Updated: Sep 3, 2021
Angels and startup investors are not going to be expected to know every last investment term there is, but if you have a working knowledge of the terms here, you’ll be in good shape.
Know more about investment terms will put the angel investor in a position to know more about the startup and also the deal as well which will allow them to make more informed decisions.
Here we are going to discuss more popular and necessary glossary and terms which you need to know to be able to stay in the game.
In the year of 2009, angel investing didn't reach a stage that was required of it yet. We see a very low level of knowledge about angels among the public since there are no such mediums as "Hustle" or "Previews" on television to teach people about them. But after the time passes by, more and more people know about how to select startups and how to get started investing in them.
Crowdfunding is a way to finance your project or business without using the standard financial system. That is, it allows you to raise money from the general public over the internet.
A convertible debt security is a loan which is converted into equity when a company achieves a specific milestone, such as the completion of its IPO (Initial Public Offering) or reaches an agreed valuation. The lender becomes an equity-holder and participates in any increases in value of that company resulting from its future success.
Cap table (Capitalization Table)is a spreadsheet showing how ownership percentages in a company are distributed among its shareholders.
A convertible preferred shares are a debt security that can either be converted into equity or cash originally issued as a result of issuing new equity. The terms of the original debt is also recorded on the following sheet (Capital Structure Sheet).
A credit facility is an agreement between a bank and company, providing loans to the company at a certain interest rate.
A debenture is a type of fixed-rate note secured by assets, and backed by the guaranteed repayment of specified principal amount (originally this was in earth or gold). They were colloquially called "tombstones".
A definition of an "Angel" is: A person or institution that invests in a company in order to earn future profits from its stock price increase.
The issuing of shares is the process by which new equity capital is contributed to a company. The process of issuing shares requires an expansion of ownership rights. When granting new equity rights, the issuance of shares has two main consequences:
Breaking down the term "Equity" we get the following terms:
The Equity Terminology Chart will help you understand more about how different terms are related and can help you choose your next investment.
An equity investor is someone who makes an investment in some form (equity or debt) into a company.
In future posts, I will write more on this topic.