Glossary

A condensed financial statement showing the nature and amount of a company's assets, liabilities, and capital on a given date.

An inability to pay debts. Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt.

(best alternative to a negotiated agreement): A no-agreement alternative reflecting the course of action a party to a negotiation will take if the proposed deal is not possible.

An offer made directly to the Board of Directors of a target company. Usually made to increase the pressure on the target with the threat that a tender offer may follow.

performance goals against which startups are measured if they want more investment money. These include things like revenue and market penetration.

An offering in which the investment banker agrees to distribute as much of the offering as possible, and return any unsold shares to the issuer.

a form of limited partnership that doesn’t specify what type of investments if will pursue.

A common term that refers to laws passed by various states to protect the public against securities fraud. The term originated when a judge ruled that a stock had as much value as apatch of blue sky.

the people calling the shots, broadly speaking. Startup founders should be on the board, plus the VCs that fund fund them often get a seat too (especially the lead investor).

Allowing an investor to take a seat on a firm's board of directors.

even if they don’t get a vote, this person sits on the board and observes. They lean back, letting the founders do what they’re going to do, and guide the conversation when necessary. They might not be able to vote, but they can still influence events (plus, everything they “observe” goes back to the VC).

Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.

starting a business with money and resources from the founders’ own pockets.

Means of financing a small firm by employing highly creative ways of using and acquiring resources without raising equity from traditional sources or borrowing money from the bank.

A limited amount of equity or short-term debt financing typically raised within 6-18 months of an anticipated public offering or private placement meant to "bridge" a company to the next round of financing.

a short-term infusion of cash designed to keep you afloat until longer-term financing can be arranged. Sometimes raised during a “bridge round” (even though bridge rounds don’t necessarily have to include debt). This kind of funding has gotten increasingly complicated recently. It generally signals that things aren’t going that great for a startup.

A type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A's preferred stock is re-priced to a weighed average of investor A's price and investor B's price. A broad-based ratchet uses all common stock outstanding on a fully diluted basis (including all convertible securities, warrants and options) in the denominator of the formula for determining the new weighed average price. Compare Narrow-Based Weighted Average ratchet and Chapter 2.9.4.d.ii of the Encyclopedia.

Extraordinary dilution, by reason of a round of financing, of a non-participating investor's percentage ownership in the issuer.

The rate at which a company expends net cash over a certain period, usually a month.

A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.

The legal principle that assumes the board of directors is acting in the best interests of the shareholders unless it can be clearly established that it is not. If the board was found to violate the business judgment rule, it would be in violation of its fiduciary duties to the shareholders.

A document that describes the entrepreneur's idea, the market problem, proposed solution, business and revenue models, marketing strategy, technology, company profile, competitive landscape, as well as financial data for coming years. The business plan opens with a brief executive summary, most probably the most important element of the document due to the time constraints of venture capital funds and angels.

purchasing a company or a controlling interest of a corporation’s shares, product line, or some business.