The investing and venture capital community has a distinctive set of jargon unique to its field.
Starting a new business often involves joining an incubator or accelerator program, which provides support and resources to grow the startup. An effective elevator pitch can captivate an angel investor or venture capitalist, professionals who offer financial support for equity.
A well-structured capitalization table, showing the company’s equity ownership, is vital when seeking investment. Investors perform due diligence, investigating the startup’s value and risks before presenting a term sheet, outlining the investment’s basic terms.
Investors may offer committed capital or convertible loans that can be turned into equity later. Existing shareholders may experience dilution, where their ownership percentage reduces as new shares are issued.
Private equity firms are also involved in funding startups, differing from venture capitalists by investing in more established companies. The deal flow, representing the rate of business proposals and investment offers, is vital for investors.
A formal investment agreement may be preceded by a letter of intent, laying out the primary terms of the deal. Liquidity, referring to how quickly assets can be bought or sold, is another essential consideration for both investors and startups. Understanding these terms is crucial for successful fundraising and growth.