BUSINESS FUNDING TERMS

Courtesy of the Northwest Entrepreneur Network (www.NWEN.org)

Accredited Investor - As defined under Rule 501(a) of Regulation D of the SEC, certain institutional investors and (a) any natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1 million at the time of purchase; or (b) any natural person who had an individual income in excess of $200,000 in each of the two most recent years and who reasonably expects reaching the same income level or greater in the current year.

Acquisition - The act of one company taking over controlling interest in another company. Investors often look for companies that are likely acquisition candidates, because the acquiring firms are often willing to pay a premium to the market price for the shares.

Add-on Service - The non-monetary services provided by a venture capitalist, such as helping to assemble a management team and helping to prepare the company for an IPO.

Adjusted Gross Income (AGI) -A computation used to help determine an individual's federal taxes. Basically, AGI is the amount of money a person makes (such as wages, dividends, social Security, etc.) minus certain deductions (such as IRA, Keogh and SEP contributions, etc.).

Adventure Capitalist - An entrepreneur who helps other entrepreneurs financially, and often plays an active role in the company's operations (such as by occupying a seat on the board of directors).

Allocation - The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process depending on market demand for the securities.

All-or-none Offering - A company has a minimum number of shares it will sell on an offering. If the minimum is not sold, then the offering will be canceled.

Angels - Private, usually high net-worth investors, usually individuals or groups of individuals known as "angel networks," who provide start-up financing.

Angel Financing - Capital raised for a private company from independently wealthy investors. This capital is generally used as seed financing.

Asset Value - The value of the assets owned by a company. Net asset value is the value of the assets minus the value of any liabilities.

Asset-based financing - Debt financing in which the business uses company assets - such as inventory, equipment and accounts receivable - as collateral for capital loans.

Balanced Fund - A venture fund investment strategy that includes the investment in portfolio companies at a variety of stages of development.

Balance Sheet - This shows a company's assets, liabilities and capital.

Bedbug Letter - Once a filing for your public company is made with the Securities and Exchange commission (SEC), they will review it. If the SEC finds problems that cannot be resolved, it will write a bedbug letter.

Blind Pool - A public offering, in which the company does not disclose how it will use the proceeds.

Blue Sky Laws - The state laws that regulate the issuance of initial public offerings.

Book Value - This shows the equity or net worth of a firm, which is equal to its assets minus liabilities.

Bootstrapping - A means of finding creative ways to support a start-up business until it turns profitable. This method may include negotiating delayed payment to suppliers and advances from potential partners and customers.

Break-even - The level of sales necessary for a company to cover all its fixed and variable costs.

Bridge Financing - Bridge financing is interim financing, and typically provided through an investment bank. Often a critical step before a company's IPO, bridge financing can help "bridge" the gap between making a public offering and funding the costs associated with it. When an IPO is involved, the lead underwriter typically provides this loan and secures it with shares of the company's stock. The loan is usually repaid through the sale of shares in the IPO. In the strategic arena, bridge funding is often used to help acquire another company. The funds provided, usually in the form of a "bridge commitment" from an investment bank, enable the acquiring company to close the transaction before associated financing.

Burn Rate - The rate at which a company consumes cash each month.

Business Development Company (BDC) - A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.

Buy-back - A right to buy back previously issued stock, usually at a price which will show a good return to the investor.

Buyout - Funds provided to enable operating management to acquire a product line or business, which may be at any stage of development, from either a public or private company.

Capital Gain - When an investor sells a stock, bond or mutual fund at a higher price than he or she paid for it.

Capitalization - A figure equal to a company's stock price multiplied by the number of shares owned by the public (that is, outstanding shares). For example, if a company is selling for $20 per share and has 1,000,000 shares outstanding, then the capitalization is $20,000,000 ($20 multiplied by 1,000,000).

Capital loans - Loans made for the purchase of long-term assets such as manufacturing equipment

Carried Interest - The portion of any gains realized by the fund to which the fund managers are entitled, generally without having to contribute capital to the fund. Carried interest payments are customary in the venture capital industry, in order to create a significant economic incentive for venture capital fund managers to achieve capital gains.

Cash Flow - Cash receipts less cash disbursements over a period of time. Cash flow projections help managers plan how much cash will be required to keep a company operating.

Certified Development Company (CDC) - A state or local authority that assembles funds from various public and private sources into financial packages for capital improvements to existing businesses. The Small Business Administration backs CDCs under its 504 program. The Virginia Small Business Financing Authority is a CDC.

Closed-end Fund - A type of fund that has a fixed number of shares outstanding, which are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock. The market price of a closed-end fund fluctuates in response to investor demand as well as changes in the values of its holdings or its Net Asset Value. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.

Closely Held Company - A company that has a few people who own large amounts of stock.

Common Stock - A unit of ownership of a corporation. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings. Investors who purchase common stock hope that the stock price will increase so the value of their investment will appreciate. Common stock offers no performance guarantees. Additionally, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Convertible Security - A financial security (usually preferred stock or bonds) that is exchangeable for another type of security (usually common stock) at a prestated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together with greater appreciation potential than regular bonds offer.

Coverage - A company's ability to take on debt.

Current Assets - Assets of a company, such as cash, inventory and accounts receivables, which can be readily converted into cash.

Current Yield - A stock's dividend divided by its stock price. For example, if a stock has an annual dividend of $1 and a stock price of $10, then its current yield is $1 divided by $10 or 10 percent.

Deal Flow - The number of investment opportunities or "deals" which an investor receives each year.

Debt Financing - Money that business owners must pay back with interest. There are myriad types of debt financing, from simple commercial loans to bridge/swing loans in which a lender makes a short-term loan in anticipation of equity financing at a later stage in the development of a business.

With debt financing, typically a bank or other institution, the lender will not have an equity, or ownership stake, in the business. As such, they will also have no active say in the operation of the day-to-day business. The interest the lender takes, however, is in the form of interest the borrower pays on the use of the money loaned. Before debt financing is raised, it is quite common that the business will have to show potential lenders that you are willing to become personally at risk in the business by investing yourself.

Dilution - When a company issues new shares, this will lower the percentage of ownership for current shareholders.

Direct Financing - Financing without the use of underwriting.

Direct Public Offering - When a company bypasses an underwriter and goes public on its own.

Due Diligence - The process of investigating a company's market, competitors, management track record, and accounts, etc. Investors will usually do substantial due-diligence on a company before investing and Underwriters will make a reasonable investigation of a company before committing to an underwriting.

Early Stage - A fund investment strategy involving investments in companies to enable product development and initial marketing, manufacturing and sales activities. Early stage investors can be influential in building a company's management team and direction. While early stage venture capital investing involves more risk at the individual deal level than later stage venture investing, investors are able to buy company stock at very low prices and these investments may have the ability to produce high returns.

Effective Date - This is when the registration statement has become effective with the Securities and Exchange Commission and state agencies. Then the company can distribute a prospectus to potential customers of the new issue of stock.

Equity - Equity is ownership interest in a corporation, represented by the shares of stock which are held by investors.

Equity Financing or Offering - Selling an interest in your business to an outside party to raise money.  Equity is sold by issuing of shares of the corporation's common or preferred stock.

Equity Related Loan - Equity related loans are loans convertible into equity ownership or loans collateralized with equity positions.

Exit Strategy - A fund's intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company's shares after an initial public offering (IPO), a sale of the portfolio company or a recapitalization.

Expansion Capital - Capital to fund the development of an established business. A typical investment will be between $600,000-$2m, with fewer risks and a lower potential return than a start-up investment. The investor may exit in 2-5 years.

Financial Structure - The combined debt, equity and financial instruments used to finance company.

First Stage/Round Financing - Financing provided to companies that have expended their initial capital and require funds, often to initiate commercial manufacturing and sales.

Flipping - The act of buying shares in an IPO and selling them immediately for a profit. Brokerage firms underwriting new stock issues tend to discourage flipping, and will often try to allocate shares to investors who intend to hold on to the shares for some time. However, the temptation to flip a new issue once it has risen in price sharply is too irresistible for many investors who have been allocated shares in a hot issue.

Follow-On Offering - A follow-on offering, also known as a secondary offering, occurs when a public company offers additional shares of common stock for sale. These offerings provide additional liquidity and access to funds for those companies whose stock is performing well. Follow-on offerings may include primary and secondary shares. Primary shares are those that are issued by the company to raise additional capital, while secondary shares are offered by insiders, often to diversify holdings. Since the shares at issues are already publicly traded, the follow-on process is truncated. A registration statement must filed with the SEC, the securities are marketed through a road show, and selected underwriters are closely involved to determine pricing. Pricing for follow-on shares is usually slightly discounted from their current market price, several underwriters are used to assist in the marketing and sale of the stock, and usually, but not always, the follow-on shares are a good opportunity for public companies to form strong relationships with additional underwriters.

Fundamental Analysis - A method of valuing stocks by considering financial data, such as cash flow earnings, sales, market share, debt levels, etc.

Fund Size - The total amount of capital committed by the investors of a venture capital fund.

Good Will - The intangible assets of a company, such as reputation, brand names, commitment to the community, etc.

Ground Floor - The first stage of a new venture or investment opportunity.

Holding Period - The amount of time an investment must be held to qualify for capital gains tax benefits.

Illiquid - An investment that cannot be easily converted into cash, such as real estate (which typically takes months to sell).

Initial/Seed/Round Financing - A relatively small amount of capital provided to an investor or entrepreneur, usually to prove a concept. It may involve product development, but rarely involves initial marketing.

IPO/Initial Public Offering - An IPO, or Initial Public Offering, is a tool to raise funds. It is a company's first sale of stock to the public, and is the highest source of liquidity, it provides a public currency, and it is a sign that a company is mature, and credible. A company who goes through the IPO process must register with the SEC, and follow strict reporting requirements, both to the public, the company shareholders, and the SEC. When a company decides to file an IPO, one investment bank is typically selected to lead manage the transaction. Depending on the size of the transaction, one to three other investment banks may also be selected to serve as co-managers. The investment bank(s) works with the company to prepare the registration statement, market the offering, and, on the night of pricing, price it. This process takes several months to complete.

Investment Banks - An investment banking firm acts as underwriter or agent, serving as intermediary between an issuer of securities and the investing public. Investment bankers handle the distribution of blocks of previously issued securities, either through secondary offerings or through negotiations, maintain markets for securities already distributed, and act as finders in private placements of securities.

Issuer - This is the company that issues new stock to the public.

Later Stage - A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume. Later stage funds often provide the financing to help a company achieve critical mass in order to position itself for an IPO. Later stage investing can have less risk than early stage financing because these companies have already established themselves in their market and generally have a management team in place. Later stage and Mezzanine level financing are often used interchangeably.

Lead Investor - An investor who is the first to invest from a group or syndicate of investors in a given round of financing. A lead investor may receive more favorable investment terms than follow-on investors.

Leveraged Buyout (LBO) - A takeover of a company, using a combination of equity and borrowed funds (or loans). Generally, the target company's assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds, using the assets of the company as collateral, in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares.

LBO funds are important players in the U.S. private equity markets. Leveraged buyout funds have generated returns by acquiring profitable, stable businesses in more mature sectors of the economy, or businesses characterized by high cash flows. Leveraged buyout firms also play an important role as consolidators of large, highly fragmented industries. Although traditionally LBO funds invested exclusively in mature economic sectors, recently several prominent LBO firms have extended their focus to more dynamic industries such as health care services and telecommunications.

Limited Partnerships - An organization comprised of a general partner, who manages a fund, and limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, the general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners receive income, capital gains, and tax benefits.

Liquidation - Liquidation has two meanings in finance. The first is converting securities into cash. The second is the sale of the assets of a company to one or more acquirers in order to pay off debts. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Liquidation Preference - In venture capital, the right to receive a specific value for the stock if the business is liquidated. More generally, the order in which creditors are paid off if the business is liquidated.

Lock-up Period - The period of time that certain stockholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups of at least 180 days from large shareholders (1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners and such large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed.

MBI - Management Buy-In. Purchase of a business by an outside team of managers who have found financial backers and plan to manage the business actively themselves.

MBO - Management Buy-Out. When the exiting management of a company raises capital to buy the business from the previous owners.

Management Fee - Compensation for the management of a venture fund's activities, paid from the fund to the general partner or investment advisor. This compensation generally includes an annual management fee.

Master Limited Partnership - Investment which combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.

Mezzanine Financing - Refers to the stage of venture financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine level financing can take the structure of preferred stock, convertible bonds or subordinated debt (the level of financing senior to equity and below senior debt).

National Association of Securities Dealers (NASD) - This private organization helps regulate the stock and bond markets.

Net Asset Value (NAV) - NAV is calculated by adding the value of all of the investments in the fund and dividing by the number of shares of the fund that are outstanding. NAV calculations are required for all mutual funds (or open-end funds) and closed-end funds. The price per share of a closed-end fund will trade at either a premium or a discount to the NAV of that fund, based on market demand. Closed-end funds generally trade at a discount to NAV.

New Issue - A stock or bond offered to the public for the first time. New issues may be initial public offerings by previously private companies or additional stock or bond issues by companies already public. New public offerings are registered with the Securities and Exchange Commission.

Offering Circular - This is a disclosure of material financial information for potential investors in a Regulation A new offering.

Open-end Fund - An open-end fund, or a mutual fund, generally sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund's outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor generally sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor generally buys newly issued shares directly from the fund.

Option Pool - The number of shares set aside for future issuance to employees of a private company.

pari passu - Often seen in venture capital term sheets, indicating that one series of equity will have the same rights and privileges as another series of equity. ('of equal step' in latin)

Piggyback Registration Rights - These rights give the investors the right to sell stock at the IPO by adding their shares to the aggregate listed in the registration statement.

Plow Back Earnings - Growth companies usually do not pay dividends because they want to use their profits to plow back into the corporation and increase investment in plant, equipment and research.

Portfolio Companies - Portfolio companies are companies in which a given fund has invested.

Post-money valuation - The valuation of a company immediately after the most recent round of financing. This value is calculated by multiplying the company's total number of shares by the share price of the latest financing.

Preferred Stock - A class of capital stock that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets. Many venture capital investments use preferred stock as their investment vehicle. This preferred stock is convertible into common stock at the time of an IPO.

Pre-money Valuation - The valuation of a company immediately prior to the most recent round of financing.

Price-Earnings Ratio - PE ratio is calculated by dividing the stock price by the earnings per share. For example, if a company is selling for $50 and has earnings per share of $5, then the PE ratio is 10 ($50 divided by $5). Many analysts use the PE ratio to indicate if a stock is undervalued (e.g., if the PE ratio is over 5 or 10) or overvalued (50 to 100.

Private Equity - Private Equity is the ownership stake that results from investment in a private (not publicly traded) company. Angels and Angel groups, individuals, and Venture Capital firms generally represent private equity investors. Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, and any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. In addition, there are many transfer restrictions on private securities. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a recapitalization.

Private Equity Industry - The Private Equity Industry is the community of professionals that are involved with all aspects of private investment, from advising or serving as an intermediary, raising funds, business valuation and sale, or seeking and considering investment opportunities.

Private Placement - Private Placements, often referred to as a Private Placement Memorandum or PPM, refer to offerings of unregistered securities that are being offered for sale to a small number of private investors, individuals, and institutions (generally 35 or fewer) that have been registered to participate in such an offering under the Securities and Exchange Commission's (SEC) rule 506. Such offerings do not require SEC registration provided that the securities are purchased for investment purposes, as opposed to resale, as specified in the investment letter. Private placements provide greater control than public offerings in that the company decides how much to sell, for how much, to which investors, and to how many investors. The investors execute an investment letter stating that the securities are being purchased for investment without a view towards distribution.

PPMs are not limited to private companies. Public companies will also Use a PPM to finance specific growth using either debt or equity placements. Equity placements are typically priced at a discount to the market, or at a discount to the current company valuation that result from holding period requirements.

Private Limited Partnership - Limited partnership having no more than 35 limited partners, and thus able to avoid SEC registration.

Private Securities - Private securities are securities that are not registered and do not trade on an exchange. The price per share is set through negotiation between the buyer and the seller or issuer.

Prospectus - A formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Companies offering securities, mutual funds, and offerings of other investment companies including Business Development Companies are required to issue prospectuses describing their history, investment philosophy or objectives, risk factors and financial statements. Investors should carefully read them prior to investing.

Recapitalization - The reorganization of a company's capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility. Recapitalization can be an alternative exit strategy for venture capitalists and leveraged buyout sponsors.

Registration - The SEC's review process of all securities intended to be sold to the public. The SEC requires that a registration statement be filed in conjunction with any public securities offering. This document includes operational and financial information about the company, the management and the purpose of the offering. The registration statement and the prospectus are often referred to interchangeably. Technically, the SEC does not "approve" the disclosures in prospectuses.

Restricted Securities - Public securities that are not freely tradable due to SEC regulations.

Revenue - Money earned by a company from sales of products or services.

Regulation A - A less onerous means of going public, for those companies under $5 million. There is no requirement to file a registration statement with the Securities and Exchange Commission.

Road Show - The promotional activities to generate interest in a new offering.

ROI - Return On Investment. Profit on an investment, expressed as a percentage of the investment.

Securities and Exchange Commission (SEC) - The SEC is an independent, nonpartisan, quasi-judicial regulatory agency that is responsible for administering the federal securities laws. These laws protect investors in securities markets and ensure that investors have access to all material information concerning publicly traded securities. Additionally, the SEC regulates firms that trade securities, people who provide investment advice, and investment companies.

SCOR - Small Corporate Offering Registration is a do-it-yourself securities registration document designed so that knowledgeable business people can create the documents needed to sell state-registered securities to the general public - a direct public offering.

Second Stage/Round Financing - Working capital for the initial expansion of a company that is producing and shipping and has growing accounts receivable and inventories. Although the company has clearly made progress, it may not yet be showing a profit.

Secondary Public Offering - This refers to a public offering subsequent to an initial public offering. A secondary public offering can be either an issuer offering or an offering by a group that has purchased the issuer's securities in the public markets.

Security - A security is any note, stock, bond, debenture, evidence of indebtedness, certificate of interest of participation in any profit-sharing agreement, collateral-trust certificate, reorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas or other mineral rights, or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

Seed Capital - Capital provided at an early, often pre-incorporation stage. Funding to build a prototype, conduct a market feasibility study, write a business plan, and build a management team. A typical seed investment will be between $10,000-$200,000. It carries the highest risk and highest potential returns of alt investment capital, which may not be seen for 5-8 years.

Series A Preferred Stock - The first round of stock offered during the seed or early stage round by a portfolio company to the venture investor or fund. This stock is convertible into common stock in certain cases such as an IPO or the sale of the company. Later rounds of preferred stock in a private company are called Series B, Series C and so on.

Short-term loans - Loans scheduled for repayment in three years or less. Examples include seasonal lines of credit, working capital loans and factoring.

Small Business Investment Company (SBIC) - A private investment company licensed and partially funded by the SBA to provide venture capital to small businesses. Typically, SBICs finance new, risky or high-tech ventures.

Start-up capital - Capital to fund a start-up is usually used for renting offices, hiring personnel and initiating sales. The business plan with market research should be completed, products or services developed, and a management team in place. Atypical start-up investment will be between $200,00-$1 m. The risk is high and the investor may not see a return for 4-6 years.

Stock Options - There are two definitions of stock options. 1. The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies. 2. A widely used form of employee incentive and compensation. The employee is given an option to purchase its shares at a certain price (at or below the market price at the time the option is granted) for a specified period of years.

Syndicate - Underwriters or broker/dealers who sell a security as a group.

Third Stage/Round Financing - Funds provided for the major growth of a company whose sales volume is increasing and that is beginning to break even or turn profitable. These funds are typically for plant expansion, marketing and working capital development of an improved product.

Trade Credit - Credit advanced to a business owner by suppliers and other vendors. They provide services or inventory in advance, and then wait for the business owner to pay them in 30, 60 or 90 days after delivery. Businesses use trade credit to maintain cash flow as they collect on invoices from clients and customers, and then pay their own bills.

Tombstone - This is an announcement-usually in a paper, such as the Wall Street Journal-of a new offering.

Undercapitalized - A company that does not have sufficient cash to run properly.

Value Investor - A person who tries to find companies that are selling below their actual worth.

Underwriting - An investment banking firm acting as underwriter sells securities from the issuing corporation to the public. A group of firms may from a syndicate to pool the risk and assure successful distribution of the issue. There are two types of underwriting arrangements: best efforts and firm commitment. With best efforts, the underwriters have the option to buy and authority to sell securities, or if unsuccessful, may cancel the issue and forgo any fees. This arrangement is more common with speculative securities and with new companies. With a firm commitment, the underwriters purchase outright the securities being offered by the issuer.

Venture Capital - the process by which investors fund early stage, more risk oriented business endeavors.  Most venture capitalists look for companies with high growth potential.  The investment is usually in the form of preferred stock, which contain rights or preferences over the company’s common stock.  Venture capitalists typically expect a 20-50% annual return on their investment at the time they are brought out.

Venture Capitalist - Venture Capitalists raise capital (commonly known as risk capital) for a business and provide advisory services during the term of their investment. The capital raised may be in the form of debt or equity and may be from private or public sources. They usually specialize in specific stages of investment and/or specific industries that they know well.

Venture Capital companies who provide such funding will also generally serve as advisors, hold one or more seats on the board of directors, identify and place resources, map general corporate strategy, and often play an essential role in corporate development. In exchange for the funding, significant equity positions, as well as control, are given to appointed fund representatives. A strong venture firm will also provide a valuable network of contacts that includes attorneys, accountants, technology and service vendors, and investment banks.

Venture Financing - Venture financing is funding obtained through outside equity financing, typically through a privately managed fund. These funds are sometimes referred to as Venture Funds, and are designed to provide capital to companies who cannot access public markets because their potential growth is disproportionate to current valuations.

Warrant - A security that allows an investor to purchase a fixed number of shares for a fixed price over a period of time (usually 10 to 15 years).

Write-up/Write-down - An upward or downward adjustment of the value of an asset for accounting and reporting purposes. These adjustments are estimates and tend to be subjective; although they are usually based on events affecting the investee company or its securities beneficially or detrimentally.

Working Capital - Capital which is required to finance the ordinary operations of a company, i.e. to purchase raw materials, to pay for labor to make goods, and to finance accounts receivables, etc.