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The Language of Money

Money has its own vocabulary!

Host conversations about funding
your business growth with confidence.
Right capital / right time

Align your funding pathway with your growth stage.

Not all funding types are right for all businesses or stages.
Understanding the best type of funding for where you are in your growth journey.
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Financial Language

Angels

Individuals with a degree of personal wealth, who invest in early-stage companies. They usually come along at an earlier stage of the business, and since their risk is greater than other investors, they typically invest smaller dollar amounts. They are generally accredited investors, as determined by the SEC.

Balance Sheet

A statement of a company’s financial situation at a single point in time.  

Bootstrapping

(One of the most common expressions in the startup world.) Bootstrapping is a term used in business to refer to the process of using only existing resources, such as personal savings, personal computing equipment, and garage space, to start and grow a company. This approach is in contrast to bringing on investors to provide capital, or taking on debt to fund a business’ expansion.

Bridge Loan 

A short-term loan from investors to hold you over until the next round of funding or more capital can be secured. 

Burn Rate

How fast you go through cash. The majority of startups lose money before they break even and then eventually make a profit. 

Convertible Note

A convertible note - or convertible debt - is a kind of loan that can be issued towards a round of future funding. A convertible note has an interest rate and maturity date, like a loan. Both a SAFE (similar, but different) and Convertible Note are designed to convert to equity when the company raises more money (how much is negotiated).

Corporate VC (CVC)

This investment is coming from within a corporation, and it could also include industry insights and connections. Beyond equity, the CVCs may be looking for a collaboration agreement or they may see your company as an acquisition target.

Crowdfunding

Asking the public for funding (there are various websites that help with this). You may or may not offer equity in exchange. Disadvantages could include theft of your idea, loss of reputation if things go awry with your company, or the inability to crowdfund again in subsequent stages of investment. 

Exit Strategy 

How you plan to sell your company to give you and your investors a return on their investment. This ranges depending on the industry but a standard multiple with technology investments seems to be 10x. 

Follow-on Funding

A repeat investment from a funder who previously provided capital, now at a later stage in the business.

Friends, Family and Fools (aka Bootstrapping)

This is mostly what it sounds like, it’s fairly common and tends to happen early on in a business venture. The “3 F’s” represent the earliest capital a new company may receive from those closest to them. The addition of “fools” refers to the high level of risk associated with this type of transaction.

Hockey Stick

An expression used by investors to describe the shape of the growth curve they want to see in businesses they invest in. They want to see their startups grow quickly and at least double sales every year.

Market Size

Understanding the market size is essential for securing funding because it demonstrates the potential for growth and profitability of a business. Investors are keen to know the total addressable market (TAM) to gauge the maximum revenue opportunity available if the business achieves full market penetration. A well-defined market size can also help in strategic planning, indicating how much of the market share the business can realistically capture. This information is crucial for investors as it helps them assess the risk versus the potential return on their investment.
Learn more:  https://foundationinc.co/lab/tam-sam-som

Monetize

How you make money?

MVP

A minimum viable product is the simplest form of your product. This can be used to attract Beta users/early adopters or to pitch for funding. 

Pre/Post Money Valuation 

The value of a company before external investments or the latest round of funding/ the value of company after external investments or the latest round of funding.

Priced Round 

This is an investment where the valuation of the company is determined as a negotiation between the company and the investor, and includes a price-per-share so it's clear how much of the company everyone owns.

Ramen Profitable

An expression frequently used by Paul Graham of Y Combinator, it means you are making just enough money to be able to pay for basic living expenses. 

ROI (Return on Investment)

When an investor puts money into a company, he wants to know what he will get out. This is called the return on investment. The investor(s) will also want to know how long it will take to get their ROI? 

Runway

Describes how long your cash will last and when you think it will run out. 

SAFE Note

A non-debt convertible security. It will eventually convert into equity in a future investment round.

Seed Funding

The first official round of startup funding or equity funding (selling shares or ownership). 

Series Funding

Series A Funding: The second stage of startup funding, but the first stage of venture capital financing.
Series B Funding: The second stage of venture capital financing. It sometimes features many of the same investors from the previous round, Series A, but may bring in additional prospects.
Series C, D, etc.: By the time a company reaches Series C funding, they may want to expand into another market (internationally, for example) or may be preparing themselves to go public or for an acquisition (i.e. an exit). For most companies, this is the final phase of funding.

Sweat Equity 

When you give shares of your company to early employees or contractors in place of cash. This is very common in the startup world before funding arrives. If you take a chance with a scalable startup, your shares might become lucrative when the company sells.

Term Sheet

When an investor makes you an offer to invest in your company, the term sheet is a document that outlines what they will get for what they put in — including % ownership and voting rights. 

Valuation

Describes what your company is being valued at. “Pre-money valuation” is the value before you take investors’ cash. “Post-money valuation” is that amount plus the investment put in.  

Venture Capitalists or VCs

Private investors or investment firms that use money from pension plans, insurance companies, and wealthy people to place bets (capital) in exchange for equity in companies they believe have lots of growth potential, usually of (planned) unicorn proportions.

Learn by watching. 

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How Startup Funding Works: Seed money, Angel Investors and Venture Capitalists Explained

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Angel Investors vs Venture Capitalists

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Should Your Startup Bootstrap or Raise Venture Capital?

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Startup Experts Share Their Investor Horror Stories

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What is Venture Capital?

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The Decision Process of a Venture Capitalist

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Private Equity vs Venture Capital

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Private Equity at Work: What is Carried Interest?