Glossary

A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, W, X, Y, Z

A

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Accredited investor
An investor deemed financially sophisticated with a reduced need for protection. Under the US Securities and Exchange Commission (SEC) this includes wealthy individuals, executives of the company issuing the security, employee benefit plans, trusts, insurance companies and banks.
Alternative finance
None of the three traditional forms of finance (stocks, bonds and cash). Characterised by limited regulations and relative lack of liquidity and mainly provided by accredited investors.
Angel investor / Business angel
An investor who finances start-ups or individual entrepreneurs, traditionally a friend or family member. More recently with advances in technology angel investors have become introduced to start-ups through specialist angel investor platforms and angel networks, having no prior relationship with the company or entrepreneur. Often they provide additional non-financial resources such as strategic guidance and mentoring which can be equally valuable to a start-up.
Angel network
A group of affiliated angel investors that meet to evaluate investment proposals and pool their capital into start-ups.
Articles of association
A legal document that specifies in writing the nature of a company's operations including procedures for appointing directors and how tasks should be executed.
Asset class
A group of securities that share similar characteristics such as the way they are transacted, their market behavior and regulatory framework. Traditional asset classes are stocks, bonds, cash and real estate.

B

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Beneficial shareholder
A shareholder who enjoys greater influence than other shareholders through enhanced voting rights or authority on the manner in which a security is to be transacted.
Board observer
A non-member of the board of directors who attends company board meetings.
Board of directors
A group of individuals who are elected to represent the interests of shareholders, overseeing management related issues and making key company related decisions.
Business accelerator
An organisation that provides seed capital and support in exchange for equity to entrepreneurs who already have an idea but need assistance in turning their idea into a business. Usually these programmes last for around 3 months.
Business angel / angel investor
An investor who finances start-ups or individual entrepreneurs, traditionally a friend or family member. More recently with advances in technology angel investors have become introduced to start-ups through specialist angel investor platforms and angel networks, having no prior relationship with the company or entrepreneur. Often they provide additional non-financial resources such as strategic guidance and mentoring which can be equally valuable to a start-up.
Business incubator
An organisation that develops ideas in house and brings in external management teams to transform the ideas into viable businesses.
Business plan
A written explanation of a business idea outlining why the business is required, the market segment, goals and how those goals will be achieved.

C

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Call option
A financial instrument giving an investor the right to buy a commodity or security within a set time frame at a fixed price.
Carried interest
A share of any profits paid to the investment manager of a particular fund to compensate for performance, despite the investment manager not contributing their own capital towards the fund.
Class A shares
A classification of common stock usually considered to contain the most voting rights but ranking behind preference shares in eligibility of dividends.
Class B shares
A classification of common stock with less voting rights than class A shares but more voting rights than preference shares. Usually the least eligible for dividend payments.
Common stock
A security representing fractional ownership in a business along with voting rights on corporate policy and appointment of directors. Common stockholders rank behind creditors and preference shareholders in recovering capital in the event of a liquidation but are usually eligible to receive dividends.
Convertible note
A debt instrument giving the lender the option to convert into a predetermined amount of equity in the underlying business.
Crowdfunding
The sourcing of capital from a large group of people, each pledging relatively small amounts, to finance projects or ventures. The term encompasses equity, debt, rewards and charity.

D

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Debt
Money borrowed by one individual or party from another to extent their spending power, whether for the purposes of consumption or investment.
Debt-based crowdfunding
The amalgamation of various individual lenders to finance loans to other individuals or organisations via a non-bank platform, usually online.
Dilution
The fall in percentage ownership of individual shares in a company caused by an increase in the number of shares in circulation, such as when an employee stock option is exercised.
Diversification
The inclusion of a wide variety of investments in a portfolio to reduce individual exposure, volatility and the risk of capital depreciation.
Dividends
Portions of a company's profits divided and distributed amongst shareholders whose share classification entitles them. Can be issued as cash or additional shares.
Due diligence
Detailed analysis of a potential investment ensuring there are no discrepancies in the available information.

E

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Early stage
Companies which exist as entities, have systems and procedures in place but are not yet ready to enter the commercial market.
Equity
A share or other security representing ownership interest in a company, regardless of whether or not the security can be publicly traded.
Equity crowdfunding
Large groups of people pooling their capital into a company, usually through an online platform, resulting in them becoming shareholders.
Escrow account
An account held by a third party on behalf of the two parties involved in a transaction (investor and investee company), which is surrendered once pre-determined obligations have been met.
Exit
The opportunity given to existing shareholders to dispose of their investments in return for cash.
Exit Strategy
The plan by which an investor intends to dispose of their investment in return for cash. This could involve transfer of ownership through a takeover or initial public offering (IPO).

F

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Financial forecast
A prediction of future financial trends made by a company or financial analyst. This is used by businesses to determine how to allocate capital and by investors to determine valuation.
FinTech
An abbreviation of 'Financial Technology' referring to innovations in the financial industry driven by advances in technology, such as crowdfunding.
Fund
The combined capital of numerous investors used to collectively purchase securities, generally for the purposes of achieving diversification, lower fees and lower risk.
Funding proposal
A plan by an entrepreneur or company to raise funds, put forward to potential investors for consideration and containing details of the underlying business along with financing requirements and proposed use of funds.
Funding round
The process of a company raising or attempting to raise finance through debt or equity, whether for seed stage in the case of a new business or later stage for established businesses.

G

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Growth stage
Companies that have moved beyond early stage and are now achieving commercial viability with growing sales of their products and services.

H

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High Net Worth Individual (HNWI)
A wealthy individual whose total value of liquid assets amounts to above a certain figure which varies depending on jurisdiction.

I

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Illiquid asset
A holding that cannot be easily sold for cash due to a lack of readily existing buyers. Characterised by a steep loss in value in the event of a quick sale, such as a house or car.
Initial Public Offering (IPO)
The initial sale of stock by a private company to the public, through a stock market listing where the shares become traded on a stock exchange.
Institutional investor
An organisation which invests at a large scale to the point where they are deemed more knowledgeable and better able to protect themselves than ordinary investors.
Investment memorandum
A legal document providing information on an offering, namely the objectives, risks and terms of investment.
Investor rights
The entitlement of existing investors to purchase new shares at a predetermined price in proportion to the number of shares already owned. This entitlement usually lasts for a fixed amount of time after which the rights expire.

J

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Jumpstart Our Business Startups (JOBS) Act
A US act signed into law allowing start-ups and small businesses the opportunity to raise finance through public markets such as crowdfunding platforms.

K

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Know Your Client (KYC)
A process through which financial services firms can verify the identity of their customers.

L

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Lead investor
An individual or representative of a group of investors who coordinates a funding round.
Limited liability partnership (LLP)
A structure whereby at least two people group together to run a company but are not liable to pay the debts of that company.
Liquidity
The ease with which an asset or security can be readily bought or sold without having an impact on its value.

M

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Management buyout
The purchase of a company's assets and operations by existing management.
Market Risk
The possibility that an investor will incur capital depreciation due to factors that will affect the demand for an asset or security.

N

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Nominee
A person or company whose name a stock, bond or company is registered in without them being the actual owner.

O

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Ordinary share
A non-preference share that entitles the holder to vote on company matters put before shareholders. These rank below creditors and preference shareholders in order of payout priority should a business be liquidated.
Overfunding
The continuation of a funding round after the funding target has been met.

P

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Peer-to-peer lending (P2P)
Enabling individuals to directly borrow and lend money to each other without using a traditional bank as intermediary
Portfolio
A group of financial assets (stocks, bonds and cash) held directly by an individual investor or an investment management company.
Post-money Valuation
The value of a company after the proceeds of a funding round have been added to its balance sheet.
Preemptive right
A contractual entitlement granting certain shareholders the right to participate in a future offering (buying new shares) before the public is allowed to participate.
Preference Share
A class of share that gives the shareholder preferential financial treatment.
Pre-money Valuation
The value of a company before the proceeds of a current funding round have been added to its balance sheet.
Primary Market
A market where new securities are issued directly to buyers before being re-sold through intermediaries to a wider secondary market, should such a market occur.
Private Equity
The equity of companies which are not listed on a public stock exchange and therefore do not have a quoted buying or selling price at which they can be readily traded.
Put option
A financial instrument giving an investor the right to sell a commodity or security within a set time frame at a fixed price.

R

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Return on Investment (ROI)
The current value of an investment compared to its cost.
Revenue generating
A company which receives money through the sale of goods or services. Revenue is used to determine income by subtracting costs.
Reward-based crowdfunding
The sourcing of finance from a group of people to fund a particular project in return for a non-monetary product or service.
Risk
The danger that Return on Investment (ROI) will be less than expected including the chance that the investment will be eliminated completely.

S

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Secondary market
A marketplace where securities can be purchased second hand through intermediaries, for example a stock exchange.
Securities
Financial instruments that have a monetary value such as socks, bonds or options.
Seed funding
Money used by an entrepreneur to start a business from the idea phase, usually provided by friends or family and more recently by angel investors through crowdfunding.
Seed-stage
The first phase in the life of a company, where it has been incorporated but is yet to develop a commercially viable product or service.
Series-A funding
The first funding round after a business is fully operational. Usually the first time external investors (non-friends and family) are introduced to a business.
Share certificate
A document that represents legal proof of ownership of the number of shares stated.
Share class
A type of security with designated characteristics such as voting or dividend rights. Usually identified with alphabetical markers such as Class A and Class B with different classes offering different rights.
Share issue
The public sale of shares by a company to investors in order to raise capital.
Shareholder
An investor who holds equity in a company.
Shareholders' agreement
An arrangement amongst a company's investors specifying their rights along with the manner in which the company is to be operated.
Sophisticated investor
An investor who has previous investment experience to the point where they are deemed capable of understanding and determining the risks and merits associated with investing. In certain jurisdictions a sophisticated investor must meet minimum wealth or income requirements.
Special Purpose Vehicle (SPV)
A legal entity which exists for the purpose of acquiring and financing specific assets.
Subscription agreement
An agreement between a limited liability partnership (LLP) and an investor made when the investor wishes to join the partnership.
Success Fee
A fee charged by a service provider in the event of certain criteria being met.

T

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Tag-along right
In the event that a majority shareholder sells their stake, this is an obligation giving minority shareholders the right to also sell their stake as part of the same transaction.
Term sheet
A non-legally binding document stating the terms and conditions under which an investment will be made, which can be built upon to create a legal document.

V

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Valuation
The worth of a company or asset determined by a combination of factual figures and estimates like future earnings.
Venture Capital
Money used to finance start-ups and early stage businesses, in exchange for equity or convertible debt. Venture capital can come from individual investors or funds representing various investors.
Voting Right
The entitlement given to a stockholder to vote on corporate matters such as the recruitment of directors and issuance of new shares.

W

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Warrant
Similar to a call option, a warrant gives the holder an option to buy a security at a predetermined fixed price at a future date. Unlike call options, warrants usually only apply to equity and are issued directly by the underlying company.