Jargon Decoder Terms

Accelerator ● Accounts Receivable ● Accredited Investors ● Acquisition ● Alternative Finance ● Angel Investors ● Balance Sheet ● B-Corp ● Benefit Corporation ● Bootstrapping ● Bought Out ● Bread and Butter Industries ● Breakeven ● Brick and Mortar (B&M) ● Bridge Loan ● Burn Rate ● C Corporation ● Call Options ● Capital Expenditures ● Capital Stack ● Capitalization ● Cash Equivalent ● Cash Flow ● Cash Flow Smoothing ● Cash Flow Statement ● Community Development Financial Institution (CDFI) ● Charitable Loan Fund ● Collateral ● Common Stock ● Community Capital ● Community Investment Funds ● Control ● Convertible Debt ● Convertible Note ● Credit Unions ● Crowdfunding ● Current Assets ● Current Liabilities ● Deal Structure ● Dilution ● Dividends ● Donation-Based Crowdfunding ● Due Diligence ● Early-Stage Business ● Equity ● ESG ● Established Business ● Factoring ● Family Office ● Financing/Funding Round ● Fixed Cost ● Follow-On Capital ● Free Cash Flow ● Friends and Family (F&F) ● Fund ● Future Round ● General Partner (GP) ● Grant ● Growth Capital ● High-Growth Venture ● Guarantee ● High-Net Worth Individuals ● Impact Investing ● Income Statement ● Incubators ● Institutional Investors ● Inventory ● Investment Crowfunding ● Invoice Factoring ● Keep Their Powder Dry ● Lead Investor ● Limited Liability Corporation ● Limited Partner (LP) ● Line of Credit ● Liquidity ● Liquidity Event ● Livelihood Enterprises ● Merger ● Mezzanine Financing ● Microenterprises ● Mission-Related Investments ● Minimum Viable Product (MVP) ● Negative Cash Flow ● Non-Accredited Investors ● Non-Disclosure Agreement (NDA) ● Operating Cash Flow ● Operating Revenue ● Opportunity Cost ● Options ● Outside Capital ● Owner's Draw ● Ownership ● Payroll ● Peer-to-Peer Lending ● Positive Cash Flow ● Pre-Launch ● Preferred Stock ● Priced Equity Round ● Private Equity Firms ● Private Offering ● Product Line ● Profits ● Program-Related Investments ● Promissory Note ● Proof of Concept ● Purchasing Order Financing ● Put Options ● Research and Development (R&D) ● Recoverable Grant ● Regenerative Finance ● Return on Investment (ROI) ● Returns ● Revenue ● Revenue-Based Financing ●  Reward-Based Crowdfunding ● Risk Tolerance ● Runway ● S-Corp ● SBA-Backing ● Scaling ● Secured Debt ● Seniority Position ● Serial Entrepreneur ● Series A ● Series Seed ● Shareholders ● Simple Agreement for Future Equity (SAFE) ● Small Businesses ● Speculator ● Supply Chain Financing ● Sweat Equity ● Term Loans ● Term Sheet ● The Big Four ● Trade Partners ● Tranched ● Unicorns ● Unsecured Working Capital ● Valuation ● Value-Added Investors ● Variable Cost ● Venture Funds ● War Chest ● Working Capital

Accelerator

Business accelerators are programs that provide support, resources, and mentoring to early-stage startup companies to help them grow and scale their businesses quickly. Typically, business accelerators are designed to last for a set period of time, often 3-6 months, and work with a cohort of startups simultaneously for intensive guidance and support. Business accelerators offer a variety of services to startups, including access to mentors, investors, and industry experts, as well as training in areas such as product development, marketing, and fundraising. Many accelerators also provide co-working space, networking opportunities, and access to funding. In exchange for these services, business accelerators usually take an equity stake in the startups they support, typically between 5-10%.

Additional Related Term(s): Incubators

Accounts Receivable

Accounts receivable (AR or A/R) refers to the outstanding amounts owed to a company by its customers or clients for goods sold or services rendered on credit. It represents the short-term financial obligations that other entities have to the company. Accounts receivable is an essential component of a company's working capital and cash flow management. It represents the credit extended to customers and the company's ability to collect payment for its sales.

Accredited Investors

Accredited investors are individuals or entities that meet certain criteria set by the Securities and Exchange Commission (SEC) to participate in certain types of private investment offerings. The purpose of accrediting investors is to help ensure that those investing in private offerings have the financial knowledge and resources to understand the risks involved and can afford to withstand potential losses. To qualify as an accredited investor, an individual must meet at least one of the following criteria:

• Have an individual income of at least $200,000 per year for the past two years (or $300,000 combined income for married couples) and expect to continue earning a similar income in the current year.

• Have a net worth of at least $1 million (excluding the value of their primary residence);Have an individual income of at least $200,000 per year for the past two years (or $300,000 combined income for married couples) and expect to continue earning a similar income in the current year.

• Be a general partner, director, or executive officer of the issuer of the securities being offered.

• Achieve SEC-defined measures of professional knowledge, experience, or certifications (e.g. Series 7 license).

• Be a business entity with assets of at least $5 million.

Acquisition

An acquisition is a business transaction in which one company acquires another company, typically by purchasing a controlling interest in the target company's shares. In an acquisition, the acquiring company takes ownership and control of the acquired company, and the shareholders of the acquired company typically receive payment for their ownership. Acquisitions can occur for various reasons, such as to expand the acquirer's market share, to gain access to new products or technologies, to diversify the acquirer's product line or customer base, or to achieve cost savings through synergies. There are several types of acquisitions, including: friendly acquisition, hostile acquisition, asset acquisition, or stock acquisition.

Additional Related Term(s): Bought Out

Alternative Finance

Alternative finance refers to a range of non-traditional methods for raising capital or obtaining financing outside of traditional banking channels. Alternative finance includes a wide variety of funding options, such as crowdfunding, peer-to-peer lending, invoice trading, factoring, supply chain financing, revenue-based financing, and asset-based lending. These financing options are typically provided by alternative finance providers, some of which are technology-driven platforms that connect borrowers with investors or lenders.

Angel Investors

Angel investors are High Net Worth Individuals (HNWI) who provide capital and sometimes mentorship to startup companies in exchange for ownership equity or convertible debt. They typically invest their own money in early-stage businesses, and their investment ranges from a few thousand to a few million dollars. Angel investors are an important source of funding for startups, especially those that are too early or too risky for venture capital firms or traditional lenders. They are also known as private investors, seed investors, or angel funders.

Balance Sheet

A financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents a cumulative summary of a company's assets, liabilities, and shareholders' equity, as well as the relationship between these three components. The Balance Sheet is part of a company's set of financial statements, which also includes the Income Statement and Cash Flow Statement. By analyzing the balance sheet along with other financial statements, investors, creditors, and stakeholders gain insights into a company's financial health and performance.

B-CORP

Provided through the B-Lab, B-Corp certification is a third party assessment of a company's verified performance, accountability, and transparency on factors from employee benefits and charitable giving to supply chain practices and input materials. Companies must achieve a certain score to qualify as a B-Corp. Learn more about B-Corp Certification here.

Additional Related Term(s): Benefit Corporation

BENEFIT CORPORATION

Benefit corporations are a corporate form that allows companies to consider public benefit - like social and environmental good - in their decision-making processes, along with the interests of their investors. This is in contrast to most corporate forms, in which company managers are obligated to act in the best interest of their investors above all else.

Additional Related Term(s): B-Corp

Bootstrapping

Bootstrapping, in the context of business, refers to starting and growing a company with little or no outside capital. Instead of seeking funding from investors, entrepreneurs who bootstrap rely on their own personal savings, credit cards, revenue generated by the business, and/or loans from family and friends to finance their startup. Other examples of bootstrapping include working from home or a co-working space instead of leasing an office, using open-source software instead of buying expensive commercial or custom-built software, and marketing through social media and other low-cost channels instead of expensive advertising campaigns.

Bought Out

"Bought out" usually refers to a situation where one party purchases the ownership or control of another party's business or assets. For example, a company may be "bought out" by another company, meaning that the acquiring company has purchased a controlling interest in the company, usually through purchasing a majority of the company's shares. This means that the acquiring company now owns and controls the bought-out company.

Additional Related Term(s): Acquisition

Bread and Butter Industries

"Bread and butter industries" refer to the sectors or businesses that provide essential goods and services that people need on a daily basis. These are the industries that are considered essential to the economy and society, and are often seen as relatively stable and recession-proof. Bread and butter industries are often considered to be relatively safe investment opportunities because they provide essential goods and services that people will continue to need regardless of economic conditions. Examples include the transportation industry, energy industry, and the healthcare industry.

Breakeven

Breaking even in business means that a company has reached a point where its total revenue equals its total expenses in a particular period of time. In other words, it is the point at which the company is neither making a profit nor incurring a loss. Breaking even is an important milestone for a business, especially for a startup or a new venture, because it signifies that the company is starting to achieve financial sustainability and is on its way to profitability.

Brick and Mortar (B&M)

A brick and mortar retailer is a physical store or shop that has a physical presence in a specific location. The term "brick and mortar" is used to distinguish physical stores from online retailers or e-commerce businesses, which operate exclusively over the internet.

Bridge Loan

A short-term loan is used until a person or company secures permanent financing. This type of loan is typically used to "bridge" the gap between more permanent financing solutions or the sale of an asset. Key features of a bridge loan include short-term duration, higher interest rates, collateral, and flexible repayment.

BURN RATE

The rate at which a company is spending its cash reserves to cover operations. It is particularly relevant for startups and companies that are not yet profitable, as it indicates how long the company can continue to operate before needing additional funding. Understanding the burn rate is crucial for managing a company's cash flow and planning for future funding needs.

c corporation (C-Corp)

"C-Corp" is a tax designation for entities that elect to be taxed at the corporation level, and the individual owner (shareholders) level when they recieve dividends or realize any capital gains. While some founders avoid this due to the "double taxation", C-Corps provide broad liability protection for owners. It is the most common tax designation for companies. Learn more about C-Corps here.

Call Options

Gives the holder the right to buy the underlying asset at a predetermined price.

Capital expenditures

The funds a company uses to purchase long-term assets, such as real estate, buildings, vehicles, and other large equipment. Often shortened to CapEx.

Capital Stack

Refers to the various sources and types of financing used to fund a particular project or company. It represents the combination of different capital or funding layers that make up the total capitalization of a venture. Each layer in the capital stack has its own characteristics, risk level, and priority for repayment in case of financial distress. The term "stack" suggests the layering of these differing funding sources one on top of the other.

Capitalization

The total amount of capital, or funding, that a startup has raised to finance its operations and growth. It can include sources such as founder loans, angel investors, venture capital funds, crowdfunding campaigns, or bank loans.

Cash Equivalent

Cash equivalents refer to highly liquid investments, i.e. easily convertible into cash, with a short-term maturity, typically within three months. Examples are money market accounts and certificates of deposit (available from many banks and credit unions) or U.S. Treasury bills. Cash equivalents provide a highly secure, low-risk way to hold excess cash that earns interest while also being readily accessible when/if a company needs it.

Cash Flow

Cash flow refers to a company's inflows and outflows of cash during a specific period of time, typically a month, quarter or year. Understanding cash flow is critical for effective management of a company. It provides insight into a company's ability to pay its bills, including payroll and loan repayments. Cash flow is related to burn rate and is an important metric for potential capital providers as well as business owners.

Cash Flow Smoothing

Cash flow smoothing refers to strategies and techniques that a company can use when cash inflows and outflows are uneven over several periods. Examples of cash flow smoothing techniques: maintaining a cash reserve (often in a cash equivalent account), obtaining a line of credit, negotiating flexible payment terms with vendors, efficient inventory management (i.e. avoiding excess stock that ties up cash in unsold goods).

Cash Flow Statement

A financial statement linked to a company's income statement and balance sheet that shows a company's sources of cash and where cash is spent over a specific period of time. Also called Statement of Cash Flows.

Community Development Financial Institution (CDFI)

Community Development Financial Institutions (CDFIs) are specialized lenders that bring capital to low-income, low-wealth communities. CDFIs provide financial products and technical assistance to individuals and businesses that may not have access to traditional banking services or are considered too high-risk by mainstream lenders and investors. Learn more and find CDFIs here.

Charitable Loan Fund

A non-profit that raises debt and grants from accredited and non-accredited investors to finance organizations that advance a charitable mission.

Collateral

Collateral refers to an asset or property that is pledged as security for a loan or debt. Collateral provides a lender with a form of protection in the event that the borrower is unable to repay the loan because it gives the lender the right to liquidate the asset to pay off the debt. Typical forms of collateral are real estate (including a borrower's personal residence), financial assets, and other personal property (cars, boats, land, etc).

Common Stock

A type of stock that represents an amount of ownership in a company and often includes the right to vote on high-level company matters such as electing the board of directors. Common stock is typically issued to founders and employees of startup companies, although common stock can also be offered for sale to investors. In publicly traded companies, common stock is the most prevalent form of equity ownership and is traded on exchanges like the New York Stock Exchange and NASDAQ. Common stock offers the potential for return on investment through dividends and increased value (stock price). Compare with preferred stock.

Community Capital

Community capital refers to a source of financing that focuses on investing in and supporting local businesses and economies. This type of capital is often raised through community-based initiatives or organizations, such as community development financial institutions (CDFIs), credit unions, place-based investment crowdfunding, and community investment funds. Community capital is often mission-based and used to fund projects that aim to create positive social, economic, or environmental impact within a specific region.

Community Investment Funds

Community investment funds pool investments from people living within (or deeply committed to) a defined region and direct that invested capital exclusively into local people, projects and businesses, with a mission of significant social/environmental change. Ideally, community investment funds allow investment from any citizen regardless of accredited investor status, and engage their investors and other community partners in decision-making on how to deploy the fund's capital.

Control

Business control refers to the power or authority that an individual or group has to make decisions and direct the operations of a business. Control can be exercised through a variety of means, including ownership, management, or contractual agreements. While similar to business ownership they are not the same thing. It is possible for someone to own a business without having control over its operations, or for someone to have control over a business without owning a majority stake.

Convertible Debt

See convertible note.

Convertible Note

A convertible note is a type of investment structure commonly used in early-stage startup financing. It is a form of debt that includes an opportunity to convert into equity (ownership) in the company at a later date upon the company's achievement of certain pre-specified milestones or a future financing event. Convertible notes are attractive for startup financing because they offer several advantages over traditional equity financing. For one, they are typically easier and quicker to negotiate and execute, since they do not require the valuation of the company that equity financing does. Additionally, because they are debt instruments, they do not dilute existing shareholders until they are converted into equity. Also called convertible debt.

Credit Unions

Credit unions are not-for-profit financial institutions that are owned and governed by their members. They offer many of the same financial services as banks, including checking and savings accounts, loans, and credit cards. However, unlike banks, credit unions are not driven by profit motives and may offer more favorable terms, lower fees, and more services to their members. As nonprofit organizations, they are mission-driven with a focus on community and member service.

Crowdfunding

Crowdfunding is a financing method that involves raising funds from a large number of individuals, typically through an online platform. The idea behind crowdfunding is to harness the collective power of a large number of people to provide financial support for a project, venture, or cause. Crowdfunding has become increasingly popular in recent years, with many entrepreneurs, artists, and social causes using online platforms to raise funds and build a community of supporters. It is important to distinguish between donation-based crowdfunding, rewards-based crowdfunding, and investment crowdfunding.

Current Assets

Current assets is an account on a company's balance sheet that includes: cash and cash equivalents, accounts receivable, inventory, other assets that are expected to be converted into cash within one year.

Current Liabilities

Current liabilities in an account on a company's balance sheet that includes: accounts payable, short-term loans, and other obligations that are due within one year.

Deal Structure

Deal structure refers to the detailed terms and conditions between an investor and an investee. It outlines the rights, obligations, and protections for both parties, including how returns will be generated and distributed, and how risks will be managed. The structure of an investment can significantly impact its attractiveness to one or both parties, as well as its feasibility and potential for success. The deal structure must be agreed upon by both the investor and investee before a transaction takes place.

Dilution

Dilution occurs when a company issues new shares that result in a decrease in existing shareholders' ownership percentage of that company. When dilution occurs, the total number of shares outstanding increases, which means that each existing shareholder owns a smaller percentage of the company than they did before the new shares were issued. This can affect various aspects of shareholder value, including voting power, dividends, and earnings per share.

Dividends

Distribution of a company's profits or earnings to its shareholders. When a company generates profits, it can choose to distribute a portion of those profits to its shareholders as dividends. Dividends are usually paid in the form of cash, but they can also be issued as additional shares of stock or other forms of property. Dividends provide shareholders with a tangible benefit by allowing them to receive a share of the company's profits in the form of cash or additional stock.

Donation-Based Crowdfunding

Donation-based crowdfunding involves no expectation of reward and is often used to support charitable causes.

Due Diligence

The process by which capital providers research and evaluate a company in which they may invest. This review typically involves examining the financial statements, tax returns, and other financial records to assess the financial health and performance of a business, as well as interview(s) with the company founder(s), CEO, key employees, or others, and site/facility tours. Key areas of focus include revenue, expenses, profitability, cash flow, and liabilities. For impact-oriented capital providers, the due diligence process also includes an assessment of mission alignment with their investment thesis.

Early-Stage Business

An early-stage business is a company that has launched and is in the early phases of its growth and development. These businesses have a proven concept and are starting to gain distribution and/or build a stable customer or client base. A key characteristic of this stage is that, while growing their revenue stream may be growing, they most likely have not reached the breakeven point, and are still spending more than they earn. Due to this, some capital providers find early-stage businesses too risky which may limit capital options.

Equity

Equity, in a financial context, refers to an ownership interest in a business. It represents the value that would be returned to investors after all of a company's assets were liquidated and used to pay off all debts. The value of equity can increase or decrease over time, based on factors such as the company's performance, financial health, and growth prospects. Equity can be acquired in several ways: investing capital in a company, receiving shares in exchange for goods or services provided, receiving shares through an employee incentive plan, or acquiring equity through mergers and acquisitions.

ESG (Environmental, Social, Governance)

Non-financial criteria on which some investors analyze investments. Environmental criteria assess how a company affects the environment, Social criteria assess how a company manages relationships with people (employees, suppliers, stakeholders), and Governance criteria assess a company's internal structures and transparency.

Established Business

An established business is a company that has been in operation for a significant period of time with a steady customer or client base, repeat sales and substantial relationships with vendors/suppliers. Established businesses may have a significant market presence and are often able to generate steady revenue streams and cash flows. They may even have a credit history from prior loans and repayments. They tend to employ a larger workforce, have more sophisticated operations, and have a broader range of products or services compared to early-stage businesses.

Factoring

Factoring, also known as accounts receivable financing or invoice financing, is a transaction in which a business sells its accounts receivable (invoices) to a third party (the factor) at a discount from the total invoice amount. This allows a business to receive cash sooner than if it waited for its customer to pay the invoice on the stated terms (typically 30-60 days) and is a technique for cash flow smoothing. The factor then collects payment from the business' customer in the full amount of the invoice and makes its profit on the difference between the full invoice amount and the discounted amount it paid to acquire the invoice.

Family Office

Entity established by wealthy families to manage their wealth and provide other services, such as tax and real estate planning. In some cases, will act as early stage angel investors.

Financing/Funding Round

A process through which a company raises money from investors, usually distinguished by a specific deal structure, use of funds, and target amount to be raised. Funding rounds are common among startups and businesses looking to expand or scale their operations. During a funding round, a company offers equity, debt, convertible notes, or other alternative deal structures in exchange for a financial investment. Examples of funding rounds are series seed, series A, series B (C,D, etc), bridge financing, and mezzanine financing.

Fixed Cost

Fixed costs refer to the expenses that remain constant or consistent regardless of the level of production or sales volume, i.e. costs incurred whether or not the company sells any products or services. Fixed costs are generally associated with a company's overhead costs, such as rent or lease payments, executive salaries, property taxes, insurance, and depreciation of equipment.

Follow-On Capital

Follow-on capital is funding that is provided by an existing investor or group of investors after an initial investment has already been made. Follow-on capital may or may not be made under the same terms as the original investment, and takes into account the company's performance, changes in market conditions, and any negotiations between the company and current investors. It may be provided for various reasons such as unforecasted expansion, new research and development, or the need for working capital. Follow-on capital is often provided to companies that have shown some level of success or growth, and investors may use it as a way to maintain or increase their ownership stake in the company.

Free Cash Flow

A measure of a company's financial performance that shows how much cash it generates from its operations after accounting for capital expenditures. It represents the amount of cash a company has available to pay out to investors or reinvest in the business. Free cash flow is calculated by subtracting capital expenditures from operating cash flow. Free cash flow is an important indicator of a company's financial health, as it shows whether the company has enough cash to pay dividends to shareholders, pay down debt, or reinvest in the business.

Friends and Family (F&F)

Refers to the practice of raising capital for a business or startup from personal networks, such as friends, family members, and acquaintances. This type of funding is often used in the early stages of a business, when traditional funding sources may be difficult to secure.

FUND

An aggregated pool of capital from Limited Partners from which a venture capital or private equity firm will make investments over a pre-determined period of time (usually 5-10 years).

Future Round

Generally refers to a potential funding round in a startup's future, often used in the context of current funding discussions or negotiations.

General Partner (GP)

A person or entity that has management authority and unlimited personal liability in a partnership. In a partnership, the general partner is responsible for managing the day-to-day operations of the business and making strategic decisions. General partners typically have a significant ownership interest in the partnership and are actively involved in the business. They are also responsible for the financial obligations of the partnership, including any debts or legal liabilities.

GranT

Financial award given to an organization to address a stated goal without a repayment obligation. More common in non-profits entities.

Growth Capital

A type of financing that is provided to a company to support its growth and expansion plans. This type of capital is typically used to finance initiatives such as new product development, expansion into new markets, or acquisition of other businesses. Unlike traditional debt financing, growth capital is typically provided in the form of equity, such as through the issuance of shares of stock. This allows the investor to participate in the growth and success of the company, and to share in its profits. Growth capital is often provided by private equity firms, venture capital firms, or other investors who specialize in providing funding to companies that have a proven track record of success and strong growth potential.

Guarantee

Binding promise made by an individual or organization to meet the financial commitments of another organization or individual in the event they cannot repay the debt. This is a method of reducing risk of nonpayment to a lendor or other investor.

High-Growth Venture

A business that has the potential to rapidly grow its revenue, profits, and market share over a relatively short period of time. These ventures typically operate in industries with high-growth potential and are focused on disruptive innovation, new technology, or emerging markets. High-growth ventures often require significant investment in research and development, marketing, and sales to achieve their growth objectives. They may also require large amounts of capital to fund their growth, which can come from a variety of sources, such as venture capital firms, angel investors, or strategic partners. Some examples of high-growth ventures include technology startups, biotech firms, and e-commerce companies.

High-Net Worth Individuals (HNWI)

People who have a high level of wealth or net worth. The exact amount that qualifies an individual as a HNWI varies, but generally, it refers to people with investable assets (such as cash, stocks, and real estate) of at least $1 million, excluding their primary residence. HNWIs often have unique investment needs and are able to take advantage of a wider range of investment opportunities than the average investor. They may have access to private equity, hedge funds, and other types of alternative investments that are not available to the general public.

Impact Investing

An investment approach that seeks to generate both financial returns and measurable positive social or environmental impact. This approach has gained popularity in recent years as investors increasingly recognize the importance of creating value beyond traditional financial metrics. Impact investors typically consider factors such as environmental sustainability, social justice, and ethical business practices when selecting investment opportunities. They aim to support companies and projects that align with their values and have a positive impact on society or the environment.

Income Statement

Also known as a profit and loss statement (P&L) or statement of earnings, is a financial statement that summarizes a company's revenues, expenses, gains, and losses for a specific period. It provides valuable information about a company's financial performance and profitability over a given period, usually quarterly or annually. The income statement follows a basic equation: Revenues - Expenses = Net Income.

Incubators

A business incubator is a program designed to help entrepreneurs and startup companies grow and develop their businesses with no set end date and typically over a longer time frame than accelerators. Business incubators often offer shared office space, which provides startups with a professional environment in which to work and collaborate with other entrepreneurs. They may also offer access to meeting rooms, conference rooms, and other facilities. In addition to physical resources, incubators may provide startups with mentoring and training in areas such as business planning, marketing, and financial management. Incubators generally do not take an equity position in companies and may charge a fee or rent.

Institutional Investors

Large organizations that invest money on behalf of others. These organizations may include pension funds, insurance companies, mutual funds, endowments, and foundations. Institutional investors typically have large amounts of money to invest, and they use their financial resources to make investments in a variety of assets, such as stocks, bonds, real estate, and alternative investments.

Inventory

Refers to the goods or materials that a business holds in stock and intends to sell to customers. It can include finished products, raw materials, work-in-progress, and supplies that are used in the production process. Inventory is an important part of a business's operations, as it allows them to meet customer demand and fulfill orders in a timely manner. It also represents a significant investment for the business, as the value of the inventory held in stock can be quite substantial.

Investment Crowdfunding

Investment crowdfunding involves raising funds, usually through an online platform, from a large group of small-scale investors. Investment crowdfunding is often used by startups or small businesses to raise capital and, unlike donation-based crowdfunding or rewards-based crowdfunding, provides investors with a potential return on investment. Deals can be structured as equity, debt, convertible notes, or any number of alternative deal structures.

Invoice Factoring

Also known as accounts receivable factoring, is a financing option that allows businesses to obtain immediate cash by selling their outstanding invoices or accounts receivable to a third-party financial institution, known as a factor. The factor pays the business a percentage of the total value of the invoices upfront, typically around 80-90%, and takes on the responsibility of collecting payment from the customers who owe the original invoices. Once the invoices are paid, the factor deducts their fee, which can range from 1-5% of the total value of the invoices, and then remits the remaining balance back to the business. Invoice factoring can be a useful financing tool for businesses that have a high volume of accounts receivable, long payment terms, or cash flow issues.

Keep Their Powder Dry

The phrase "keep your powder dry" means to be prepared for a future situation, often by reserving or conserving your resources until they are needed. In a business context, the phrase can refer to a company holding back on investments or expansion until the timing is right, or until they have the necessary resources to make a move.

lead investor

An investor in an early-stage company who takes a leadership role in a financing round. Usually, but not always, the largest investor. The lead investor is often responsible for negotiating the terms of the investment, setting the valuation, and providing a significant portion of the total funding in that round.

Limited Liability Corporation (LLC)

A Limited Liability Corporation ("LLC") is a corporate structure that protects owners from personal liability associated with their business. Despite the liability protection they provide, LLCs are "pass-through" entities, meaning income is not taxed on the entity level, only at the level of the owners. LLCs are often described as having both the tax benefits of an S-Corp, and the liability protection of a C-Corp.

Limited Partner (LP)

A partner in a partnership who does not have management authority and has limited liability for the debts and obligations of the partnership.

Line of Credit

A type of loan that provides a borrower with access to a pool of funds that can be drawn upon as needed, up to a predetermined credit limit. The borrower can use the funds for any purpose, such as financing business operations, paying for inventory, or covering short-term expenses. Unlike a term loan, where the borrower receives a lump sum of money that is paid back over a fixed period of time, a line of credit provides ongoing access to funds, with interest only charged on the amount borrowed. The borrower can draw from the line of credit as needed, up to the credit limit, and make repayments on a schedule that works for them.

LIQUIDITY

Liquidity refers to how easily and quickly an asset can be converted into cash without significantly affecting its price. In financial terms, a highly liquid asset, like cash or a marketable security, can be sold quickly at or near its market value. On the other hand, less liquid assets, like real estate or collectibles, might take more time and effort to sell, and might be sold at a lower price than their market value.

LIQUIDITY Event

Any event that allows early investors to cash out some or all of their shares in a company. Usually, this is in the form of an initial public offering, merger, or acquisition.

Additional Related Term(s): Liquidity

Livelihood Enterprises

Also known as microenterprises or small businesses, these are businesses that are typically run by individuals or small groups of people and are focused on generating income and creating economic opportunities in local communities. These businesses often operate in sectors such as agriculture, handicrafts, food processing, retail, or services.

Merger

A type of business transaction that involves the combining of two or more companies into a single entity. In a merger, one company typically absorbs the assets and liabilities of another company, and the shareholders of the absorbed company usually receive shares in the surviving company in exchange for their ownership. Mergers can occur for various reasons, such as to achieve economies of scale, expand market share, reduce competition, or diversify product lines. There are several types of mergers, including: horizontal merger, vertical merger, conglomerate merger, or reverse merger.

Mezzanine Financing

A type of funding that sits between equity and debt financing. Mezzanine financing typically involves providing capital to a company in exchange for a higher return than traditional bank financing and a lower return than equity financing. This type of financing is often used by companies that are looking to expand or make acquisitions. Mezzanine financing is typically structured as a loan or a hybrid of a loan and equity. It may include features such as warrants or options, which give the lender the right to purchase equity in the company at a later date. Mezzanine financing is often unsecured, which means that it is not backed by collateral.

Microenterprises

Small businesses that typically have fewer than 10 employees and generate limited revenue.

Mission-Related Investments (MRI)

A type of impact investing that allows foundations and other philanthropic organizations to align their investments with their charitable missions and achieve both social and financial returns. MRIs are similar to program-related investments (PRIs) in that they are made with the intention of achieving social or environmental goals, but they differ in that MRIs may also be intended to achieve market-rate financial returns. Unlike traditional grants, MRIs are structured as investments with the expectation of repayment or financial return. However, the primary purpose of MRIs is to further the foundation's charitable or philanthropic mission, rather than to maximize financial returns. MRIs can take a variety of forms, including equity investments, debt investments, and alternative investments such as private equity or hedge funds.

Minimum Viable Product (MVP)

A product or service that has the minimum set of features required to satisfy early customers and gather feedback for future development. The goal of an MVP is to quickly validate a business idea with minimal resources and investment.

Negative Cash Flow

In contrast to positive cash flow, negative cash flow occurs when a company's outflows of cash exceed its inflows, resulting in a shortage of cash.

Non-Accredited Investors

Individuals who do not meet the criteria to be considered an accredited investor by the Securities and Exchange Commission (SEC). This means they are not eligible to invest in certain types of private investment offerings that are restricted to accredited investors, such as certain types of hedge funds, private equity funds, and startup investments.

Non-Disclosure Agreement (NDA)

An agreement in which one party agrees not to share the information of another party. The purpose of an NDA is to protect sensitive information from being disclosed to unauthorized individuals or entities. NDAs are commonly used in various business contexts, including when companies share proprietary information, trade secrets, or other confidential data with employees, contractors, partners, or potential investors.

Operating cash flow

The cash generated by a company's normal business operations, such as sales revenue, minus its operating expenses.

Operating Revenue

Operating revenue, also known as sales revenue or net sales, is the total amount of revenue generated by a company's core operations. It is the revenue earned by a company from its primary business activities, such as the sale of goods or services. Operating revenue is calculated by subtracting any discounts, returns, and allowances from a company's gross revenue. Gross revenue is the total revenue earned by a company before deducting any expenses. Operating revenue is an important metric for businesses because it provides insight into the company's ability to generate revenue from its core business activities.

Opportunity Cost

Opportunity cost for investors refers to the potential returns that an investor foregoes by choosing one investment option over another. In other words, it is the cost of not pursuing an alternative investment opportunity that may have yielded a higher return. Opportunity cost is an important concept in investment decision-making, as it highlights the trade-offs that investors must make when choosing among different investment options. Investors must weigh the potential risks and rewards of each option and consider the potential opportunity cost of their decisions.

Options

In finance, an option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and within a specified time period. The underlying asset can be a stock, bond, commodity, or currency.

Outside Capital

Refers to funds that are invested in a company from external sources, rather than from the company's own internal resources. This can include investment from individuals, venture capital firms, private equity firms, institutional investors, or other entities. Outside capital can be used to fund a range of activities, such as research and development, expansion, or acquisitions.

Owner's Draw

Also known as a withdrawal or a distribution, refers to the process by which a business owner withdraws funds or assets from their business for personal use. It represents the reduction of the owner's equity or investment in the business. Owner's draws provide flexibility for business owners to access funds from their businesses for personal use. However, it is important to carefully manage and track owner's draws to maintain accurate financial records, comply with tax requirements, and ensure the business's financial stability.

Ownership

Refers to the legal right to possess, use, and dispose of a business or its assets. Ownership can be held by individuals or entities, such as corporations or partnerships, and can be divided into shares or equity. While similar to business control they are not the same thing. It is possible for someone to own a business without having control over its operations, or for someone to have control over a business without owning a majority stake.

Payroll

Refers to the total amount of money that a company pays to its employees for their work during a specific period of time, such as a week or a month. Payroll includes all forms of compensation, such as salaries, wages, bonuses, commissions, and benefits.

Peer-to-Peer Lending (P2P)

Also known as marketplace lending, is a form of lending that connects individual borrowers directly with individual lenders through an online platform. It eliminates the need for traditional financial intermediaries such as banks or credit unions. In a P2P lending arrangement, individuals or businesses looking to borrow money can request funds on the platform, and individual lenders can choose to fund those loans by providing the requested amount.

Positive Cash Flow

In contrast to negative cash flow, positive cash flow occurs when a company's inflows of cash (such as revenue, loans, or investments) exceed its outflows of cash (such as expenses, taxes, or debt payments), resulting in a surplus of cash.

Pre-Launch

The period before a new product, service, or business is officially launched or made available to the public. This is the time when a business is preparing to launch, conducting market research, building a prototype, and testing its product or service. During the pre-launch phase, a business may also be developing its marketing and advertising strategies, building its website or online presence, and preparing its distribution channels. The goal of the pre-launch phase is to build buzz and anticipation for the new product or service, generate interest among potential customers, and lay the groundwork for a successful launch.

Preferred Stock

Stock with preferential terms, rights and priviliges in comparison to common stock. It typically gives shareholders certain advantages over common stockholders, particularly in terms of dividend payments and claims on assets in the event of liquidation.

Priced Equity Round

A type of funding round where a company sells shares of its stock at a set price to investors. In this type of round, the company and investors negotiate the valuation of the company and agree on a price per share that will be paid by the investors to purchase the company's shares. Priced equity rounds are commonly used by startups and early-stage businesses to raise funds to support growth and expansion. They are often preferred by investors because they provide a clear valuation of the company and a specific price for the shares being sold, which can help to mitigate risk.

Private Equity Firms

Refers to an asset class of investment in privately held companies or equity securities that are not publicly traded on a stock exchange. It involves investing in the ownership or control of companies that are not listed on public stock markets. Private equity firms raise capital from various sources, such as institutional investors, high-net-worth individuals, and pension funds, and then use that capital to acquire, manage, and eventually sell or exit investments in private companies.

Private OFFERING

A private offering (or placement) is a method for raising capital for a company through the sale of securities to a select group of investors, rather than conducting a public offering available to the general public. In a private placement, the securities are not traded on a public stock exchange (e.g. New York Stock Exchange, NASDAQ), and the offering is exempt from the full registration and disclosure requirements of the US Securities & Exchange Commission.

Product Line

Refers to a group or collection of related products or services offered by a company. It represents a strategic grouping of products that are closely related in terms of their purpose, target market, or distribution channels. Product lines allow companies to effectively manage and market a range of products that cater to different customer needs and preferences while leveraging economies of scale and brand recognition.

Profits

The financial gains earned by a company or an individual from their business activities after deducting all the expenses incurred to generate that revenue. In other words, profits are the surplus earnings generated by a business that remain after all expenses, such as salaries, rent, taxes, and other costs, have been paid. Profits are an important measure of a company's financial health, and they play a critical role in determining the value of the business

Program-Related Investments (PRI)

A type of impact investing that allows foundations and other philanthropic organizations to make investments that align with their charitable missions while also generating financial returns. PRIs are typically made to nonprofit organizations, social enterprises, or other mission-driven entities that are working to address social or environmental issues. Unlike traditional grants, PRIs are structured as investments with the expectation of repayment or financial return. However, unlike traditional investments, the primary purpose of PRIs is to achieve a charitable or social purpose, rather than to maximize financial returns. PRIs can take a variety of forms, including loans, equity investments, guarantees, and other financial instruments.

Promissory Note

A legal document that contains a written promise to repay a specific amount of money, along with interest, to a lender at a predetermined date or on demand. It is a type of debt instrument that establishes a binding agreement between the borrower and the lender. A promissory note typically includes details such as the principal amount borrowed, the interest rate charged, the repayment terms, and any penalties for late or missed payments. The note is signed by the borrower, who is legally obligated to repay the loan according to the terms specified in the document.

Proof of Concept

A demonstration or experiment carried out to verify that a particular concept or theory has the potential to be developed into a viable product, service, or process. It is a way to test the feasibility of an idea or concept before investing significant time and resources into full-scale development. In the context of business, proof of concept is often used to evaluate the commercial viability of a new product or service. A successful proof of concept can demonstrate that a product or service is feasible, that there is a market demand for it, and that it has the potential to generate revenue and profits.

Purchasing Order Financing

A type of short-term financing that is used by businesses to finance the purchase or manufacture of goods that have been ordered by customers. In purchase order financing, a lender provides the necessary funds to pay suppliers for the cost of goods or materials needed to fulfill a customer order. The financing is typically structured as a loan, with the purchase order serving as collateral. The lender may also require a personal guarantee from the business owner, and may charge fees and interest on the loan. Purchase order financing is often used by businesses that do not have the cash flow or credit to purchase the necessary materials or goods to fulfill customer orders. It can be particularly useful for businesses that experience seasonal fluctuations in demand, or that have large orders that exceed their current capacity.

Put Options

A put option gives the holder the right to sell the underlying asset at a predetermined price.

Research & Development (R&D)

The process of investigating and exploring new ideas, concepts, technologies, and methods that can lead to the creation of new products, services, or processes or improve the existing ones. The purpose of R&D is to enhance the overall performance, quality, functionality, and competitiveness of the products or services offered by a company. R&D typically involves a systematic process of experimentation, prototyping, testing, and analysis. The R&D team may use various scientific and technical methods to conduct research, such as lab experiments, computer simulations, data analysis, and field trials.

Recoverable Grant

A grant made by nonprofits or donors that, under agreed-upon circumstances, becomes repayable, potentially with interest.

Regenerative Finance

An approach to finance that seeks to create a more sustainable, equitable, and resilient economy. This approach recognizes that traditional finance and investment models have often contributed to social and environmental challenges, such as inequality, climate change, and economic instability. Regenerative finance aims to address these challenges by focusing on investments that generate positive social and environmental impact while also generating financial returns.

Return on Investment (ROI)

A financial metric used to evaluate the profitability or efficiency of an investment. It measures the return or gain generated from an investment relative to the amount of the investment itself. ROI is expressed as a percentage or a ratio and provides insight into the financial performance and attractiveness of an investment opportunity. The formula to calculate ROI is as follows: ROI = (Net Profit / Investment Cost) x 100.

Returns

Refer to the profits, gains, or returns that a business generates from its operations or investments. There are various types of returns that a business can generate, including: revenue, net income, capital gains, dividends, interest income, rental income, and royalties.

Revenue

Refers to the total amount of income that a company or organization receives from its business activities, typically from the sale of goods or services. Revenue is also commonly referred to as "sales" or "turnover". It is calculated by multiplying the price at which a product or service is sold by the number of units sold. Revenue is an important measure of a company's financial performance and is typically reported on a company's income statement.

Revenue-based financing (RBF)

Also known as revenue-based lending or revenue sharing, is a financing arrangement where a company receives capital in exchange for a percentage of its future revenues. Unlike traditional debt financing, RBF does not involve fixed interest payments or fixed repayment schedules. Instead, the lender receives a portion of the company's ongoing revenue until a predetermined total amount is repaid.

Reward-Based Crowdfunding

Involves offering backers a non-financial reward, such as early access to a product or exclusive merchandise, in exchange for their support. Donation-based crowdfunding is similar, but involves no expectation of reward and is often used to support charitable causes.

Risk Tolerance

An individual's or organization's willingness to take on financial risk in pursuit of potential rewards. In other words, it is the amount of risk that a person or organization is comfortable with and willing to accept in order to achieve their financial goals.

runway

The amount of time a company has remaining to operate, based on the current burn rate and cash reserves. It provides a crucial insight into how long a company can sustain its operations while seeking additional funding or achieving profitability.

S CORPORATION (S-corp)

An "S-Corp" is a tax designation of a corporation that elects to pass income and loss, and the associated tax liability, onto its shareholders. The entity itself is not taxed. S-Corps can have no more than 100 shareholders, and can only have one class of stock.

SBA-Backing

Refers to the backing or support provided by the U.S. Small Business Administration (SBA) to lenders who provide loans to small businesses. The SBA is a government agency that was created to support and promote the growth of small businesses in the United States. When a small business owner applies for a loan through an SBA-approved lender, the SBA may guarantee a portion of the loan, usually up to 85% of the loan amount, to reduce the risk to the lender. This guarantee is known as SBA-backing, and it enables lenders to provide loans to small businesses that may not qualify for traditional bank loans due to limited collateral or other risk factors.

Scaling

Refers to the process of expanding a business in order to increase its revenue, customer base, and market share. Scaling a business can involve a variety of strategies, such as increasing production capacity, expanding into new markets or product lines, hiring additional staff, and implementing more efficient processes and systems. The goal of scaling a business is to achieve sustainable growth while maintaining profitability and operational efficiency. By scaling a business, companies can often benefit from economies of scale, which can lead to lower costs and higher profit margins.

Secured Debt

A type of debt that is backed by collateral, which is a specific asset that is pledged as security for the loan. In the event that the borrower defaults on the loan, the lender can seize and sell the collateral to recover some or all of the outstanding debt. Secured debt is generally considered less risky for lenders than unsecured debt, since there is a tangible asset that can be used to recover the loan in the event of default. This can lead to lower interest rates and more favorable loan terms for borrowers.

Seniority Position

Determines an investor's place in line to claim assets in the event of default. Investments can be made in a senior position (first claim on assets), pari-passu (equal claim with other lenders), or in a junior position (a lower claim on assets, called Subordinated Debt).

Serial entrepreneur

An individual who starts and runs multiple businesses over the course of their career. Serial entrepreneurs are characterized by their ability to identify new business opportunities, take calculated risks, and bring innovative products or services to market.

SERIES A

An early round of financing a company raises, is often followed by a Series B, Series C, etc. This round typically follows the seed funding round and is aimed at scaling the business after validating its product-market fit and initial traction in the market.

SERIES SEED

A small financing round a company raises before Series A, is often the first financing a company raises. This round typically follows initial funding from founders, friends, and family and precedes larger rounds. The Series Seed round helps startups transition from the idea and prototype stages to building a scalable product or service and gaining initial traction in the market.

Shareholders

Also known as stockholders or equity holders, are individuals or entities that own shares or stock in a corporation. When a company issues shares of stock, it is essentially dividing its ownership into smaller units, and those units are held by shareholders. Shareholders have a financial interest in the company and are entitled to certain rights and privileges. Shareholders play a crucial role in corporate governance, as they provide capital to the company and have a vested interest in its success.

Simple Agreement for Future Equity (SAFE)

An instrument that provides rights to an investor for future equity without determining a specific price per share until a later priced round or liquidity event occurs. Often used with start-ups.

Small Businesses

Independently owned and operated businesses that typically have fewer employees and generate less revenue than larger corporations. The definition of a small business can vary depending on the industry and country, but generally, a business with fewer than 500 employees and annual revenue of less than $7.5 million is considered small in the United States.

Speculator

An individual or organization that takes on financial risk by engaging in the buying and selling of assets with the goal of making a profit from price fluctuations. Speculators may buy and sell a wide range of assets, including stocks, bonds, commodities, currencies, and derivatives. Speculation is different from investment, which typically involves a more long-term strategy based on the fundamentals of the underlying asset. Speculators, on the other hand, are primarily focused on making quick profits from short-term price movements and market volatility.

Supply Chain Financing

A financial service that provides short-term funding to suppliers in a supply chain, enabling them to receive payment for their goods or services more quickly than they would otherwise. Supply chain financing can benefit both suppliers and buyers by improving cash flow and reducing financing costs. In supply chain financing, a financial institution, such as a bank or a third-party provider, extends credit to a supplier based on the buyer's creditworthiness. The supplier can then use the credit to finance their operations while waiting for payment from the buyer. Supply chain financing can take several forms, such as invoice financing, dynamic discounting, and reverse factoring.

Sweat Equity

Refers to the value that an individual or team contributes to a project or business venture through their time, effort, and expertise, rather than through financial investment. In other words, sweat equity is the contribution of non-monetary resources to a venture, such as hard work, skills, knowledge, and experience. Sweat equity can also be used to compensate founders or employees for their contributions to a company over time, rather than through a traditional salary or bonus structure.

Term Loans

A type of loan that provides a borrower with a lump sum of money that is paid back over a predetermined period of time, typically with interest. They are often used for business purposes such as financing large projects, purchasing equipment, or expanding operations. The repayment term for term loans can vary widely, from a few months to several years, depending on the lender and the borrower's needs. The interest rate on a term loan can be fixed or variable, and it may be secured or unsecured, depending on the lender's requirements and the borrower's creditworthiness.

Term SHEET

A non-binding document that outlines the main terms and conditions of a proposed investment deal. It serves as a preliminary agreement between the parties involved, such as a startup and potential investors, and lays the foundation for the detailed legal agreements that will follow. The term sheet provides a framework for negotiations and ensures that all parties are aligned on key aspects of the deal before committing to the final transaction.

The Big Four

Often used to refer to the four largest banks in a particular country or region. The big four banks in different countries may vary, but in the context of the United States, the big four banks are often considered to be: JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup.

Trade Partners

Entities, such as businesses or individuals, that engage in a mutually beneficial exchange of goods or services. Trade partners can be located in the same country or in different countries, and can range from small businesses to large multinational corporations.

Tranched

Refers to the process of dividing a financial instrument, such as a loan or a bond, into multiple parts or "tranches" that have different characteristics or levels of risk. Each tranche is typically sold to different investors who are willing to accept different levels of risk in exchange for different levels of return.

Unicorns

A privately held startup company that is valued at over $1 billion. The term "unicorn" was coined in 2013 by venture capitalist Aileen Lee to describe the rare and mythical nature of such companies. Unicorns are typically technology companies that have experienced rapid growth and achieved a large market share in a relatively short period of time. Some well-known examples of unicorns include companies such as Uber, Airbnb, and SpaceX. Unicorns often attract significant attention from investors, as they are seen as potential "game changers" in their respective industries. However, they are also subject to significant scrutiny, as their valuations are often based on projections of future growth rather than current financial performance.

Unsecured Working Capital

Refers to a type of business financing that does not require collateral or security, such as inventory or accounts receivable. Unsecured working capital is typically used to fund short-term business operations, such as purchasing inventory, paying suppliers, or covering payroll. Unsecured working capital can take several forms, including lines of credit, credit cards, and short-term loans. Unlike secured financing, unsecured financing typically has higher interest rates and more stringent lending criteria, as there is no collateral to secure the loan.

valuation

A determination of the monetary worth of a company, usually by an investor. It involves analyzing various financial metrics, market conditions, and qualitative factors to estimate what an entity is worth in monetary terms. Valuation is a critical aspect of finance and investment, used in a variety of contexts such as mergers and acquisitions, investment decisions, financial reporting, and fundraising. Key methods of valution include, a market approach, an income approach, or an asset-based approach.

Value-Added Investors

Investors who provide not only capital but also strategic and operational support to a company in order to help it grow and achieve its goals. Value-added investors typically look for companies that have high growth potential but may need additional expertise, resources, or guidance to reach their full potential. The goal of value-added investing is to create long-term value for both the investor and the portfolio company, typically through a combination of financial returns and strategic benefits. Value-added investors may take an active role in the management and decision-making of the portfolio company, often through a seat on the company's board of directors.

Variable Cost

Expenses that vary in proportion to the level of production or sales volume. These costs increase or decrease as the level of activity increases or decreases. Variable costs are generally associated with a company's direct costs of producing goods or services, such as raw materials, labor, and sales commissions. These costs vary with the level of production or sales.

Venture Funds

Venture funds are investment funds that provide capital to early-stage and growth-oriented companies that have high growth potential but may not yet have a proven track record of profitability. Venture funds are typically managed by professional investors who have expertise in evaluating and managing high-risk, high-reward investments. Venture funds raise capital from institutional and individual investors, such as pension funds, university endowments, and wealthy individuals, and then use that capital to invest in a portfolio of companies. The goal of venture funds is to generate significant returns for their investors by investing in companies that have the potential to become market leaders in their industries with a time horizon of 3-7 years. Venture funds typically take an active role in the management and growth of their portfolio companies, providing strategic and operational support as well as capital.

War Chest

A war chest business strategy refers to a company's accumulation of significant financial resources, such as cash reserves or credit lines, that can be used to fund growth, acquisitions, or other strategic initiatives.

Working Capital

Refers to the amount of capital that a company has available to fund its day-to-day operations and meet its short-term financial obligations. It is calculated by subtracting a company's current liabilities from its current assets. Working capital is important because it reflects a company's ability to meet its short-term financial obligations and invest in its growth and operations.