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Venture Capital Glossary

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Term Sheet

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A non-binding agreement setting forth the basic terms and conditions under which an investment will be made.

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Series A

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The first significant round of business financing for a company's growth that precedes the seed stage.

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Exit Strategy

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A VC's plan for liquidating their investment in a company to realize a profit.

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IPO

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Initial Public Offering, when a company's shares are offered to the public on a stock exchange for the first time.

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Burn Rate

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The rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow.

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Convertible Note

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A form of short-term debt that converts into equity, typically in conjunction with a future financing round.

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Preferred Stock

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A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock.

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Equity Financing

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The process of raising capital through the sale of shares in a company.

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Due Diligence

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The process of investigation and evaluation, performed by investors, into the details of a potential investment.

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Carried Interest

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A share of the profits of an investment paid to the investment manager in excess of the amount that the manager contributes to the partnership.

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Down Round

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A round of financing where investors purchase stock of a company at a lower valuation than the valuation placed upon the company by earlier investors.

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General Partner (GP)

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An owner of a partnership who has unlimited liability and is usually involved in the day-to-day management of the business.

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Limited Partner (LP)

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An investor in a venture capital fund who is not involved in day-to-day operations and whose losses are limited to the amount of their investment.

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Mezzanine Financing

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A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.

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Portfolio Company

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A company or entity in which a venture capital firm or private equity firm invests.

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Liquidity Event

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An event that allows initial investors in a company to cash out some or all of their ownership shares.

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Accredited Investor

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An individual or entity that is allowed to deal in securities that may not be registered with financial authorities.

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Angel Investor

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A wealthy individual who provides funding for a start-up, often in exchange for convertible debt or ownership equity.

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Cap Table

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A table providing an analysis of the founders' and investors' ownership percentages, equity dilution, and value of equity in each round of investment.

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Deal Flow

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The rate at which investment offers are presented to funding institutions.

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Drag-Along Right

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A clause in an agreement that enables a majority shareholder to force a minority shareholder to join in the sale of a company.

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Dry Powder

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Capital reserves set aside for future investment opportunities or to cover unforeseen expenses without raising external funds.

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Evergreen Fund

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An investment fund that continually reinvests the money that it makes from its underlying investments, instead of returning profits to investors.

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Hurdle Rate

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The minimum annual rate of return that must be achieved before the fund managers can claim carried interest.

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Lead Investor

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The entity or individual that organizes a round of financing and usually contributes the largest amount of capital to the deal.

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Non-Disclosure Agreement (NDA)

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A legally binding contract establishing a confidential relationship and stipulating that any information shared will not be made available to any others.

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PIPE

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Private Investment in Public Equity, a form of investment in which private investors buy publicly traded stock at a discount to the current market value per share.

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Pro-rata Rights

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The rights that allow investors to maintain their percentage ownership in subsequent financing rounds.

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Sandwich Round

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A financing round that takes place between two larger, significant rounds of investment, often to provide a smaller amount of capital to continue operations until the next major financing event.

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Valuation Cap

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The maximum valuation at which convertible securities can convert into equity in a future financing round.

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