Investment Dictionary


Accelerator:  An accelerator is a mentorship program intended to counsel and accelerate the growth and success of a startup company.

More Information:  https://en.wikipedia.org/wiki/Startup_accelerator


Accredited Investor:  In order to qualify for many of the registration exemptions with the U.S. Securities and Exchange Commission (SEC) under Regulation D, companies may sell securities to accredited investors.  An accredited investor is anyone, or any entity, meeting at least one of the following criteria:  (1) an individual whose income exceeds $200,000 (or $300,000 jointly when a spouse is included) in the two most recent years, and who reasonably expects to receive the same income in the current year; (2) an individual whose net worth (individually or jointly with a spouse) exceeds $1 million, not including the value of his or her primary residence; (3) an entity with over $5 million in assets; (4) a limited liability company (LLC) or limited partnership (LP) that meets the third condition, or the members of which meet either the first or second conditions; or (5) certain regulated entities, such as banks and registered investment companies, regardless of assets.

More Information:  https://en.wikipedia.org/wiki/Accredited_investor


Angels:  Investors who, beyond friends and family, typically make larger-scale investments in startups and other higher-risk companies, but in lesser amounts than what is common for venture capital (VC) infusions.  The typical amount received from angel deals can range from $250,000 to $2 million.  For many larger angel infusions, investors seek some preferences on their equity, asking for one or more of the following:  information rights; board seats; board observer rights; liquidation preferences; or protective provisions.  Often, any preferences granted in an angel round will be issued through a new class of equity called the series seed.

More Information:  https://en.wikipedia.org/wiki/Angel_investor


Board Observer:  Some investors require that, instead of having a representative act as a voting member on the board of directors of the company in which they have invested, they be permitted to send a representative to any and all board meetings so as to have in place a non-voting observer.  This prerogative represents an option amounting to less than a board seat, yet greater than basic information rights.


Board Seats:  In some cases, investors seek a right to have at least one member of the board represent either the specific investor (typically for VCs) or a class of equity (e.g., preferred series stock).

More Information:  https://en.wikipedia.org/wiki/Board_of_directors


Bridge Loan:  A loan given to a company by investors with the intent that the money will fund the business through the next equity financing round.

More Information:  https://en.wikipedia.org/wiki/Bridge_loan#Corporate_finance


Burn Rate:  This refers to the amount of money a company is consuming and is usually measured over months, quarters, or even a year.  Ultimately, the burn rate is the net amount of cash leaving a business’ bank account over the course of the designated timeframe.

More Information:  https://en.wikipedia.org/wiki/Burn_rate


Cap:  The cap represents the valuation ceiling existing in a convertible debt deal.


Capital Call:  A capital call is the method by which a VC fund asks its investors to contribute their pro rata portion of money being called by said VC fund in order to make investments or pay expenses and/or management fees.

More Information:  https://en.wikipedia.org/wiki/Capital_call


Capitalization Table:  A capitalization table, which is commonly known as a cap table, is a spreadsheet defining the economics of a company’s financing deals.  Cap tables contain a detailed description of all the owners of a company’s stock.

More Information:  https://en.wikipedia.org/wiki/Capitalization_table


Carried Interest:  Carried interest, which is known more simply as carry, represents the profits VCs are entitled to after returning capital committed to investors.  The aforementioned figure typically ranges from 20 to 30 percent.

More Information:  https://en.wikipedia.org/wiki/Carried_interest


Charter:  A corporation’s charter is its certificate or articles of incorporation.  The charter is the document describing the name of the corporation, its general purpose, the types of authorized stock (e.g., common, preferred, voting, and non-voting), and any special protective rights related to said equity.  Sometimes, if a new class of stock is added, a corporation will file a certificate of designations, rather than amending an original certificate of incorporation.  In any such instance, certificates of designation would be included as part of a corporation’s charter.


CIK Code:  A Central Index Key (CIK) number is given by the SEC to an individual or a company.  The number is used to identify the filings of a company, person, or entity across several online databases, including the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.  To make any filing on EDGAR, a person or company is required to have a CIK Code.  To obtain a CIK, one must complete, inclusive of notarization, a Form ID.  For FAQs on CIK Codes and EDGAR, please click here.

More Information:  https://en.wikipedia.org/wiki/Central_Index_Key


Clawback:  Clawback is the limited partnership agreement provision allowing investors to take money from VCs in the event they overpay themselves via carried interest.

More Information:  https://en.wikipedia.org/wiki/Clawback


Committed Capital:  Committed capital is the amount of contractually-obligated money investors have pledged to a VC fund.

More Information:  https://en.wikipedia.org/wiki/Capital_commitment


Common Stock:  Common stock has the least amount of rights, privileges, and preferences.  Normally, employees and founders of a company hold common stock, as the price they pay for said equity can be much less than that of preferred stock.

More Information:  https://en.wikipedia.org/wiki/Common_stock


Convertible Debt:  Convertible debt (aka, a convertible bond, a convertible note, or—in some cases—a convertible debenture) is a debt or loan instrument an investor gives to a company with the understanding it will later transform into equity, rather than being repaid as would be the case for a standard loan.

More Information:  https://en.wikipedia.org/wiki/Convertible_bond


Corporate Venture Capital:  The term corporate venture capital (CVC) refers to a firm sponsored and backed by a corporation, and which is often, though not always, part of a publicly-traded company.

More Information:  https://en.wikipedia.org/wiki/Corporate_venture_capital


Crowdfunding:  Crowdfunding is the means by which a group of individuals finance a company, either through equity or debt purchase, pre-sale ordering of a product, or the gifting of money.

More Information:  https://en.wikipedia.org/wiki/Crowdfunding


Disclosure:  Disclosure is the providing of information about a company to its investors and/or shareholders.  Many securities laws generally prescribe what disclosures must be make (i.e., what can and cannot be said) to investors and shareholders.  Required disclosures to accredited investors are limited; individuals must be provided with an opportunity to ask questions, as well as to have said questions answered in a truthful manner.  A false or material omission in disclosure (e.g., failing to tell someone a key piece of information that, had they known, would have made he or she think twice about his or her investment) can be grounds for liability.  This applies to both the company and the individual(s) knowingly making false disclosures, or even willfully endorsing the latter.


Dividend:  A dividend is a payment to a corporation’s shareholders that is made out of said business’ profits.  Dividends are declared by the corporation’s board of directors.

More Information:  https://en.wikipedia.org/wiki/Dividend


Down Round:  A down round is a financing round set at a lower valuation than its predecessor.


Due Diligence:  Due diligence is the process utilized by investors to explore a company in which they are considering investing.

More Information:  https://en.wikipedia.org/wiki/Due_diligence 


EDGAR:  The federal government’s Electronic Data Gathering, Analysis, and Retrieval system is the platform that performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others required by law to file forms with the SEC.  All federal securities-related filings, such as Form D, are submitted through EDGAR.  A CIK code is required to use EDGAR.  To learn more about CIK Codes and EDGAR, view our related FAQs here.

More Information:  https://en.wikipedia.org/wiki/EDGAR


Employee Pool:  Also known as an option pool, an employee pool denotes stock reserved for individuals employed by a private company.  The employee pool is designed to attract to startups talented individuals—workers who, upon performing well in building the business in question, will ultimately be rewarded with corporate equity.  Typically, employees who are brought onboard during the earlier stages of a business’ lifecycle will secure a greater percentage of shares set aside in the equity pool.

More Information:  https://en.wikipedia.org/wiki/Employee_stock_option


Equity Crowdfunding:  A financing process made legal by the Jumpstart Our Business Startups (JOBS) Act of 2012 and popularized by AngelList, equity crowdfunding is a mechanism enabling broad investor groups to fund startup companies and small businesses in exchange for stock.

More Information:  https://en.wikipedia.org/wiki/Equity_crowdfunding


Escrow:  Escrow is the amount of consideration an acquiring company holds back following a merger in order to ensure representations and warranties made by the purchased business are true, as well as properly upheld.

More Information:  https://en.wikipedia.org/wiki/Escrow


Escrow Cap:  An escrow cap is, during a merger, the amount of money set aside to remedy any breaches of said merger’s agreement.


Executive Summary:  An executive summary is a brief synopsis document (normally one to three pages in length) outlining a company’s material facts and strategies.

More Information:  https://en.wikipedia.org/wiki/Executive_summary


Exercise:  To exercise is the act of purchasing stock pursuant to an existing option or warrant.

More Information:  https://en.wikipedia.org/wiki/Exercise_(options)


Exercise Period:  An exercise period refers to the amount of time an employee has to, after leaving the company, exercise his or her stock options.


Fair-Market Value:  Fair-market value is the price a third party would pay for something on the open market.

More Information:  https://en.wikipedia.org/wiki/Fair_market_value


Fiduciary Duties:  Also known as fiduciary responsibilities, fiduciary duties are the legal and ethical obligations an individual (particularly someone who serves as a business’ board member, officer, or shareholder) has to his or her corporate entity, not to mention the latter’s shareholders.

More Information:  https://en.wikipedia.org/wiki/Fiduciary


Flat Round:  A flat round refers to a financing stage that is closed at the same valuation as the startup’s prior round.


Form D:  A Form D is the document that is required to be filed with the SEC by any company raising money through the sale of exempt-offering securities.  The Form D is not the public registration of a company’s securities, but is a publicly available notice required for a business selling said securities under Regulation D.  All Form Ds must be filed electronically through EDGAR within 15 days of the first sale of exempt securities.  A copy of Form D is available here.  Main Street Exchange automates Form Ds for all financings that are completed on its platform.

More Information:  https://en.wikipedia.org/wiki/Form_D


Form ID:  Form ID is the application utilized by entities to apply for access codes so they may file forms on the SEC’s EDGAR system.  Each entity, whether it be an individual or a company, required to file on EDGAR must have his, her, or its own CIK number, which serves as the EDGAR login ID.  Click here for our FAQs on CIK, EDGAR, and Form ID.

More Information:  https://www.sec.gov/info/edgar/form-id-faq.pdf


Fully Diluted:  The term fully diluted denotes the total amount of shares that would, upon taking into consideration all possible sources of conversion, remain outstanding.  This includes the exercising of convertible bonds, stock options, etc.


Information Rights:  In many investments of preferred stock, investors require the company to provide them with regular information, including the following:  annual financial reports (usually 90 days after the end of the fiscal year); quarterly financial reports (typically 30 to 45 days after the end of each fiscal quarter); monthly financial reports (often within 15 to 30 days of the end of a month); a budget for the upcoming year (the standard is 30 to 60 days before the end of the current fiscal year); and, on a regular basis, other pertinent management reports.


Investment Company Act:  Commonly known as the ’40 Act, the Investment Company Act of 1940 regulates the organization of companies that engage primarily in investing, re-investing, and securities trading, as well as for which the owned securities are offered to the investing public.  The key to the ’40 Act is to remember that it applies to almost every company.  There are, however, common exemptions via which companies may not have to comply with the legislation’s provisions.  For example, a company selling only its own securities to investors does not typically fall under the ’40 Act’s jurisdiction.

More Information:  https://en.wikipedia.org/wiki/Investment_Company_Act_of_1940


JOBS Act:  Formally known as the Jumpstart Our Business Startups Act of 2012, this legislation created the existing rules concerning crowdfunding, all the while changing some dynamics related to initial public offering (IPOs).

More Information:  https://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups_Act


Letter of Intent:  A letter of intent (LOI) is, simply put, a merger term sheet outlining all agreements and conditions related thereto.


Liquidation Preference:  Liquidation preference determines the payout order in the event of corporate liquidation.  More specifically, liquidation preference is frequently used in VC contracts to specify which investors get paid first, not to mention how much they get paid, in the event of a liquidation event, such as the sale of the company.

More Information:  https://en.wikipedia.org/wiki/Liquidation_preference


M&A:  Mergers and acquisitions (M&A) is the name for the area of corporate finance dealing with the purchase and sale of companies, or significant interests thereof.  These transactions are also referred to as “exits” or “liquidation events” since they typically represent significant external investment into a business, thus resulting in either the sale (i.e., acquisition for the buyer) of all, or substantially all, of the assets and/or stock to a third party.  M&A deals usually result in another party owning and controlling the company.  These sales sometimes take the form of a merger between two companies, with one surviving the transaction and the other being folded into the former.

More Information:  https://en.wikipedia.org/wiki/Mergers_and_acquisitions


Minutes:  The minutes of a corporation are the records of the board of directors’ meetings, or the meetings of the company’s shareholders.  Minutes generally describe what happened in a meeting on a topic-by-topic basis while also containing written versions of any approved resolutions.  The records of the corporation, including all minutes and all written resolutions, are called the corporation’s minute book.


Non-Disclosure Agreement:  A non-disclosure agreement (NDA) is a contract in which one party promises not to share information with others.

More Information:  https://en.wikipedia.org/wiki/Non-disclosure_agreement


Option Pool:  The option pool represents the shares set aside by a company for the purpose of providing employee stock options.


Options Budget:  The options budget delineates the amount of options a company plans to allocate to its employees over a finite period of time.


Party Round:  A party round is one with many participants, usually at much small dollar amounts.


Pass-Through Entity:  A pass-through entity—this can also be known as a flow-through or fiscally-transparent entity—is a business for which no entity-level income tax is paid.  All profits (and losses, depending on how the company has been funded) for a pass-through entity progress through to each of its members on a pro-rata basis, and said individuals then claim the corresponding profit or loss on their personal income tax returns.

More Information:  https://en.wikipedia.org/wiki/Flow-through_entity


Performance Warrant:  A performance warrant is one which is exercisable if certain metrics are met by the warrant’s holder.


Post-Money:  Post-money refers to a company’s valuation following investor cash infusion.

More Information:  https://en.wikipedia.org/wiki/Post-money_valuation


Pre-Money:  Pre-money is the value ascribed to a company by an investor prior to his or her actual investment.

More Information:  https://en.wikipedia.org/wiki/Pre-money_valuation


Pre-Seed Round:  The pre-seed round is a company’s first financing round.


Preferred Stock:  Preferred stock is a specific type of equity stake (aka, shares) in a company and is linked to rights and privileges different from, and typically superior to, those associated with common stock.  Often, preferred stock rights include the following:  liquidation preferences (e.g., preferred payment order in the event the company sells or liquidates); information rights (e.g., regular updates from the issuer, plus the right to ask for additional information); voting rights (e.g., regarding general matters, as well as protective voting for certain things affecting the preferred stockholders directly); board seats or board observer rights; rights of first refusal (i.e., the right to buy new stock being sold by the issuer); co-sale rights (i.e., the right to sell the preferred stock together with anyone else looking to unload his or her preferred stock); anti-dilution rights (i.e., the right to be protected from dilution if, in the future, the issuer sells securities at a lower valuation); registration rights (e.g., if, in the future, the issuer publicly registers its shares, the right to request the preferred stock be registered publicly, too); and drag-along rights (i.e., the right to require minority stockholders to go along with the majority decision to sell the company).  There are many potential classes of preferred stock, such as seed series, series A, series B, etc.  Each of these classes comes in chronological order and typically has different rights and preferences when compared to the others.

More Information:  https://en.wikipedia.org/wiki/Preferred_stock


Private Placement Memorandum:  Designed to solicit investors, a private placement memorandum (PPM), which is often called a prospectus, is a long-form business plan prepared by the company in conjunction with its legal counsel.

More Information:  https://en.wikipedia.org/wiki/Prospectus_(finance)


Reg D:  Regulation D of the Securities Act of 1933 contains three rules (Rule 504, Rule 505, and Rule 506) providing exemptions from securities registration requirements, thereby allowing some companies to offer and sell securities without having to register the latter with the SEC.  A company opting to sell securities pursuant to Reg D exemptions must electronically file with the SEC required Form D documentation.

More Information:  https://en.wikipedia.org/wiki/Regulation_D_(SEC)


Resolutions:  Decisions made by a corporation’s board of directors and/or shareholders are formalized as resolutions.  When an important decision is made, it is formally adopted as a resolution.  Resolutions may be approved either at a duly convened meeting (and recorded in the minutes) or in writing (and, if in writing, for a board of directors the typical requirement is the resolution must be unanimously approved and signed by all of the directors).  Resolutions are kept in a corporation’s minute book.

More Information:  https://en.wikipedia.org/wiki/Corporate_resolution


Reverse Dilution:  Reverse dilution references the situation in which stock is returned to a company by departed employees whose equity has not vested, thus increasing the effective ownership of all other corporate shareholders.


Right of First Refusal:  The first right of refusal allows an investor, or the company itself, to have the ability to, ahead of and before other parties, either make another investment in the company, or to acquire it outright.

More Information:  https://en.wikipedia.org/wiki/Right_of_first_refusal


SEC:  The U.S. Securities and Exchange Commission is a federal agency, the primary mission of which is to enforce the nation’s securities laws (specifically the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940) in order to both protect investors and to regulate securities exchanges.  The SEC comprises the Division of Corporation Finance, the Enforcement Division, the Division of Trading and Markets, and the Division of Economic and Risk Analysis.  The SEC is a rule-making body and creates regulations designed to implement federal securities laws.

More Information:  https://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission


Securities Act of 1933:  The Securities Act of 1933 is the primary law governing the registration of securities within the United States.  Often called the Truth in Securities Law or the ’33 Act, said legislation was passed to protect investors from fraud, deceit, and other misrepresentations in the purchase and sale of securities.  When a company undertakes an IPO, it is publicly registering its securities in accordance with the ’33 Act’s provisions.  Registration requirements under the ’33 Act are significant, and it is an extremely long and expensive process to publicly register securities.  All information about the company used to register securities is ultimately made publicly available to investors—indeed, the entire world.

More Information:  https://en.wikipedia.org/wiki/Securities_Act_of_1933


Securities Exchange Act of 1934:  The Securities Exchange Act created the SEC and grants it broad authority over all aspects of the securities industry.  This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies, not to mention the nation’s securities self-regulatory organizations (SROs).  The various stock exchanges, such as the New York Stock Exchange (NYSE) and the Nasdaq, are SROs.  The Financial Industry Regulatory Authority (FINRA) is also a SRO.  Regular reporting requirements for companies with publicly registered securities (as registered under the ’33 Act) are set forth and governed by the provisions of this legislation.

More Information:  https://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934


Security:  A tradable financial asset, a security is a financial instrument representing an individual’s ownership right within a company.

More Information:  https://en.wikipedia.org/wiki/Security_(finance)


Seed Stage:  Seed stage is the term associated with a startup still in its infancy.


Series-A Financing:  A series-A round is the name typically given to a company’s first significant round of VC financing.

More Information:  https://en.wikipedia.org/wiki/Series_A_round


Series Seed Financing:  A series seed is a small financing that occurs before the series-A round.  The series seed often represents a company’s very first financing.

More Information:  https://en.wikipedia.org/wiki/Seed_money


Stock Option:  A stock option is the right to purchase a company’s shares.


Strike Price:  The strike price represents the value at which a stock option may be exercised.

More Information:  https://en.wikipedia.org/wiki/Strike_price


Syndicate:  A syndicate is comprised of the group of individuals who initially invest in a startup.


Transaction Costs:  Transaction costs are the direct and indirect costs, as measured in both time and money, associated with the creation of a business relationship.

More Information:  https://en.wikipedia.org/wiki/Transaction_cost


Unicorn:  A unicorn is a private company that has achieved a $1 billion valuation.

More Information:  https://en.wikipedia.org/wiki/Unicorn_(finance)


Valuation:  This is the value ascribed by an investor to a company.

More Information:  https://en.wikipedia.org/wiki/Valuation_(finance)


Venture Capital:  Whether they be comprised of individuals or funds, VCs are investors, or groups of investors, typically possessing greater experience in startup and high-risk company investments, often raising multimillion dollar funds from high net-worth individuals and entities.  The typical size for VC deals can range anywhere from $2 million to $10 million.  Almost all VC deals include preferences on the equity purchased.  These preferences include items such as information rights, board seats, board observer rights, liquidation preferences, and protective provisions.  VC investors typically become closely involved with the companies in which they invest, all the while providing guidance, support, and expertise in a variety of areas (this often depends on the needs of the business and a particular VC’s areas of expertise).

More Information:  https://en.wikipedia.org/wiki/Venture_capital


Venture Capital Fund:  A venture capital fund, which is sometimes known as a private equity fund, is a collective structure comprised of those entities making up a VC’s investment family.

More Information:  https://en.wikipedia.org/wiki/Private_equity_fund


Warrant:  A warrant is a security entitling its holder to buy an issuing company’s stock at a fixed rate, which is typically called the exercise price, up until the established expiration date.

More Information:  https://en.wikipedia.org/wiki/Warrant_(finance)