An entrepreneur looking for funding from investors has to understand a whole new terminlogy related to the investment terms. We thought it would be useful to give you basics of the most important ones, along with examples or further real-life implications. By the way, it is not uncommon that the other side (for example less experienced Angel Investors) are also not familiar with these terms, so this list can be useful for both sides of the table.
Have any words or phrases to suggest? Let us know in the comments!
Accredited Investor (US+UK): A high-worth individual allowed by their government to make risky investments in private equity.
Angel: A high-worth individual who invests in startups. Generally speaking, Angels are less afraid to take greater risk, and usually invest with their own money.
Common Stock: The unit of ownership of the company typically owned by the founders. Common Stock is also the lowest level of financing. If the company goes into bankruptcy, money is only repaid back to common stockholders once the liquidation money is first paid to debt and preferred stockholders.
Why Do Big Companies Buy Small Companies?
Big companies buy small companies because small companies are simply better at innovation than larger companies. Employees of a big company do not want to be seen as trying out a new idea and then abandoning the venture midstream if it does not work. The career of managers wishing to move up the corporate ladder do not want to have failures in their history. Now the world of innovations is such where small companies develop new products and services, gather early customers at high cost, and then sell the business to a large company. These large companies can use their existing distribution and/or manufacturing organization to turn the company bought into a large profitable business.
Employees of a big company do not want to be seen as trying out something and then abandoning the ventures midstream if they are not working out as expected.
Should Your Company Be Valued Based On Financials Or Strategic Value?
Many entrepreneurs view the value of their company as being tied to generating revenue and profit growth, but fail to appreciate how this view limits their ability to fully exploit their company’s potential. The key to the strategic value is having developed a product which has the potential to reach a very high level of sales, if it is given the proper resources. A… Continue reading