Glossary of Terms

Below is a Glossary of terms relating to crowdfunding and Start up Entrepreneurship in General. These terms may be American or UK based terminology given that the industries are advanced in these countries

TermDefinition
Accredited Investora. A person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1,000,000.
b. A person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
c. A bank, insurance company, registered investment company, business development company, or small business investment company
d. An employee benefit plan, 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
e. A business in which all the equity owners are accredited investors
f. A charitable organization, corporation, or partnership with assets exceeding $5 million
g. A professional investor with the necessary knowledge and experience of alternative investments
h. Any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934
AccretionAn increase in the earnings per share of a company.
Acqui-hireThe acquisition of a company to recruit its employees, not necessarily the products or services they developed.
Ad SwapFellow crowdfunders who promote each other’s projects.
Advanced Assurance (AA)Companies that are hoping to attract subscriptions under the EIS are encouraged to seek an assurance from HMRC, in advance of inviting applications for shares, to the effect that it is accepted that the conditions of the scheme will be satisfied.
AIM Alternative Investment MarketAIM (Alternative Investment Market) is London's junior market and a sub-market of the London Stock Exchange.
All-Or-Nothing ModelWhere entrepreneurs get to keep the funds raised only if the campaign reached its goal.
Alternative FinanceThe term used to describe financial funding models that differ from more traditional methods of finance. Crowdfunding and peer-to-peer lending are examples of alternative finance.
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Alternative financeAlternative finance is the term for forms of finance that stretch beyond the traditional types
Angel InvestorAn investor who provides capital for a business or a start-up in exchange for convertible note or ownership equity.
Angel networkA group of angel investors that meet to discuss and invest in early stage businesses.
Angel network managerAn individual, or individuals, who manage a business angel network.
Angel SyndicateSee Angel Network.
Articles of AssociationOne of the constitutional documents of a company that sets out its management and administrative structure. The articles dictate the internal affairs of the company such as director and shareholder rights, the issue and transfer of shares, and the organisation of meetings.
Asset ClassA class of financial instruments that have similar characteristics, behave similarly in the marketplace and are subject to the same laws and regulation. Equities (stocks and shares), fixed-income (bonds) and real estate (property) are all examples of asset classes.
B SharesA class of shares which have specific rights attached to them, which will be set out in the company’s articles of association. Typically B shares do not have voting or pre-emption rights as opposed to other share types such as A shares.
BackerThis is a name for the people who provide funding for a person or project
PatronSee Backer
Balance SheetA statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.
Beneficial shareholder / ownerAn investor who owns the economic value and other shareholder benefits attached to shares, such as dividends and tax reliefs, but the registered title to their shares is held with another person or entity, often for administrative convenience.
Board ObserverAn individual who attends board meetings but is not an official member of the board of directors.
Board of Directors
A group of people who are either elected, or appointed, to oversee the activities of a company.
BondA form of debt investment that allows people to make an investment in a company in the form of a loan. The company commits to repaying the loan in full after a fixed period, and to making interest payments at a fixed percentage at regular intervals over the period of the loan.
BootstrappingStarting and running a business with no external equity or debt financing.
Break-even PointThe point at which gains equal losses
Bridge FinancingA method of financing used by companies before their IPO, to obtain necessary cash for the maintenance of operations.
Burn RateThe rate at which a new company spends its initial capital.
Business AngelSee Angel Investor
Business IncubatorAn organisation that exists to help startups and early-stage companies survive and succeed.
Business model canvasA template to help develop new or document existing business models.
Business planA document that outlines the company's goals and details how they will be achieved.
Business TractionThe progress of a start-up company and the momentum it gains as the business grows.
Call For PromptsEntrepreneurs request Backers and the audience to provide ideas, inputs and feedback
CampaignThe funding period for a specific project in a crowdfunding platform.
Capital Gains TaxA tax on the gain or profit you make when you sell, give away or otherwise dispose of something. It applies to assets that you own, such as shares or property.
Capitalisation table (a.k.a cap table)A table or chart that records all of the shareholders of a company and their percentage of equity, calculated on a fully-diluted basis.
Cash Flow StatementA document that represents the cash inflows and outflows from the business operations.
Class A SharesSee A Shares
Class B SharesSee B Shares
Contributorsee Backer
Convertible EquityAn equity investment where money is invested in a company in exchange for shares to be issued at a later date. The share issue is generally triggered by the company raising finance from other investors. In return for investing early, the convertible equity investors receive a discount on the price of the shares issued to the other investors.
Convertible NoteA debt investment where money is invested in a company with the expectation that the debt will “convert” into shares issued at a later date. The share issue is generally triggered by the company raising finance from other investors. Before the conversion, the investor is paid interest.
CopyrightThe exclusive and assignable legal right, given to the originator for a fixed number of years, to print, publish, perform, film, or record literary, artistic, or musical material.
Crowd EquityThis is used to describe the type of crowdfunding which offers equity in a business in exchange for the funds.
Crowd LendingThis is used to describe the type of crowdfunding used for loans
Crowdfundera person or entity that raises small amounts of money from a large number of people, typically via the Internet, to fund a project or venture.
CrowdfundingThe funding of projects or ventures by raising money from a large number of people, usually online. The main types of crowdfunding are equity, debt, rewards and donations.
Crowdfunding PlatformAn online portal/platform or intermediary that allows projects to be represented on the web portal to attract backers, investors and donors
Crowdsourcingthe practice of obtaining needed services, ideas or content by soliciting contributions from a large group of people and especially from the online community rather than traditional employers or suppliers.
DebtMoney owed by one person/company to another. The borrower has to repay the money a later date, and generally also has to pay interest.
Debt-based crowdfundingLending by individuals to other individuals or businesses via a specialist platform This is also referred to as peer-to-peer lending or P2P.
DilutionA reduction in the percentage share of a company owned by an individual investor as a result of new shares being issued. As new shares are generally issued in order to support a fundraise, existing investors in a company normally find their share diluted by a new fundraise. If the shares owned by an investor include pre-emption rights, the investor has the right to purchase additional shares during later fundraising in order to maintain their percentage share of company ownership.
Discount RateRequired rate of return of the interest rate.
DiversificationAn investment strategy that involves mixing the amount, values and kinds of investments within a portfolio to spread risk and minimise losses.
DividendsA sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).
Donation-Based CrowdfundingA crowdfunding model where individuals donate money to projects usually characterised as charitable or have social benefits.
Drag-along rightA contractual obligation that allows majority shareholders to force minority shareholders to join in the sale of a company on the same terms, valuation and conditions of the majority shareholders.
Due DiligenceThe process of comprehensively examining an investment opportunity in order to ensure that everything is as it seems.
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Earnings YieldThe earnings yield is the inverse of P/E ratio. The earnings yield ratio shows the percentage of each dollar invested in the stock that was earned by the company.
Elevator PitchAn elevator pitch, elevator speech, or elevator statement is a short summary used to quickly and simply define a profession, product, service, organization, or event and its value proposition
Enterprise Investment Scheme (EIS)A UK tax scheme offering income tax and capital gains tax reliefs to qualifying private investors who invest in eligible businesses.
Entrepreneurial seizureAn entrepreneurial seizure describes a moment experienced by all entrepreneurs when they decide to start their own business.
Entrepreneurs ReliefIn the UK, entrepreneurs' relief is available for business owners who are selling their business.
EquityEquity refers to shares or other securities that represent an ownership interest in a company.
Equity-Based CrowdfundingA form of crowdfunding whereby investors are offered shares in the company in return for their investment. An example of an equity crowdfunding product on Crowdcube is an equity pitch.
Escrow AccountA temporary pass through account held by a third party during the process of a transaction between two parties.
ExitAn event that offers investors the opportunity to realise a financial return on their investment, normally by selling their shares. Examples of exits include an Initial Public Offering (IPO) or a trade sale.
Exit StrategyThe method by which a venture capitalist or business owner intends to get out of an investment that he or she has made in the past. Usually it comes in the form of IPO, acquisition by a larger company or selling assets.
Financial forecastA financial forecast is an estimate of future financial outcomes for a company.
Fully dilutedAll the shares of a company in issue, plus all shares which are the subject of options or other contractual rights to be issued in the future (regardless of whether the right has vested).
FundAn investment opportunity that seeks to raise money to be invested across multiple businesses. Funds campaigns are commonly used to invest in businesses participating in accelerator programmes and competition winners.
Fundersee Backer
Funding Portalcrowdfunding intermediary that does not: (i) offer investment advice or recommendations; (ii) solicit purchases, sales, or offers to buy securities offered or displayed on its website or portal; (iii) compensate employees, agents, or others persons for such solicitation or based on the sale of securities displayed or referenced on its website or portal; (iv) hold, manage, possess, or otherwise handle investor funds or securities
FundraisingThe action of seeking to raise finance, normally to support growth of a company, by issuing debt or equity in that company.
Gross MarginThe difference between Revenue and cost of sales/service.
Growth-stageThe stage that a business is at when it has passed its seed or initial stage, has established proof of concept and is looking to grow.
High Net Worth Individual (HNW)A wealthy individual that meets pre-determined criteria.
Illiquid AssetThe state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.
Initial public offering (IPO)The first time that a company's shares are available for public purchase by means of a listing on a stock exchange. This process is also known as going public or floating.
Intellectual Property (IP)This refers to creations of the mind - i.e. ideas and concepts. Creators, or owners of these benefit from certain protections under law.
Interest RateThe proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.
Intermediate Term DebtA type of fixed income security with a maturity, or date of principal repayment that is set to occur in the next 3-10 years.
Internal rate of return (IRR)The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero.
Investment Memorandum (IM)Document stating the objectives, risks and terms of investment involved with a private placement. This includes items such as the financial statements, management biographies, detailed description of the business, etc.
IssuerA legal entity that develops, registers and sells securities for the purpose of financing its operations.
JOBS ActThe JOBS Act stands for Jumpstart Our Business Startups Act, and it was signed into law by President Barack Obama on April 5, 2015. There are seven titles in the JOBS Act. The Act loosens restrictions on capital raising for small businesses and requires the SEC to write rules and issue studies on capital formation, disclosure, and registration requirements.
Keep What You Raise ModelEntrepreneurs get to keep the funds raised regardless.
Know Your Client (KYC)The regulatory process that financial services firms and certain other types of businesses must perform in order to verify the identity of their customers and prevent money-laundering or other forms of financial crime.
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Landing PageThe project/campaign page which contains the necessary information and details of the project.
Lead investorA Lead Investor is an individual or group who are leading a funding round.
Lean StartupA methodology for starting a business made famous by Eric Ries.
Lift roundA lift round is a funding round that has raised its minimum funding target from an angel syndicate or other professional investors before the opportunity goes live on SyndicateRoom. In such cases, we will have negotiated an exclusive chance for our members to invest in an extension of the round.
Limited Liability CompanyA corporate structure whereby the members of the company cannot be held personally liable for the company’s debts or liabilities.
LiquidityThe ease with which an investment can be bought or sold.
Liquidity EventThe merger, purchase or sale of a corporation or an initial public offering. A liquidity event is a typical exit strategy of a company, since the liquidity event typically converts the ownership equity held by a company’s founders and investors into cash.
Loan-Based CrowdfundingA crowdfunding model where individuals agree to loan others in return for interest.
Long Term DebtLoans and financial obligations lasting over one year.
Management buy-in (MBI)An MBI is when an outside management team buys a controlling interest in a business.
Management BuyoutWhen the current management, usually aided by investors, seek to buy out the parent company and/or existing investors.
Management TeamThe group of individuals that operate at the higher levels of an organisation and have day-to-day responsibility for managing a business.
Market OpportunityA forecasted demand in specific market/markets for a particular product or service in which unsatisfied customer need exist.
Market RiskThe risk that the value of an investment will decrease as a result of market factors.
Marketing PlanA comprehensive document that details the plans a company has for marketing their product(s).
Mezzanine FinancingDebt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full.
Microfinancelending money to low-income individuals.
Mini-bondA form of debt that allows investors to invest in a company and receive a fixed return over a set period of time.
Networking EffectA phenomenon whereby a good or service becomes more valuable when more people use it.
NomineeA person or firm that holds assets such as shares on behalf of another, enabling the nominee to handle complicated administrative matters.
Operational planA highly detailed plan that provides a clear picture of how a team, section or department will contribute to the achievement of the organisation's goals.
OptionAn investor's right to buy (or sell) shares or securities at an agreed price within a certain time frame.
Ordinary SharesShares which represent normal equity ownership in a company. Ordinary shares generally entitle the owner to vote at shareholder meetings, receive dividends, and receive distributions on the winding up of a company, but do not carry preferential treatment.
OverfundingWhen a company has met the fundraising target, but continues to accept additional investment. When a company is overfunding they must issue additional equity to new investors, generally on the same terms as that issued prior to meeting the funding target.
P/E RatioA measurement tool frequently used in the investment industry and calculated by dividing the price per share by the earnings per share.
P/S RatioA measurement tool frequently used in the investment industry and calculated by dividing the company’s market cap by the sales revenue.
Peer-to-peer (P2P) financeThe direct exchange of money from individuals to other individuals or businesses through a platform.
Penny stockPenny stocks are securities that typically trade outside of the major market exchanges at low prices.
Perka benefit for funding a crowdfunding project.
PitchThis is the promotion of the crowdfund used to garner interest from potential funders.
Pitch DeckA presentation of a summarised business plan.
Pitch PageThis refers to the webpage promoting the opportunity to invest in a specific business.
PlatformIn the context of crowdfunding, a software-driven, multisided business or marketplace.
PledgeThis is a term used to describe the promise to pay the person/people crowdfunding the defined amount
Pooled Investment VehicleFunds from many individual investors that are aggregated for the purposes of investment, as in the case of a mutual or pension fund.
PortfolioA group of financial assets such as shares, property or bonds, held by one person or entity.
Post InvestmentThe period after an investment has been made and the cooling off period has expired.
Post-money ValuationThe valuation of a business after an investment / capital injection has been made.
Pre-BuzzThe initial preparation a crowdfunding campaign before it is live on the platform.
Pre-emptionA contractual provision which requires a company to offer its existing shareholders the opportunity to purchase additional shares in order to maintain their percentage of equity before further shares are issued.
Pre-Money ValuationThe value of a business before an investment/capital injection has been made.
Pre-Sales CrowdfundingBacker supports a product that has yet to be manufactured. Entrepreneurs receives the necessary funds to produce their products
Preference sharesA class of shares which have specific preferential rights attached to them, as set out in the company’s articles of association. Typically the preference will be a dividend paid in priority to other shareholders, or priority to distributions on the winding up of the company.
Primary MarketA market where buyers and sellers negotiate and transact directly without intermediaries or resellers.
Private EquityInvestments made into companies that are not publically traded on a stock exchange.
Private PlacementThe sale of securities to a relatively small number of select investors as a way of raising capital.
Profit and Loss StatementA financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time – usually a fiscal quarter or year.
ProjectThis is the crowdfund campaign for the product or cause.
Return on Investment (ROI)A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
Revenue ModelKey component of the business model. It primarily identifies what product or service will be created in order to generate revenues and the ways in which the product or service will be sold.
Reward-based crowdfundingA type of crowdfunding where individuals contribute money to a project in the expectation of receiving a non-monetary reward.
RewardsThis is what the funders get in exchange for pledging on a pre-sale/rewards based crowdfunding platform
RiskThe potential for losing something of value. With equity investment the main risk to the investor is losing all the money invested.
Royalty CrowdfundingBackers/supports get rewarded by a percentage of revenue.
SAFE (Simple Agreement for Future Equity)A contract between an investor and entrepreneurs whereby the investor provides capital to the business in exchange of a warrant to issue stock in the future.
Secondary marketA market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.
Secured LoanA loan that is supported by some type of collateral.
SecuritiesA financial instrument that represents: an ownership position in a publicly-traded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option.
Seed CapitalThe initial capital used to operate the business
Seed Enterprise Investment Scheme (SEIS)A UK tax scheme offering income tax and capital gains tax reliefs to qualifying private investors who invest in eligible early-stage startups.
Seed StageThe initial stage of a business, where it is looking to create a minimum viable product (MVP) and reach Product/Market fit.
Series A FinancingThe first round of funding after the initial seed capital.
ShareA tradable commodity that represents a portion of ownership in a company. Sometimes referred to as a unit of 'stock'. The value of all shares issued in a company is equal to the total value of the company.
Share IssueThe process by which a company issues new shares to shareholders.
Share OptionAn investor's right to buy (or sell) shares or securities, at an agreed price within a certain time frame
Share PriceThe current market value of one share in a company. The valuation of a company is equal to the current share price multiplied by the shares outstanding.
ShareholderAn individual who owns shares in a company.
Shareholder's AgreementAn agreement between a company’s shareholders detailing certain rights and obligations of the shareholders.
SharesAn ownership interest in a company which entitles the shareholder to certain rights, for example a share of profits or dividend payments from the company. Shares are also referred to as “stock”.
Shares OutstandingThe total number of shares in a company that have been issued to date.
Short Term DebtLoans and financial obligations due in one year.
Social ProofAlso known as informational social influence, is a psychological phenomenon where people assume the actions of others in an attempt to reflect correct behaviour for a given situation.
Sophisticated InvestorAn experienced investor who self-certifies as having met pre-determined criteria.
Start-upA newly established business.
Start-up CapitalThe money that is required to start a new business, whether for office space, permits, licenses, inventory, product development and manufacturing, marketing or any other expense.
Stock SplitThe issuing of new stock to existing investors in a fixed ratio to their current holding, in order to increase the volume of shares available and decrease the price of a single share, without affecting the valuation of the company. For example in a 3:1 stock split, every existing investor is issued with two new shares for every share they currently own, and the share price is reduced to one third of its value prior to the split.
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Subscription agreementAn agreement between a company and investors purchasing shares in the company. It sets out the terms of the share purchase and details certain rights and obligations of the company and the investors as shareholders.
SwagAnother term used for perks
Tag Along RightsA contractual obligation which gives minority shareholders the right, but not the obligation, to join a transaction where shares are sold by majority shareholders, on the same terms, valuation and conditions of the majority shareholders.
Tender OfferAn offer to purchase some or all of shareholders’ shares in a corporation. The price offered is usually at a premium to the market price.
Term sheetA non-binding agreement addressing the basic terms and conditions under which an investment will be made in a business. A term sheet often serves as a template to develop more detailed legal investment documentation.
Trade saleThe sale of a business, or part of the business, to another business.
TrademarkA symbol, word, or words legally registered or established by use as representing a company or product.
Unaccredited or Non-Accredited InvestorAn investor who does not meet the necessary requirements under the Corporations Act.
Unsecured LoanA loan that is not supported by any type of collateral.
ValuationThe process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
Valuation CapThe valuation cap is associated with convertible notes in the second round of funding. To reward early investors for taking a risk in the first stage of funding, convertible notes can be converted to shares at a discounted price on a predetermined discount rate. Given that the company will have a high valuation.
Venture CapitalFinance provided by investors to early-stage ventures that lack access to traditional capital markets.
Voting RightsRights granted by the holding of shares in a company that allow the shareholder to vote on corporate actions, such as the appointment of company directors, trade sales, and stock splits.
WarrantsA derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame.