Financial Leverage Overview
Presentation Length
10-20 minutes to decide on investment
Sales Leverage
Ability to sell multiple products to the same customer
Angel Investors
Accredited investors investing in start-ups
Follow-on Investments
Additional investments in existing portfolio companies
Anti-Dilution
Adjusts stock price to maintain ownership percentage
Weighted Average
Anti-dilution provision adjusting stock price based on old and new share prices
Full Ratchet
Anti-dilution provision adjusting stock price to new, lower price
M&A Market
Companies buy, sell, or merge for strategic objectives
Bake Off
Competitive selection process for IPO underwriters
Liquidity Event
Conversion of ownership into cash for investors
Fear of Missing Out
Desire for high returns and investment opportunities
Net Present Value (NPV)
Difference between present value of cash inflows and outflows
Internal Rate of Return
Discount rate making a project's NPV zero
Pay-to-Play
Existing investors must participate in future funding rounds
Liquidation
Exiting investments in portfolio companies
Closing (IPO)
Final stage of IPO when shares are sold to investors
Investment Period
Focus on existing portfolio companies
Early Stage Deals
High returns, control, innovation, diversification
Commitment Period
Initial 5 years for new investments
Discount Rate
Interest rate determining present value of future cash flows
Conversion Rights
Investor's right to convert preferred stock to common stock
Information Rights
Investor's right to receive company information
Registration Rights
Investors can require shares to be registered for public sale
Venture Capitalists
Investors using discounted cash flow for valuation
NDA
Legally binding confidentiality contract
Late Stage Deals
Lower risk, growth potential, exit opportunities
General Partner Priorities
Managing directors, returns, and company success
Operating Leverage
Measures sensitivity of operating income to revenue changes
Return on Equity
Net income divided by common stockholders' equity
Intermediary
Not hired for Series A fundraising rounds
Participation
Percentage of cash flows after liquidation preference
Liquidation Preference
Preferred shareholders receive proceeds before common shareholders
Strike Price
Price to buy/sell underlying security upon option exercise
IPO Market
Private companies offer shares to the public for the first time
Vesting
Process of earning ownership rights over time
Debt to Equity Ratio
Proportion of financing from debt relative to equity
Employee Stock Options
Purchase shares at set price over vesting period
Current Ratio
Ratio of current assets to current liabilities
Warrants
Right to buy shares at agreed price within time frame
Technology Risk
Risk associated with functionality of technology
Sales Risk
Risk associated with selling and scaling efficiently
Cash Break-Even
Sales volume where operating cash flow equals 0
Carried Interest
Share of profits GP receives from successful exits
M&A Sales Process
Steps in selling a company or assets to another entity
Payback
Time taken to recoup initial project cost
Corporate Leverage
Using borrowed money to increase investment return
Terminal Value
Value of cash flows beyond forecast period
Business Models
Various types like advertising, manufacture, subscription
