Figuring Out The Term Sheet Terminology
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.
Convertible note: A form of financing where the company is lent money which acts like debt, unless… Continue reading
Crowd-Investing: Your first IPO
With LinkedIn, Groupon, and other tech companies in the news for going public, you can now pay attention to their IPO process and see the similarities to your crowdfunding strategy on Venture Bonsai. The motivations for IPO’s and crowdfunding are the same, and both involve drumming up demand, picking a price, and issuing securities to a large number of investors. Once your company makes it to an IPO (of course, if you decide to turn down all the acquisition offers) you will feel confident and in control, because hey, you’ve done this before.
The American IPO Process
1. Initiation
The IPO process is initiated by appointing roles to outside entities whose job it is to make the process run smoothly. Here, the company will decide on its underwriter and registrars.
2. Pre-Issue activities
The company now prepares its forms and documents. One such document is called the Prospectus, which is a part of the Due Diligence process, and contains all the facts an investor needs to make an educated investment. This document also fills a marketing role because the SEC limits the company’s marketing activities while it’s in the IPO process.
3. Filing the documents
The company then files its… Continue reading