Angel Investors

accelerated vesting p125

any conditions that stock will vest earlier than according to the agreed upon schedule

Kauffman Foundation p 34

(Ewing Marion Kauffman Foundation works on the advancement of entrepreneurship

return on investment p 45

(ROI) the ratio of money gained or lost on an investment relative to the amount of money invested. (usually stated in percentage form)

acquisition p56

A corporate restructuring in which one firm buys another either by cash, through exchange of stock or combination of both

merger p56

A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.

down round p106

A financing round where the price of the company is lower than that in the previous round of investing because it is seen to have been overvalued in an earlier round

business plan p54

A formal document that describes a business concept, outlines core business objectives, and details strategies and timelines for achieving those objectives tells the story of your business

dilution 107

A reduction in the ownership percentage of a share of stock caused by the issuance of new stock

A team B product or B team A product p 52

A team/B product. no matter how good product or service, business face hurdles. That's when A team makes the difference between success and failure

skin in the game p69

A term coined by renowned investor Warren Buffett referring to a situation in which high-ranking insiders use their own money to buy stock in the company they are running.

convertible preferred stock p101

A type of equity issued by a company, convertible preferred stock is often issued when it cannot successfully sell either straight common stock or straight debt. Preferred stock pays a dividend, similar to how a bond pays coupon payments, but ultimately converts to common stock after a period of time. It is essentially a mix of debt and equity, and most often used as a means for a risky company to obtain capital when neither debt nor equity works.

equity p 7

Amount of owners' or shareholders' portion of a business.

Initial public offering p56

Corporation's first offering of stock to the public. IPOs are an opportunity for the existing investors to make profits, since for the first time their shares will be given a market value reflecting expectations for the company's future growth.

anti-dilution provisions p107

In a preferred stock agreement, a provision that adjusts upward the number of shares (or percentage of the company) held by the holders of the preferred shares if the company subsequently undertakes a financing at a lower valuation than the one at which the existing preferred investors purchased the shares. See Full ratchet and Weighted ratchet.

intellectual property p 43

Intangible creative work that is embodied in physical form and includes copyrights, trademarks, and patents.

angel investors p3

Invest their own money private individuals with money who are actively looking for opportunities to invest in promising young businesses like yours - companies founded on sound business ideas, which are likely to show significant, sustainable growth over the next 3-7 years average investment 25,000-100,000

connections p 23

Potential investor

due diligence

Refers to an intensive investigation of all factors surrounding a business decision to ensure that all risks are understood.

common stock p101

Represents ownership in a publicly held company which entitles owners to dividends (if declared by the company's Board of Directors), voting rights on matters affecting the company, and in the elections of Boards members.

small business development centers p 29

SBDC - provide one on one counseling and low cost training programs

vesting schedule p124

Sets forth the time period by which an participant becomes entitled to non-forfeitable benefits under the plan (vesting of stock)

vesting p124-5

The creation of an absolute or unconditional right or power that will be received at a later date (usually covers 3-5 year period)

post-money valuation p105

The product of the price paid per share in a financing round and the shares outstanding after the financing round. As a rule of thumb, the pre-money value plus the new money raised. This is true only if there are no stock redemptions or warrants issued.

pre-money valuation p105

The product of the price paid per share in a financing round and the shares outstanding before the financing round. As a rule of thumb, the price of the company before the new money goes in.

restricted stock p56

a grant of stock with restrictions. It cannot be sold until certain conditions are met, most often lapse of time or meeting performance goal put in place to prevent investors from suddenly selling all their stock and depressing the stock price

term sheet p115

a preliminary outline of the structure of a private equity partnership or stock purchase agreement, frequently agreed to by the key parties before the formal contractual language is negotiated.

stock purchase agreement

actual contract between you and investors. AKA investment agreement, stock purchase, sale agreement sets forth specific terms of the purchase and sale of the stock to the investors such as the price, closing date, conditions to close, and representations and warranties of the parties

screening process p 68

application pre-screening screening presentation meeting

prepare for presentation p 71

audience format personnel location and setting equipment

67 days p 127

average time it takes between receiving a business plan and making an investment in a company (81% say it takes90 days or less)

value of a company p106

based on a combination of work achieved to date and the company's potential

seed stage p95

before you are shipping product or making sales - typically when angels invest

elevator pitch p27

brief description of a product or service designed to gain attention of desired parties and to generate interest in achieving a desired outcome

bootstrapping stage p 95

building your company with money from your own pocket, without outside funding

content of presentation p 74

business concept what needs it meets customer size of opportunity quality of the people on team how much money they'll make, when, and exit strategy

best angel investors supply: p 5

business knowledge support industry expertise contacts follow-on financing

most important financial statement p 95

cash flow for the next 12-18 months and calculations of money needed for the next 3 years

12 key slides p 75

company name, description, & presenters key points description of product or service specific target customer market size competition your team business model timeline financials how much you are asking for this round investment opportunity

inventors p44

create a completely novel idea or invention

valuation p 93

determines how much your company is worth, how much money you'll be able to raise, and how much ownership of your company you will keep

rounds p 100

each round of funding is designed to finance a specific period of development until the next funding stage is reached

basic tenet of raising money p 93

early money is the most expensive

critical components of business plan p 54-5

executive summary company description product or service industry target market completion marketing and sales plan management team development plan, milestones, and exit strategy financials

Finders p 35

financial matchmakers are intermediaries (usually business professionals such as accountants, insurance brokers, and retired executives) who connect entrepreneurs with investors for a fee

funding gap p17

gap between the largest average sum an individual angel will offer ant the smallest average amount a venture capitalist will invest

series A (production) and B (expansion) funding p95

generally occur after you mad some substantial progress

exit plans p 145

go public acquisition sale merger buy-out franchise

Venture Capitalist p15

invest other people's money raise money for funds routinely invest millions even in early stage companies

seed funding p16

investing in a younger company in the earliest stages when a company is still developing a prototype, refining a business concept and researching a market

cheap money vs. expensive money p 99

longer you wait to raise funds or to go back for additional funding, the less "expensive" the money you raise will be

exit strategy p56

means for private equity investors to strategically withdraw or transition ownership of company; used by investors as way to recoup capital that has been invested in company

incubators p 30

offer support to start-up companies by providing entrepreneurs with resources and services

general rule p95

overestimate cost and underestimate income

smart money p4

people who take an active interest in the success of your business by providing support, including industry knowledge and contacts

dumb money p 4

people who write a check, but don't understand your industry or care to be involved in tis strategic aspect

"no shop" clause p117

prevents company owner from talking to other potential investors while your in negotiations with a particular angel

protected investors p107

receives free shares of stock to secure their investment and ownership of the company - does not protect companies founders and management)

cliff p124

refers to a steep change in vesting rather than a gradual, month by month schedule

3 ways to make an exit p56

sale mergers or acquisitions (M&A) initial public offering (IPO)

liquidity event p45

selling the company to another company or selling stock on a public stock exchange or at points you've agreed upon in a different deal

hockey stick growth curve p 46

shape it would have if you had a relatively short period if development followed by steep upward growth in income

performance based vesting p125

structure of vesting based on completion of milestones or events that are established at the time of funding

how to find the right angel p 18

sufficient funds to invest geographically nearby come from same industry

introducers p 44

take an existing product and find a new market for it

innovators p 44

take existing products, technology, or ideas and change them or apply them to new uses

different types of angels p141

the coach in the starting line-up on the bench spectator the boss

founderitis p50

the inability of a CEO to be flexible and responsive to other's ideas and management

quality deal flow p 12

the more potential to find high-quality deals

verbal negotiations include p115

valuation of company % of equity angel will own % of equity set aside for future employees % of company you will own what type of participation your investors have on the board

angel group (or network) p 11

when angels join forces and combine their investment dollars has more capital to invest have more collective experience concerned about reputation in the entrepreneurial community may use clout to negotiate terms may find more difficult to form relationships may act more like VC and make more stringent demands than an individual

when to seek angel investor

willing to give up some ownership have a compelling business plan business concept with high growth potential exhausted other funding sources don't want to incur further debt