Glossary

In this handy glossary of terms you'll find a list of key definitions that you should familiarize yourself with before and during your journey as a startup founder looking for investment.

angel investor:

An investor primarily involved in early startup investment. (Often a one-off investment made by family or friends to help a startup founder get a project up and running, or a cash injection to help a business weather a difficult period.)

antidilution protection:

A clause in a contract that protects some investors from their equity or shares' dilution when other investors buy stock in a company. This is often applied when shares in a company are sold at a value less than the amount paid originally by existing investors.

board of advisors:

A group of individuals who offer advice to the management of a company. This is an informal relationship and not legally binding, but can provide valuable strategic policies.

board of directors:

A group of individuals who are appointed to collectively appraise and oversee all company activities. This is a formal arrangement and therefore the mandates made by directors must be carried out.

business plan:

A systematic breakdown of how a business will develop. This clearly states any expenses needed to achieve specific goals within a given timeframe.

Bonds:

A form of debt investment. In this case an investor offers a loan to a business in return for bonds equaling that value. These can then be cashed in after an agreed-upon amount of time, and at a specified rate of interest. Bond owners are therefore creditors rather than shareholders and have no say over a company's strategies.

cap table:

A capitalization table, displayed in table form; a breakdown of how much equity in a business is owned by relevant individuals or groups. This helps to clarify the percentage of ownership before and after an investment round, as well as any equity dilution and the current value of equity itself.

CEO:

A chief executive officer. Responsible for all managerial decisions, and ultimately in charge of the business unless removed by a board of directors.

common stock:

Represents company ownership. Shares allow their owners to vote on corporate policy and to have a say on serving directors. If liquidation or a sale should occur, common stock owners are paid an amount only after bond owners and preferred stockholders.

completion schedule:

An agreed-upon timeframe for completing all administrative and procedural tasks in order to sign off on an investment.

corporate structure:

A description of how each department (marketing, human resources, accounting, etc.) within a business contributes to the overall vision and goals of the organization.

crowdsourcing:

Innovative, hassle-free way to seek investment by using third-party companies such as Onevest to match your startup with ideal investors.

equity:

Security or stock that represents ownership in a business.

financial forecast:

Also known as a financial projection, a forecast estimates growth and income for a business over a given time, based on comparison with existing businesses and market research.

IPO:

Known as an initial public offering, an IPO is the first share offer made by a company to the public. This involves listing stock/shares on a stock exchange where the public can buy a portion of a company for an agreed-upon price. This price varies based on market forces on a daily basis.

liquidation preference:

A clause in a contract that stipulates which investors receive payment first if a company is liquidated or sold, even before a company's founders in many cases. This is a common clause often used by venture capitalists to offset the risk of investment.

market research:

A way to define consumer wants and needs. By carrying out market research studies, a startup can then streamline its approach to be more appealing to a target demographic.

market value:

The amount an investor or consumer is willing to pay for something based on current consensus about how much a company, product, or service is actually worth.

outsourcing:

Hiring a freelancer to complete a task for your business, rather than having you or your employees or a new hire do it. This is a common practice to reduce overhead and secure quality work without requiring full-time staff.

preferred stock:

A form of share that has priority over common stocks. Preferred stock has a higher claim on assets and/or earnings, which often results in preference when any dividends are given out to shareholders: in other words, preferred stockholders get paid first. These dividends can be paid monthly or quarterly and share similar features with debt in that they can appreciate in price. Preferred stock usually comes with no voting rights, however.

prospect:

Salesspeak for any customer or investor who fits a demographic. A person who is most likely to make an investment when approached. Also known as a potential investor.

seed funding:

A model of funding where investors provide money to “seed” a business, giving it enough to operate for a short period of time. If it shows promise, subsequent investment may be offered.

series investment:

A naming convention for investment rounds (“Series A,” “Series B,” etc.). Each round can fulfill a different function. Earlier rounds will be focused on establishing a company, while later rounds will revolve around expanding a company, brand, product, or service.

social media platform:

Any website or app that allows users to communicate with each other and share their likes and dislikes. An essential marketing platform for businesses and a great way to engage with investors.

startup founder:

Any individual who has created a startup business.

target demographics:

A group of consumers that a startup founder wishes to market products/services to. This could be customers in an age group or living in a specific region, for example.

venture capitalist:

An investor who supplies capital to small companies and startups in order to help them grow into profitable businesses. In some cases, this will be carried out as a venture capitalist fund (or group), in which many venture capitalists have collected their money together into a pool in order to reduce risk.