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Angels
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Private investors, usually individuals or groups of individuals known as "angel networks," who provide start-up financing.
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Asset-based financing
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Debt financing in which the business uses company assets -- such as inventory, equipment and accounts receivable -- as collateral for capital loans.
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Bridge/Mezzanine
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Financing for a company expecting to go public usually within six months to a year. Often bridge financing is structured so that it can be repaid from proceeds of a public underwriting.
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Buyout
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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.
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Capital loans
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Loans made for the purchase of long-term assets such as manufacturing equipment.
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Certified Development Company (CDC)
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A state or local authority that assembles funds from various public and private sources into financial packages for capital improvements to existing businesses.
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Debt financing
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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.
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Due Diligence
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The exhaustive process of analyzing the prospects and financial position of a potential investment.
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Equity
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Equity is ownership interest in a corporation, represented by the shares of stock which are held by investors
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Equity Financing
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Selling an interest in your business to an outside party to raise money. Equity financing does not have to be repaid like a loan. Investors participate in the company's profits and/or its appreciation in value based on their level of ownership. Equity financing often involves giving the outside party some level of control over business operations.
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Equity Offerings
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Raising funds by offering ownership in a corporation through the issuing of shares of a corporation's common or preferred stock.
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Equity Related Loan
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Equity related loans are loans convertible into equity ownership or loans collateralized with equity positions
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Exit
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The means - such as a public share issue or corporate acquisition - by which capital gains on investments are realized at the end of the investment period
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Factoring
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Selling accounts receivable (typically invoices) to a company that lends the business owner money based on anticipated collections. A factor usually collects the receivables and subtracts his share before paying the business owner. Factors usually will advance a business 70 percent to 80 percent of the face value of invoices.
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First Stage
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Financing provided to companies that have expended their initial capital and require funds, often to initiate commercial manufacturing and sales.
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Follow-on/Later Stage
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A subsequent investment made by an investor who has made a previous
investment in the company -- generally a later stage investment in comparison to the initial investment.
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Follow-up Financing
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Venture capitalists rarely expect the first injection of funds to meet needs. A second or even a third round of funding will almost certainly be needed later as the business grows or unforeseen problems arise. A syndication strategy is often preferred at this stage.
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Guaranteed loans
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Loans that are backed by the government or other third parties. The loan backer agrees to indemnify the lender for all or part of the debt in case the borrower fails to repay the loan.
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Initial/Seed
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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.
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Investment Banks
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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.
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IPO/Initial Public Offering
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The process by which the shares of a company become listed on an official stock market
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Leasing
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A method of financing capital equipment in which the business acquires use of the equipment immediately without having to buy it. Leasing can be more expensive than purchasing because of the loss of tax benefits from depreciation, but it frees up capital for other business uses.
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Line of credit
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An agreement with a lender in which the lender promises to lend up to a set amount within a specific period of time. Revolving lines of credit lower the available credit as money is borrowed, and raise the available credit as money is repaid.
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Long-Term Financing
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Loans scheduled for repayment in more than three years, often up to 20 years.
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MBO (Management Buy-Out)
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Acquisition of a company or a division by its present management.
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Mezzanine financing
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Mix of debt and equity financing -- typically for larger, profitable companies -- that is subordinate to bank debt. Receives high interest rate and must be repaid within five years
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Microloans
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SBA-guaranteed loans up to $25,000
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Minority Position
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Venture investments of less than 50 % of a company's share capital.
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Portfolio
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The companies backed by a venture-capital firm.
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Preferred lenders
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Banks that have written agreements with the SBA to make SBA-backed loans without prior approval. The SBA will guarantee up to 75 percent of a loan made by a preferred lender.
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Private Placement
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The sale of securities to a small group of investors (generally 35 or fewer) which is exempt from SEC registration requirements. The investors execute an investment letter stating that the securities are being purchased for investment without a view towards distribution.
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Receivables financing
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A type of asset-based loan in which a business promises to repay the loan promptly when it collects on invoices and other accounts receivable. The receivables are pledged as collateral.
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SBA
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The U.S. Small Business Administration
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Secondary Public Offering
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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.
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Second Stage
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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.
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Secondary Purchase
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Purchase of stock in a company from a shareholder, rather than purchasing stock directly from the company
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Short-term loans
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Loans scheduled for repayment in three years or less. Examples include seasonal lines of credit, working capital loans and factoring.
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Small Business Investment Company (SBIC)
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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.
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Syndication
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Investments involving a group (the syndicate) of capital providers
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Third Stage
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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.
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Trade credit
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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.
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Underwriting
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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.
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Upside Potential
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Opportunity for capital appreciation by applying resources and management skills to enhance strategies, improve asset utilization, or expand a company's business.
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Venture Capital
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Money used to purchase equity-based interest in a new or existing company. A venture capitalist's return usually comes from preferred stock, a share of profits, royalties or capital appreciation of common stock. Most venture capitalists look for companies with high growth potential. The term is also used restrictively to describe expansion growth capital as distinguished from capital for buy-outs/buy-ins.
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