- Angel Investor
- Accredited Investor
- Annual Recurring Revenue (ARR)
- Burn Rate
- Cap Table
- Carried Interest
- Customer Mix
- Demo Day
- Follow-on Investment
- Handshake Protocol
- Horse Trading
- Lead Investor
- Minimum Viable Product (MVP)
- Pre-money Valuation
- Post-money Valuation
- Priced Round
- Pro-rata Rights
- Ramen Profitable
- Revenue Renewal Rate
- Rolling Close
- Side Letter
- Seed Round
- Series A
- "Special Purpose Vehicle” (SPV)
- Term Sheet
- Value Investing
1. Angel investors invest small amounts of money in startups. The term's origin is from the 1920's, to describe a new investor in a new Broadway play.
2. A dream-maker. A world-changer. Our very favorite type of person, to be honest… ok maybe we’re a little biased.
1. An investor who has over $1 million in net worth (minus their home) or earned over $200,000 for the past two years and expects the same this year ($300,000 if joint with spouse).
Some entities are also accredited investors:
- a bank, insurance company, registered investment company, business development company, or small business investment company;
- an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
- a charitable organization, corporation, or partnership with assets exceeding $5 million;
- a director, executive officer, or general partner of the company selling the securities;
- a business in which all the equity owners are accredited investors;
- a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes."
2. An investor who regularly buys pre-sliced fruit... or could if they wanted to.
Example sentence: Legend has it that when the Lead Investor for SunSipz officially got his status as an accredited investor years ago, he bought 50 containers of sliced mango – just because he could...
1. Amount of yearly revenue driven by contracted work; metric for SaaS or subscription-based companies.
2. Yearly mula.
Example sentence: The SunSipz founder promised that, once the company'shit $1 million, all of his employees would receive a free subscription to a farm-fresh egg delivery service.
1. A founder using only personal funds and/or operating revenue from the company rather than using any outside funds… The founder retains maximal control but this is often very tough, financially.
2. A founder subsisting on Instant Noodles & canned fish while they grow their company.
Example sentence: The founder of SunSipz wasit in the earliest days of the company – the dude could barely afford oat milk.
1. How much $$ the startup is "burning" each month.
2. Revenue - Expenses = Burn Rate.
Example sentence: SunSipz was wildin’ for that one month last year – they earned $10,000 in revenue but spent $100,000 in expenses so theirwas an unwieldy $90,000! WOOF! Glad they got their act together in the next month.
A "cap table" is startup jargon for "capitalization table". This keeps track of exactly who owns equity in a company - for instance, each founder, employee, and investor.
On Wefunder, all investors are one line on the cap table, represented by XX Investments LLC - a SEC-registered transfer agent.
Carried Interest is a share of the profits from an investment. It's how venture capitalists make money from their own investors (called limited partners), typically when a startup is acquired or after an IPO.
Example: A venture capitalist invests $1M at a $10M valuation. In five years, the initial $1M of equity is sold for $300M. If carried interest is 20%, the venture capitalist would earn $59.8M [($300M - $1M) * 20%].
A Custodian is an entity (such as a broker-dealer, bank, or transfer agent) that holds any securities you sell on behalf of investors (who are the "beneficial owners" of the securities).
This means investors do not actually possess legal ownership of any shares, convertible notes, or SAFEs in your company. Instead, the custodian is the legal owner on behalf of the investors. The custodian also votes these securities and signs any documents on their behalf, following the direction of the Lead Investor.
The Custodian is s the one entity on the cap table, because it is the legal owner of all the securities. The finance lingo is that the custodian holds these securities in "street name" on behalf of the "beneficial owners".
On Wefunder, XX Investments LLC - a SEC-registered transfer agent - acts as a Custodian for all securities sold on the platform.
1. The percentage of sales a company make to a specific type of customer; a useful metric to determine if they're dependent on only a small number or one type of customer.
2. Misspelling of “colada mix,” a delicious pre-made cocktail mix found in most grocery stores.
Example sentence: I was in the aisles of Costco, looking for the colada mix, when a founder emailed me with details on her company's– they had 20 small companies plus 4 huge ones already using their software! That's what made it a hell yes for me!
1. The culminating event for accelerator programs during which startups pitch their companies to potential investors.
2. A very formal science fair for startups.
Example sentence: Hearing SunSipz’s pitch onreally sold me on the company– I got the gist of the mission, the product, the potential for market growth, and the founder’s grit in 30 freaking seconds.
1. A legal arrangement in which a third party holds a large sum of money until conditions are met– at which point the monies are disbursed to the intended party.
In startup investing land, this means that a third party holds the actual investment money until closing conditions (such as meeting the minimum for a raise) are met. Before these conditions are met, an investor can withdraw their investment.
2. Limbo for funds.
Example sentence: After investing in SunSipz (the very first startup I invested in), I panicked when I saw my investment was in! But then I realized that was just the waiting room for my monies and that, once the raise ended successfully, the company would actually get the funds.
1. A company is bought by a bigger company or starts to sell stock publicly, a big shebang for all investors.
2. The type of door you frantically search in the dark vortex of a movie theater when you need to pee.
Example sentence: There I was– scrambling to find the door to get out of the movie theater to pee and I get a notification that SunSipz has been bought by Disney! And I was like, well this is phenomenal news, but it’s not theI need right now! Ha ha!
1. A subsequent investment an investor makes in a portfolio company.
2. Double-dipping ;)
Example sentence: SunSipz was absolutely killing the game – the team was growing, they were gaining hundreds of customers per month, they were forming partnerships out the wazoo! I knew I had to make awhen they raised their next round.
2. A deal protocol which didn’t involve actual handshakes prior to the pandemic but now definitely doesn’t involve any hand-to-hand action.
Example sentence: Jonny, I exchanged a few clear, simple emails with the founders and BOOM –complete. I then signed the papers, wired the $$, and became a full shareholder.
1. When an investor puts personal interests over those of a company they have a stake in.
2. The practice of being a certified jerk.
Example sentence: I was talking to this certified jerk the other day who told me he was pulling strings to make sure one of his portfolio companies landed in the hands of this specific VC associate. I told him I won’t stand for this horse trading and threw my martini right onto his lapel!
1. The legal term for a company when it is issuing securities (raising funds).
2. A cool company looking for some cool investors.
Example sentence: If a magazine publisher fundraises... it's anwith issues... ha ha!
IRR stands for "internal rate of return". Unlike a simple exit multiple, IRR takes into account how long it took to earn a return.
It's a harsher way of judging the success of your investments. For instance, let's assume you invest $100, that six years later, is worth $200. Instead of saying, "Wow, that's a 200% return!", you'd say, "That's an IRR of 12.2%".
IRR for angel investors is very long-term. It can take up to 10 years to be able to sell your investments. So we often talk about realized and unrealized IRR. An realized return is when you sold the stock and have the cash. An unrealized return is the estimated amount the stock is worth, usually based on the last price other venture capitalists have recently paid for it.
Here's how to calculate it: The IRR on an investment is the annualized effective compounded return rate that would be required to make the net present value of the investment’s cash flows (whether they be cash in or cash out) equal to zero. NPV = NET*1/(1+IRR)^year). Or just use XIRR in Excel.
The Lead Investor vets a startup and decides to personally invest.
When investors on Wefunder invest more money on those same terms, they share 10% of their profits of their investment with the Lead Investor and the XX Team.
In return, the Lead Investor is responsible for directing the vote of all investors on Wefunder, and the XX team helps the startup grow in value. The startup only has one entity on their cap table: XX Investments LLC. The founder must only get the signature of XX Investments (as directed by the Lead) to authorize any corporate actions.
It works much like an AngelList Syndicate Lead, except the legal structure is not an investment fund. Instead of an SPV, an SEC-registered transfer agent serves as a custodian. The outcome is the same: one entity on the cap table and a single Lead to direct the signing of any corporate documents and the voting of the securities.
1. Figure of speech used to describe the distinct advantages a company has which make it unbeatable in its market.
2. The infinity pools of the medieval era.
Example sentence: Damn, SunSipz is the only company out there with access to the necessary raw materials to make electric water bottles AND they’ve already got a patent on the tech? Not trying to sound like King Arthur out here but that sounds like ato me!
1. A version of a product good enough to test customers’ reactions & see if they care.
2. A functioning prototype patched together with duct tape and all-nighters <3.
Example sentence: Word on the street was that thefor SunSipz was a plastic water bottle with a triple A battery taped to the side… and it sold like mad!
1. A company significantly changes its strategy to better fit the market, customer preferences, etc.
2. How to react when your grandma brings up your absolutely desolate love life at Thanksgiving dinner.
Example sentence: Grandma, did you hear about the company I’ve invested in called SunSipz? Theyand now they make nuclear space rockets! The innovation.
1. The valuation of a company prior to the investment about to be made.
2. Pre-money valuation = post-money valuation - money raised in a given round. #maths.
Example sentence: SunSipz'swas $4.5 million before a VC invested 500K in their Series A.
1. A company’s estimated value after an outside investment is made.
2. Post-money valuation = pre-money valuation + money raised in a given round. #maths.
Example sentence: SunSipz'sfor their Series A was $5 million – I was so proud.
1. An equity-based round of investing with a concrete pre-money valuation.
2. Basically investors are buying straight shares/stock. This means there’s a price per share based on a set valuation and the company is releasing a set number of shares.
1. The right for an investor to buy more stock later on to maintain their same level of ownership in a company.
2. The right to say “Ok… I’m going to throw in a little more.”
Example sentence: Holy crapola, Jonny– this electric water bottle company I invested in is really taking off! I’m so relieved I have pro-rata rights and can invest a few more thousand this round and maintain my .2% ownership in SunSipz.
1. When company is making enough to cover only basic expenses.
2. A company founder isn't buying organic produce, nor oat milk, nor any pre-sliced fruit.
1. Rate at which customers return to buy a company’s service or product again.
2. How often your customers come back for seconds.
Example sentence: SunSipz's cousin enterprise, a subscription-based solar powered baseball hat company, has one of the most incredibleI've ever seen – 90% of customers renew their subscription after their first month.
1. A fundraising company begins to transfer funds from escrow to their own reserves to put towards their business before the given campaign close date.
2. A company starts to pull in the raised $ while the campaign is still open.
1. How long a company could survive given its current revenue and expenses (usually expressed in months). Startups usually have between 6 to 18 months of runway.
For example, if a startup has no revenues, has expenses of $20,000 per month, and has $100,000 in the bank, it has a "runway" of five months.
2. What your bedroom becomes when Vogue by Madonna comes on.
Example sentence: When the SunSipz founder realized he'd hit a full 2 years of, he spent an hour dancing around his bedroom-office.
1. How crowded any given market is (with existing companies).
2. Basic editing hack to increase the likes on your sunset flick by at least 100.
Example sentence: The market for oversaturated sunset flicks is….
1. A company's potential to grow – to secure more customers, break into more markets, and dominate the market it breaks into it. Less of a concern for lifestyle or "cottage industry" businesses than tech startups.
2. "... we talking Google big?"
Example sentence: Nah, Jonny,wasn't my main concern in evaluating with SunSipz since its a lifestyle biz.
1. An optional sidecar to hook up to an investment contract (like a SAFE or Convertible Note).
2. “Just one more thing!” as a document.
Example sentence: Jonny! Did you know that pro rata rights used to be right in the main text of SAFEs but recently got moved to their own little
1. Any and all investment contracts. Debt instruments, equity instruments – you name it.
In 1946, the Supreme Court defined a security as anything that meets these four criteria.
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
2. The opposite of insecurities – the physical features/personality features which you know make you wondrous.
Example sentence: The day I invested in SunSipz, I used a type of security called a SAFE and realized I am extremely secure in my ability to make others feel comfortable… I also have great earlobes.abounding!
1. A startup raises early funds from private investors (often in exchange for equity stakes) to form their company. Typically, these investors are friends, family, acquaintances of the founders & the money raised covers the basics – operating expenses, product development, team payroll, rent, equipment etc.
2. Founders collect magic beans and get to work planting them in hopes of growing a mega, giant beanstalk... which also is a tech startup.
Example sentence: Did you know that SunSipz raised theirentirely from their Berkley dorm-mates? Absurdity…
1. The "A" is the first significant investment by a venture capitalist or very large investor.
In the past, startups raised between $2 and $5 million for their Series A. In recent years, some of the best startups have been receiving well over $10 million from their first venture capital investment. It's been getting cheaper for startups to make more progress with their seed funding, increasing their price when venture capitalists finally invest.
2. The equivalent of an actor landing their first role in a Broadway show – it's an ensemble role but still a big deal...
1. A legal entity (usually an LLC) created for a single purpose. In equity crowdfunding, SPVs are a funding tool for investors to pool monies and have them directed/managed by one individual, an SPV Manager.
2. The Nimbus 3000.
1. A document often with a bunch of terms that investors and a company agree upon before finalizing a deal. The most important terms are usually the percentage of ownership and voting rights an investor will get through the deal.
2. A fancy looking legal doc wherein investors/company agree upon the nitty gritty of what the investor is gets by putting $$ into the company.
1. A company with a $1 billion valuation.
2. A land-bound narwhal.
1. Investing in opportunities in which you feel you are getting a deal.
2. Bargain hunting.