesses they invest in and the length of time after which they want to be paid back.

    Financial Forecast
    Also known as a financial projection, a forecast is an estimate of the company’s financial performance over a specific amount of time. Forecasts may include all three financial statements (income statement, balance sheet, and cash flow statement), however for startup capital raises, typically only a projected income statement is required. Typically, a well built forecast will cover 3 years into the future and provide a detailed breakdown of revenue by revenue source, marketing/revenue generation costs, and operating expenses. Given that a forecast is based on estimates, a forecast will never be perfectly correct or true – the objective is to make your best estimate based on the information you have available. The strongest forecasts are supported with market evidence.

  • Grants & Non-Repayable Contributions
    A form of capital which is essentially “free money.” Often through government programs, innovation funds, endowment funds, academic research funds, or other sources, grants and non-repayable contributions are typically provided through an application process and granted to organizations that align with the grant or fund’s mission.

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • Incubator
    An organization which helps early stage companies develop their product, service offering, or business as a whole. Incubators may provide services for free, for a fee, or in exchange for equity in a company. Areas where incubators help include developing/expanding the management team, strategy development, sales coaching, and various others.

    Industry
    A specific market in which a company operates and sells its services/products to. The term “industry” is often used with, or, interchangeably with “sector.” Multiple industries may fall under one sector. For example, within the financial sector, there are multiple industries including banking, insurance, investment management and various others.

    Initial Public Offering (IPO)
    When a company becomes available to trade on a public stock exchange, the company’s shares are available for purchase and sale to the open public – whereas prior to an IPO, only mutually agreed upon investors may participate in buying or selling shares. An IPO is often used as a strategy for a company to access large amounts of capital very quickly and can be a strong approach to fuel growth. On the other hand, once a company becomes publicly traded, there are strict financial and regulatory reporting requirements which require intensive resources.

    Investor Updates
    Whether for your current investor, or for potential investors, keeping them up to date on your progress (whether operational, financial, or otherwise) is a great way to develop the relationship, engage investors, and get them excited about your company. If it’s your current investor, they will appreciate your updates and be motivated to support you and potentially invest again at later rounds. If it’s a potential investor, updates will provide them with insight into the progress you are making in growing your business.

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • Lead Investor
    It is common for more than one investor to be involved in a company’s capital raise. The first investor in your capital raise is your lead investor. If a recognized and credible investor is the lead investor in your capital raise, it will be easier to gain additional investors for the remaining capital raise amounts. If a lead investor is credible, it provides other investors with comfort about the investment opportunity as it relates to risk – “If X Investor is in it, it must be great”.

    Liquidation
    The process of closing down, or dissolving, a company by selling off all of its assets.

    Liquidation Preference
    In the event of forced liquidation (from bankruptcy or other distressed situation), the liquidation preference is a section of a contract with investors (or other shareholders) which outlines who will receive payment first when a company is liquidated/sold. Investors often use liquidation preference in their investments to protect themselves from the risk of investing in a startup company.

  • Milestone
    A milestone is a major achievement which may be used as a measure of your company’s success. Milestones may be related to financial performance, customer adoption, market share, or a number of others. Often, founders will raise capital to achieve their next major milestone. Among other things, investors will measure your success against whether or not you achieve your milestones on time.

    Mezzanine financing
    A form of funding a business which combines debt financing and certain forms equity financing. Mezzanine financing is typically provided to mature-stage companies which have a proven track record of consistent profitability and growth.

  • Non-Disclosure Agreement (NDA)
    An agreement intended to protect confidential information from being shared by outside parties. Many investment firms, particularly venture capital firms, do not sign NDA’s because of the nature of their business – they deal with so many companies in various industries that NDA’s would provide an administrative burden and would provide a liability where it may restrict them from investing in another similar business. When collaborating with other companies or exploring a new partnership, you should always sign an NDA – venture capital groups are one of the only exceptions. In general, when sharing information with third parties, you should share your “cookie” but not “the recipe”. As long as you don’t share your trade secrets, you do not need to worry about a venture capital firm signing an NDA.

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • Partners (Venture Capital or other types of investment groups)
    Partners are senior decision makers at an investment group. Often, partners at an investment group will focus on a specific set of industries or business models and manage investments in those spaces. When funded by an investor group, companies will often pitch to, be vetted by, and if funded, be managed by a specific partner who specializes in your space. It is important to understand who these partners are as they will be the person you work most closely with. Your investment partner is like a spouse – a strong relationship will be built on, among other things, chemistry and alignment.

    Personal Investors
    Investors who are friends, family, and people you meet through your network. Very early stage businesses which do not have a strong financial track record or proven traction with the new business often are limited in their ability to successfully source capital from investment firms. If they are available to you, personal investors who believe in you and your business usually provide capital much more easily than investment firms.

    Pivot
    When a company quickly changes the direction of its business strategy and/or operations. Pivots may occur through the early stages of a company when it is discovering exactly how to solve a problem or provide a product/service. In contrast, pivots may also occur in response to a major event or circumstance – for example, many in-person businesses had to pivot to a completely online strategy when COVID-19 first started.

    Portfolio Company
    A company which has been invested into by an investment firm and has become part of the investment firm’s “investment portfolio”.

    Private Equity
    A type of private investor group, typically operating as an organization, which invests money into mature businesses with strong financial performance with the objective of making a stable high return on their investment. Companies funded by private equity firms typically have been in operations for a number of years and have substantial profitability.

    Preferred Stock / Preferred Share
    A type of stock / share which has rights that give the holder certain priority over common stock / shares. Typically, preferred shares may provide the holder with a higher claim to earnings in a company, which usually results in higher dividend payments – in some cases, preferred shares also entail an order of payment where preferred share holders are paid before common shareholders (whether it is dividends or otherwise).

    Pre-Seed Stage
    The stage of a startup/capital raise attributed to a company which still has yet to get their business off the ground or achieve a proof of concept. Companies may raise pre-seed capital to fuel product development, identifying product-market fit, fuel initial marketing efforts, or various other initiatives to get the business moving.

    Proof of Concept
    A form of demonstrating the proof that a business model works and can make money. Proof of concepts may be achieved through pilot projects, product testing, revenue/profitability milestones etc.

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • Recapitalization
    A reorganization of a company’s capital structure. For example, a company may raise capital with an equity investor and use a portion of the funds to pay out an existing loan. In this scenario, the company has reorganized its mix of capital and replaced debt with equity. Companies typically engage in a recapitalization to benefit from the reorganization. Some benefits may include lowering taxes, lowering interest fees, providing shareholders with an easier way to sell their shares in the business etc.

    Return On Investment (ROI)
    ROI = Return (benefit) / Investment (cost)

    The amount of money an individual or investor receives in return for investing in a stock or company, expressed as a percentage. For example, if you buy one share in a company for $2, and it grows to $4 – if you sell, your return on investment is 100% ([4-2]/2 or [sale price-amount invested]/amount invested])

    This also applies to an investor investing in a startup. For example, if a venture capital firm invests $500,000 at a 20% share in a company ($2.5M valuation: 2.5M x 20% = 500,000), and the company grows and is sold for $10M, the venture capital’s return on investment is 400%. Here, the venture capital’s 20% share grew from being valued at $500,000 to being valued at $2M ([10M-500K]/500K or [sale price-amount invested]/amount invested])

    Round
    Fundraising rounds are attributable to the stage of the company. Rounds include pre-seed, seed, series A, series B, series C, and further series sometimes as far as F. Pre-seed and seed rounds are typically done to provide a company with early funding to develop the foundation of the business. Each round type progressively provides larger amounts of funding for progressively more mature-stage companies.

    Runway
    The amount of time you have left before you run out of funds.

  • SaaS (Software as a Service)
    One or more software applications which are typically sold on a subscription basis. SaaS products may be available for download as a desktop or mobile application or may be accessed using a web browser.

    Sector
    A broad categorization of multiple industries that fall under one general category. The term “sector” is often used with or interchangeably with “industry.” Multiple industries may fall under one sector. For example, within the technology sector there are various industries including IT/software, hardware manufacturing, materials engineering, and various others.

    Seed-Stage
    The stage of a startup/capital raise attributed to a company which has some form of proof of concept and often has gotten their business off the ground - with some form of proven traction and adoption. A seed-stage company will have validated an early-stage business strategy and can prove to an investor that a seed round investment will be used to grow and refine the business strategy further as opposed to using the funds to buy time/figure out the business model/strategy.

    Series
    A term used to categorize which “round” a company is raising capital for. Each round describes the stage that the company is in. Rounds include pre-seed, seed, series A, series B, series C, and further series (following the alphabet). Typically as a company grows into the later series (usually beyond series B), the company may primed for an IPO.

    Series A
    This stage is where things often “get serious.” A startup that is raising Series A capital typically will now have a consistent track record of growth, and strong performance (performance may be solely user adoption growth, but is often indicated by a strong revenue growth profile). Series A capital raises are where most venture capital firms get involved as this stage (and the business attributes that come along with it) provides venture capital investors with a strong basis to trust that a company will indeed grow substantially and provide a high return on investment. Companies at the Series A stage are able to provide an investor with concrete proof of their results/growth which provides a conceivable path to massive growth and profitability.

    Series B and onwards
    If you make it to the Series B round as a shareholder in a startup, many many congrats. Your company will likely have crossed a valuation of $30MM+. Series B capital raises typically are undertaken for a number of reasons attributable to serious expansion of the company. Expansion directives may include but are not limited to geographic expansion, merger and acquisition strategies, product expansion, or to double down on building out the organization in all functional areas. Functional areas include sales, customer service, tech, infrastructure, facilities, marketing and advertising, human resources, project management, and various others. Series C and further stages are typically for similar directives as outlined in Series B however for companies which are even further along in their growth, with higher valuations, have higher consistency of performance, hold key leadership in their market, or various other attributes.

    Stage
    The development phase at which a startup company is in. There are no hard-fast rules which define the stage a startup may be in, however startups are typically identified in the following stages: pre-seed stage (typically at idea generation and validation), seed stage (typically at proof of concept), early stage (typically scaling operations), mid-stage (typically have scaled substantially and growing market share), and late stage (typically a mature and recognized company).

    Startup
    An early-stage company. There are no hard-fast rules which define when a company is no longer in the startup-phase, though companies are often recognized as no longer a startup when they achieve consistent profitability or growth which may also include financial stability.

    Super Angel
    An angel investor who is very active in making investments in startup companies. Super angels also typically invest larger amounts and participate in both early and later stage companies. Super angels are often successful entrepreneurs who have amassed significant wealth.

  • Term Sheet
    A documented offer from an investor covering the terms on which they are willing to invest in your company – typically in one or a few pages. A term sheet is not set in stone until you sign/execute agreements with an investor – you may negotiate a term sheet further or use a term sheet as a basis to field offers from other investors. Investors may sometimes use the title “term sheet” interchangeably with “discussion paper”.

  • Undercapitalized
    When a business does not have sufficient capital available to achieve its desired operational level or financial performance in a specific time frame. An undercapitalized business would be significantly disadvantaged to a sufficiently capitalized competitor.

  • Valuation
    The value of your business at a point in time. Factors which are common in high startup valuations include strong customer adoption, efficacy of the product/service, consistent revenue growth, profitability or a clear roadmap to profitability, forecasted strong revenue and profitability growth, length of time in business, credibility of the management team, intellectual property ownership, and select others.

    Venture Capital
    A type of private investor group, typically operating as an organization, which invests money into fast growing companies with the objective of making a very high return on their investment. Startups funded by Venture Capital firms typically have already achieved significant traction and require capital to scale operations rapidly.

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP

  • More definitions coming soon! if you have any specific questions about terminology, please shoot us a message and we’ll get back to you ASAP