COMMON TERMS USED IN THE FUND RAISING COMMUNITY
by RaiseCapital.com | Posted on June 3, 2008

While many of the users of the RaiseCapital.com platform will be familiar with most of the terms described in this entry, many others are new to fund raising and thus are unfamiliar with these terms. You can use this guide as a resource to aid you in your quest for funding and be better prepared to engage in dialogue with interested investors.

 

 

Angel Investor

 

An angel investor or angel is an affluent individual who provides capital for a business start up usually in exchange for convertible debt or equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital. However, most angel investors invest their own funds.

 

Venture Capitalist

 

Venture Capitalist or VC is a person who provides private equity capital to new high potential growth companies usually with the goal of taking the company to an IPO. A VC may also provide managerial or technical expertise.

 

Limited Liability Company or LLC

 

A Limited Liability Company or LLC is a hybrid business entity having characteristics of both a corporation and a partnership. It is often more flexible, the owners have limited liability for the actions and debts of the company, and it is suitable for smaller companies with a single owner. The primary corporate characteristic is limited liability while the primary partnership characteristic is the availability of pass-though income taxation.

 

Factoring

 

Factoring is a transaction whereby a business sells its accounts recievable (i.e., invoices) at a discount. Factoring differs from bank loans. The emphasis is on the value of the receivables, not the firm’s credit worthiness. Factoring is not a loan – it is the purchase of an asset (the receivable). A bank loan involves two parties whereas factoring involves three. The three parties directly involved are: the seller, debtor, and the factor. The seller is owed money (usually for work performed or goods sold) by the second party, the debtor. The seller then sells one or more of its invoices at a discount to the third party, the specialized financial organization (aka the factor) to obtain cash. The debtor then directly pays the factor the full value of the invoice.

 

 

Bridge Financing

 

Bridge financing is a method of financing, used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash. Bridge financing is commonly used when the cash flow from a sale of an asset is expected after the cash outlay for the purchase of an asset or by companies before an initial public offering.

 

Initial Public Offering

 

Initial Public Offering (IPO), also referred to simply as a "public offering," is when a company issues common stock to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

 

Hedge Fund

 

Hedge fund is a general, non-legal term that was originally used to describe a type of private and unregistered investment pool that employed sophisticated hedging and arbitrage techniques to trade in the corporate equity markets. Hedge funds have traditionally been limited to sophisticated, wealthy investors. Over time, the activities of hedge funds broadened into other financial instruments and activities. Today, the term "hedge fund" refers not so much to hedging techniques, which hedge funds may or may not employ, as it does to their status as private and unregistered investment pools.

Private Placement

 

A Private Placement involves raising capital via private rather the public placement. The result is the sale of securities to a relatively small number of investors. Since a private placement is offered to a few select individuals, the placement does not have to be registered with the Securities and Exchange Commission. In many cases detailed financial information is not disclosed and the need for a prospectus is waived.

Intellectual Property

 

A broad categorical description for the set of intangibles owned and legally protected by a company from outside use or implementation without consent. Intellectual property can consist of patents, trade secrets, copyrights and trademarks, or simply ideas.

 

Trademark

A Trademark is a symbol, word, phrase, logo, or combination of these that legally distinguishes one company's product from any others. Any infringement on a trademark is illegal and therefore grounds for the company owning the trademark to sue the infringing party.

Patent

 

A Patent is a government license that gives the holder exclusive rights to a process, design or new invention for a designated period of time. In the United States most patents are valid for 20 years. By granting the right to produce a new product without fear of competition, patents provide incentive for companies or individuals to continue developing innovative new products or services.

 

 

Non-Disclosure Agreement

 

A Non-Disclosure Agreement is a legal contract between two or more parties that signifies a confidential relationship exists between the parties involved. The confidential relationship often will refer to information that is to be shared between the parties but should not be made available to the general public. It is also referred to as a 'confidentiality agreement'. Users of the RaiseCapital.com website who must divulge secrets to potential investors in order to solicit funding are encouraged to use a Non-Disclosure Agreement.

0 Comment(s)