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A B C D E F GLOSSARY OF TERMS G H A I “A” Round A form of financing in which venture capitalists invest in a company previously financed by the J founders or angels, so called because it is usually “Series A Preferred Stock” being sold. Accredited Investor K Defined in Rule 501 of Regulation D, an individual “accredited investor” is either a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million L at the time of the purchase OR a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a M reasonable expectation of the same income level in the current year. N Adventure Capital A speculative investment, more risky than venture capital. O Advisory Board P A panel of advisors to a company, generally from outside the company. Generally an Advisory Board is not as formal as a Board of Directors, and is not a statutory requirement. Q Affiliates R Business organizations or individuals that control each other or are controlled by a third party (i.e., a parent company). Affiliates may share such things as management staff, employees, facilities, and/or S equipment. Angel Financing T The raising of funds (seed financing) for a startup company from independently wealthy investors. U Angel Groups Networks and other organizations specifically formed to facilitate angel investments in start-up V companies. W Angel Investor A generally independently wealthy investor who provides funds (generally seed financing) to startup X companies. Y Z 1 Updated: 02-06-2020 A Antidilution provisions Methods for allowing earlier investors to keep a constant percentage of a company’s equity following B later sales of stock or other securities. See Full Ratchet and Weighted Average for the most common antidulition provisions. C Assets D All real or intellectual property owned by the enterprise that has a positive financial value. On a Balance Sheet, a summary list of the property and things owned. E B F “B” Round G A form of financing following the “A” Round where venture capitalists or other investors contribute additional financing, generally through the purchase of Series B Preferred Stock, indicating that they H are sufficiently interested in a company to continue financing. Subsequent rounds are usually called “C”, “D”, &c. I Balance Sheet A summary statement of assets, liabilities, and owner’s equity used to assess the financial condition J of a business. Also referred to as the statement of financial condition. K Bank Reconciliation The process of making sure your bank statement, checkbook, and books (ledger, journal, etc.) all L agree. Usually performed at the end of each month. M Barriers to Competition (Barriers to Entry) Any condition or circumstance that makes it difficult for a new business to enter an industry, such N as exclusive ownership of a unique resource, economies of scale, patents, licenses, trademarks, copyrights, dedicated distribution channels, and high initial investment requirements. O Barter P Merchandise or services exchanged for other merchandise or services without the use of money. Blue Sky Laws Q Generic term for state laws designed to protect against securities fraud. R Board Of Directors Individuals elected by stockholders to establish corporate management policies and make S decisions, such as if and when dividends will be paid to stockholders. T Bootstrapping Means of financing a startup company using nontraditional methods, or without selling equity to U investors or taking out a bank loan. V Bridge Financing A small or limited amount of short-term debt financing (or possibly equity financing), generally raised W 6-18 months before an anticipated public offering or private placement; meant to serve as a “bridge” for the company to the next financing round. X Break-Even Point The point at which revenues are equal to expenses. Y Z 2 Updated: 02-06-2020 A Broad-Based Weighted Average Ratchet An anti-dilution provision. A weighted average ratchet adjusts downward the price per share of the B preferred stock of a prior investor due to the issuance of new preferred shares to a later investor at a price lower than the price the prior investor received. The prior investor’s preferred stock is C consequentially repriced to a weighted average of his price and the later investor’s price. A broad- based ratchet uses all common stock outstanding on a fully diluted basis (including all convertible D securities, warrants, and options) in the denominator of the formula for determining the new weighted average price. E Budget F A detailed schedule of planned financial activity. G C H Capital Money or property owned or used in business by a sole proprietor or corporation, to produce wealth. I In a start-up business, capital is the amount of money required to initiate and/or operate a business before borrowing from others. J Capitalization Table (or Cap Table) A table that shows the total amount of all securities issued by a company, usually showing the K securities distributed for investment obtained as well as conversion ratios. L Cash Flow The transfer of money into and out of an enterprise. In accounting terms, it is the amount of cash M generated by a business after expenses (including interest) and principal repayment on financing are paid. N Co-Sale Provisions or Rights O A contractual right that permits investors to sell their shares of stock in the same proportions and for the same terms as the founders or other investors in the company, should any of those parties P receive an offer. Q Collateral Assets that can be pledged to guarantee a loan. If the borrower fails to repay the loan according to the terms, the lender has the legal right to seize the collateral and sell it to repay the R loan. Common Stock S A unit of ownership of a corporation. Common stock offers no performance guarantees, and if the corporation is liquidated, the claims of secured and unsecured creditors, the owners of bonds, and T holders of preferred stock all take precedence over the claims of holders of common stock. U Conversion Ratio The rate at which a convertible security may be converted into common stock. V Conversion Rights W The rights by which preferred stock may convert into common stock. Generally this is possible any time after the preferred stock is issued; sometimes companies have rights to force a conversion X upon an IPO, upon achieving of certain sales or earnings’ targets, or with a majority or super-majority vote of the preferred stock. Conversion rights may carry with them anti-dilution protections. Y Z 3 Updated: 02-06-2020 A Convertible Security A bond, debenture, or preferred stock that is exchangeable for another type of security (usually B common stock) at a pre-stated price. Convertible securities are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together C with greater appreciation potential than regular bonds offer. D Corporate Charter The document that brings a corporation or other legal entity into being and sets out the relative E rights and obligations of its various classes of equity securities. Corporation F A legal entity chartered by a state or the federal government. Ownership of a corporation is held by the stockholders. A corporation is generally a taxable entity. G Cost of Sales H The cost of goods sold plus any expenses incurred in the selling and delivery of the product or service. I Cumulative Dividends J Dividends that accrue at a fixed rate until paid, made with respect to preferred stock. Generally, holders of preferred stock are contractually entitled to receive dividends prior to holders of common K stock. The use of Cumulative Dividends is customary with the result that the liquidation preference increases by an amount equal to the cumulative dividends. Cumulative dividends are often waived L if preferred stock converts to common stock prior to an IPO but may be included in the aggregate value of preferred stock applied to the conversion ratio for other purposes. Dividends that are not M cumulative are generally called “when, as and if declared dividends.” N Cumulative Preferred Stock A stock having a provision that if one or more dividend payments are omitted, the omitted dividends O (arrearage) must be paid before dividends may be paid on the company’s common stock. Cumulative Voting Rights P When shareholders have the right to pool their votes to concentrate them on an election of one or more directors rather than apply their votes to the election of all directors. Q Current Assets R Assets that can be converted quickly to cash, usually within a year, through sale or exchange, such as cash, inventory, and accounts receivable. Also called liquid assets. S Current Liabilities T Debts, loans, trade credit or other obligations due for payment within one calendar year. U Customer Base The total list of customers for a business, as well as the total number of potential customers with V specific classification or buying characteristics. Customer Profile W A precise description of the characteristics of buyers for a specific product or service. X Y Z 4 Updated: 02-06-2020 A D B Debt Financing C The payment, in whole or in part, for a capital investment with borrowed funds. Debt Service D The amount of money required for the payment of current interest and principal on a long-term debt. E Depreciation The expense deduction on an income statement allowing for gradual wear-out of a fixed asset.

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