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Acquisition
The act of one company procuring controlling interest/ownership 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.
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Angel Investors
The first individuals to invest money in the company. They can be either friends and family members, or high net-worth
individuals who provide Venture Capital to seed or early-stage companies. Business Angels can usually add value through their
contacts and expertise.
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Anti-dilution Provisions
Contractual measures that allow investors to keep a constant share of a firm’s equity in
light of subsequent equity issues. These measures may give investors pre-emptive rights to purchase new stock at the offering
price. In the event a company sells stock at a lower price than the investors paid, then an adjustment is made to the number
of shares held by the investors of that round.
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Automatic Conversion
Immediate conversion of an investor’s priority shares to ordinary shares at the time of a company’s underwriting,
before an offering of its stock on a public exchange.
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Benchmarks
Benchmarks are performance goals against which a company's success is measured. Often, they are used by investors
to help determine whether a company will receive additional funding or whether management will receive extra stock. Sometimes
management will agree to issue more stock to its investors if the company does not meet its benchmarks, thus compensating
the investor for the delay of his return.
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Board of Advisors
An early-stage company should form a board of advisors comprised of people who can directly impact the development of
the organization either via industry experience, fiscal experience for setting the stage for the financial operation and forecast,
and/or via their ability to identify investors and customers. Advisors may be executives in other companies who might become
employees as the company gets funding. They may be seed stage investors, or key people from companies that might form an alliance
or other relationship with the early-stage company. Selecting a Board of Advisors can be a strategic part of a business’s
plan and strategy for development.
Board
of Directors
Directors
are elected by shareowners to make policy decisions and to appoint executives to carry them out. For a private company, the
Board of Directors is hand- picked by its initial backers. As the company engages more outside investors and the securities
transactions come under the registration interests of the SEC, the SEC may require that corporate governance
performed by the Board include “outside” non-employee and non-heavily vested directors.
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Board Rights
Rights which allow an investor to take a seat on the firm’s Board of
Directors, thus guaranteeing a vote in key decisions regarding operations and fiscal issues.
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Bootstrapping
A means of financing a small firm by employing highly creative ways of using and acquiring resources without raising
equity from traditional sources or borrowing money from the bank. This can be done with barter, or hiring key people in exchange
for shares, or using W-2 income to finance product development and beta testing and other Start-up milestones.
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Break-even Point
The level of sales at which revenue is equal to operating expenses, resulting in zero net income. This is a critical
milestone in a business’s life cycle and the first step toward profitability.
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Bridge Loans
Bridge loans are short-term financing agreements that fund a company's operations until it can arrange more comprehensive
longer-term financing. The need for a bridge loan arises when a company runs out of cash before it can obtain more capital
investment through long-term debt or equity.
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Burn Rate
The rate at which the company consumes cash, usually expressed
on a monthly basis. This is an important quantitative measurement because it can reflect the company’s fiscal perspective.
If the company is creative, conserves its limited funds, outsources when it can, gets competitive bids on services, then investors
may feel more comfortable that the company will use investor dollars wisely. In
the hey-day of the dot-com, founders ensured they were paid and rewarded before many other critical things for the business
development happened. This is no longer acceptable.
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Business
Plan
There are
two types of business plans: 1) the business plan that is necessary to run the business which is a living document that must
be modified on an annual or semi-annual basis to reflect changes in expectation and forecast, and what has actually happened.
This is sometimes called the business operation plan. 2) the business plan that the company provides to the investor or lender.
It is more extensive than an executive summary but not as detailed as the business operation plan. It is the key instrument
used to communicate the investment opportunity to investors. The quality of thought involved, and the completeness of key
operating, process, sales and marketing elements in the business plan are used by investors to calibrate the competency of
management. It is the summary of the company’s plans and projections over
a 3-5 year period.
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Buyback
Provision
An agreement mandating that a firm purchase a leaving entrepreneur’s stock at a preset price.
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Capital Gain
Profits paid to an investor who sells a stock, bond or mutual fund at a higher price than he or she paid for
it.
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Capitalization Table
A
detailed schedule showing the number of shares owned by various classes owners typically broken down by common stock holders
vs. preferred vs. stock option holders. This is the definitive document used by entrepreneurs and VCs to determine what part
of the company each owns. It is a great document to plan valuations and funding
strategies to show each stage investors how their stock will appreciate after different milestones are met and to show the
later-round investors, secure equity in the company.
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Capital Structure
The mix of a firm’s debt (short-term and long-term) and owner’s equity (used to fund the firm’s operation).
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Cash Flow
The flow of cash in and out of a business. “Cash flow” is different from the terms “break-even”
or “profitable”. In the early days, a company may have negative cash flow for some period but still look profitable
on the books. Or, a company may have a positive cash flow and yet still lose money (for a time) because of a carry-over debt.
Managing cash flow is crucial in an entrepreneurial firm to meet varying short- term cash needs.
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Closing
The
final event to complete the investment, at which time all the legal documents are signed and the funds are transferred.
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Collateral
Assets for an “asset-backed loan” that are pledged to the lender to secure a loan. The lender has a lien on those assets and can claim them if the borrower defaults on the loan. In event
of a private lender transaction, the lender may approach the opportunity like an investor and hedge their risk of the short-term
loan with equity or use intangible assets like patents and other IP as part of the terms.
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Convertible Debt
An interest in a company, like preferred stock, that can be converted into another form of interest, such as common
stock or cash. There’s usually a rate or an amount attached to it, which can be part of an exit payoff. So if an investor
provides $100K, the investor chooses for that amount plus interest to be converted to shares rather than paid back as a loan.
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Covenant
A promise added to a term sheet, like a founder agreeing to meet certain financing landmarks or an investor agreeing
not to sell shares before a certain time.
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Deal Flow
The number of potential investment opportunities to which an investor is exposed.
In theory, if you look at more deal flow, you have more options and chances to see better qualified opportunities.
Time and efficiency are directly affected by the investor’s process for screening and the use of a model or team to
filter deals that do not meet the basic requirements.
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Debt Financing
Money that business owners must pay back with interest. There are many 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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Dilution
The value of an investor’s stock is diluted when new money comes in and more stock is handed out. If an Angel’s
investment is diluted, he/she has less “say” about the exit and receives less. In the ideal situation, the value
of your stock should increase because the value of the company has increased by accomplishing key milestones, so although
the percentage you own may decline, the overall value of the stock and your investment is greater. Many entrepreneurs and
investors worry too much about dilution instead of increasing the value of the overall pie by working toward achieveing milestones
to which they agreed. When an investment is diluted, the value has decreased and your percentage of the company has decreased
also, so the later investors get many more shares relative to what you own for equal or less money.
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Due Diligence
Rigorous investigation and evaluation of an investment opportunity before committing funds. Includes review
of the management team's characteristics, business stage and operations, financial projections, current contracts and agreements,
relative to the investment philosophy and investment terms and conditions established by the investor, prior to committing
capital to the fund.
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Equity Financing
Selling an interest in the business to an outside party or investor to raise money. Sometimes referred to as
an Equity Offering, because the business owners are 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 Gap
A stage of
business financing, usually involving less than $500K in which outside funds are difficult to obtain. This absence of small
amounts of risk capital is due to the high fixed costs of appraisal and monitoring which those institutional investors must
assume, making it uneconomical for them to invest in small, young firms. The gap is further widened by banks’ reluctance
to make unsecured loans to small ventures. Business Angels make investments that fall in the equity gap, partly relieving
the unfortunate situation.
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Executive Summary
A synopsis of the key points of a business plan.
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Exit Strategy
Refers to an entrepreneur's plans to provide liquidity for investors via an IPO or Merger/Acquisition. Although
the IPO may be the most glamorous type of exit for everyone, the most successful exits of venture investments often occur
through a merger or acquisition. Specifically, the sale or exchange of a significant amount of company ownership for cash,
debt, or equity of another company.
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Hockey Stick
The question,
"How much of a hockey stick is in the plan?" refers to a financial projection which starts modestly for a number of months
and then rapidly accelerates. “Hockey Stick” projections are an indication that the entrepreneur’s team
has not thought through the actual process of manufacturing, distributing and selling their product, because with a rapid
increase in sales comes a rapid increase in every other operation.
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Holding
Period
The length of time an investment remains
in the investor’s portfolio. This most often refers to the time a stock is held to calculate capital gains or losses
for tax purposes. The SEC
also has rules regarding holding periods for employees and “members” that own stock. We saw this impact during the dot-com bubble and new “millionaires” saw their stock value disintegrate
after an IPO and their holding period was still in effect. For more information, go to:
http://www.sec.gov/rules/final/34-49562.htm
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Institutional Investors
Refers mainly to insurance companies, pension funds and investment companies collecting savings and supplying
funds to markets, but also to other types of institutional wealth (e.g. endowment funds, foundations, etc.).
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Intellectual
Property
A venture’s intangible assets,
such as patents, copyrights, trademarks and brand names. Investors use this to judge barriers to entry against competition.
It is difficult to put a value on Intellectual Property because it is worth nothing without an organization that creates revenue
from it, but it is necessary for the company to have any sort of competitive advantage in the marketplace.
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IPO (Initial Public Offering)
Issue of shares of a company to the public by the company (directly) for the first time.
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ISO (Initial Stock Option)
A
form of stock options which does not incur taxes at the time the option is exercised. ISOs are preferred by employees because
of favorable tax treatment; however, there is a ceiling on the maximum number of ISOs that can be granted to a single employee
in 1 year.
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Later-Stage
Also called the expansion stage, firms at this level of development are mature and profitable and often still expanding.
Those with continued high growth rates may get listed on a stock exchange.
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Lead Investor
The investor who leads a group of investors into an investment. This could be a syndicate of Angel Investors
or Venture Capital firms which co-invest in a particular deal, with an advocate who introduces and coordinates the other investors.
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Lemon
An investment that has a poor or negative rate of return. An old Venture
Capital adage claims that “lemons ripen before plums.”
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Leveraged Buy-Out (LBO)
An acquisition of a business using mostly debt and a small amount of equity. The debt is secured by the assets
of the business.
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Lifestyle Firms
Category comprising around 90 percent of all Start-ups. These firms merely
afford a reasonable living for their founders, rather than incurring the risks associated with high growth. These ventures
typically have growth rates below 20% annually, have five-year revenue projections below $10M, and are primarily funded internally
and rarely seek outside equity funds.
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Limited Partnerships
The legal structure used by most venture and private equity funds. They are usually fixed-life investment vehicles.
The general partner or management firm manages the partnership using policy specified in a Partnership Agreement. The Agreement
also covers terms, fees, structures and other items to which the limited partners and the general partner agreed. Typically,
the outside fund providers who invest a share of their assets in the venture fund are classified as Limited Partners. They
may include pension funds, corporations, individuals and family trusts, financial and insurance firms, endowments and foundations,
and foreign investors. On termination of a venture fund, these investors typically
receive their principal investment bank, plus 80% of the fund’s capital gains (minus the annual management fee).
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Liquidation
The sale of the firm’s assets to one or more acquirers for distribution to creditors and shareholders in
order of priority. Liquidation Preferences allows investors to force the liquidation of a venture, even against the wishes
of management.
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Liquidity Event
Investment jargon for any activity that turns an asset other than cash into usable money. Typically refers to the event
that occurs for the investors to get their cash and return from the investment.
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Living
Dead
The term
given to Venture Capital investments that are not generating very healthy returns, but are managing to survive.
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Lock-Up Period
The time an investor must wait before selling or trading company shares subsequent to an exit. Usually in an
initial public offering the lock-up period is determined by the underwriters.
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Management Buy-In (MBI)
Purchase of a business by an outside team of managers who have found financial backers and plan to manage the
business actively themselves.
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Management Buy-Out (MBO)
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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Matching Services
Organizations that match investors looking for investment opportunities with entrepreneurs looking for investment funds.
The value add and cost for such service varies widely (addressed in Lesson 2: The Investment Cycle…from Introduction to Marriage).
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Mezzanine Financing
Financing for a company expecting to go public usually within 6 –12 months; usually so structured to be
repaid from proceeds of a public offering, or to establish a floor price for a public offer.
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Minority Enterprise Small Business Investment Companies (MESBICS)
Government-chartered venture firms that can invest only in
companies that are at least 51% owned by members of a minority group or persons recognized by the rules that govern MESBICs
to be "economically disadvantaged."
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Middle Market Firms
Firms
with growth prospects of more than 20% annually and five-year revenue projections between $10M and $50M. Less than 10% of
all Start-ups annually, these entrepreneurial firms are the backbone of the U.S. economy and are attractive to Angel Investors and financial institutions as they realize the projections.
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Net Present Value (NPV)
A firm or project’s net contribution to wealth. This is the present value of current and
future income streams, minus initial investment.
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New Market Tax Credit (NMTC)
A federal government program designed to encourage private
investment into companies that will create jobs in specific markets. Financial institutions that operate venture funds
applied for and were granted tax credits to pass along to their investors. When the venture fund provides equity or debt
capital to a company located in an identified area for job creation (zip code based), then taxes on the capital gains from
that investment are reduced by 35% over seven years.
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Non-Compete Clause
Prohibiting an entrepreneur from competing with his or her former firm for a certain amount of time.
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Pay to Play
The term used for a participating anti-dilution clause, meaning that an investor has to pay more money into a company
to keep playing and participating in the company’s promising future at the same level. This is a particularly important
characteristic for Venture Capitalists. In the “wolf-eat-dog world” of big game finance, VCs will unceremoniously
dilute early investors as part of their terms negotiation, unless the investor is willing to step up and participate in the
current round they are structuring. Early investors will agree to be diluted when they think the company may go out of business
if they don’t get the VC money, and diluted shares are better than bankrupt shares. Even diluted shares of a golden
cow may still produce the desired ROI if the influx of experience and capital from the VC can propel the company into a higher
level of operation and potential.
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Performance and Forfeiture Provisions
Agreements that require entrepreneurs to surrender part of their equity to investors in
the event the firm fails to reach previously agreed-upon financial targets and milestones. These provisions allow investors
to protect their investment if the company performs poorly, and to align the incentives of the entrepreneurs with those of
the investors.
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Piggyback Rights
Investors’ rights to include their shares in a public offering at no cost to the investor. They piggyback on top of the company selling the shares, which picks up all the costs. This clause
is for investors with IPO aspirations who will be making a substantial investment with the company to warrant this type of
special consideration.
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Private Investment in Public Equity (PIPE)
Although this market is primarily embraced by market-makers and large private investors,
individual investors can make these investments. With the settling of the market, we have seen this on the rise because companies
that prematurely went public during the dot-com period are undervalued as public companies, so are returning to the private
markets to “sell the merits” of investing in their now public company. If you have an interest in this area of
investment, you can subscribe to Herd on the Street newsletter www.herdonthestreet.com and request an invitation to the Friedland Capital PIPE luncheons held
throughout the country on a regular basis. For more information, visit http://www.friedlandcapitalevents.com/attend.htm
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Plum
An investment that has a very healthy rate of return. The inverse of an old Venture Capital adage (see Lemons) claims
that “plums ripen later than lemons.”
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Portfolio Company
The company or entity into which a fund invests directly.
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Post-Money Valuation
The
value of the company after VCs cash goes into the business. Pre-Money Valuation + VC Investment = Post-Money Valuation. Post-Money
Valuation divided by VC Investment = Percent of VC equity.
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Preference Shares (Preferred Stock)
Shares of a firm that encompass preferential rights over ordinary common shares, such as the first
right to dividends and any capital payments. In bankruptcy, Preferred shares or stock is considered second to debt.
They can be converted to common stock which has more flexibility for sale or transfer.
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Pre-Money Valuation
The value of the company before a VC’s cash goes into the business. VCs use the Pre-Money Valuation
to determine what percent of the company they will own.
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Private Equity
Private equities are equity securities of companies that have not “gone public” (in other words,
companies that have not listed their stock on a public exchange). Private equities are generally illiquid and thought of as
a long-term investment. As they are not listed on an exchange, 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.
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Prospectus
Legal document
used in a public sale of stock to communicate factual and required information about the company, current status and future
prospects. Information contained in a prospectus is subject to oversight by the SEC and must be the sole marketing document. Use of a Prospectus
only varies depending on the Reg D exceptions (See Lesson 1: What Defines An “Angel Investor,” or If This Is Private Business, Why
Is The Government Involved?)
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Raising Capital
Obtaining capital from investors or Venture Capital sources.
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Ratchets
A financial arrangement that allows one party to increase the share of their equity stake in a venture depending on
the performance of the enterprise. Venture Capitalists often use such agreements to increase their equity stake (and thus
gain more control) in investments that are performing poorly.
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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.
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Redemption or Redeemable Shares
A company’s right to buy back stock from an investor at a specified time and at a
predetermined price. This is akin to an automatic or forced exit for an investor.
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Registration Rights
Investors’ right to include their stock at the same price as the owner’s share as part of a general pool
of stock a company offers for sale in a public offering or when the company is acquired. This may seem like a good move for
the private investor. However, it may impact the company’s attractiveness to an investment banker who might manage the
IPO or sales transaction, because it adds a level of complexity if many private investors are trying to influence registration
rights.
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Return On Investment (ROI)
The internal rate of return on an investment. A company seeking funds will project an ROI to
compel an investor to place their money with them. There are many elements that can impact the ROI depending on the performance
of the company and their ability to execute the business plan and achieve the milestones. Investors should establish their
own criteria and formula for calculating ROI and then plug the company into that variable to determine if they meet the portfolio
requirements. It could be that a project with higher ROI has a greater risk or the inverse, which needs to factor into the
overall objectives of the investment portfolio.
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Reverse Merger
A promising private company becomes a public company by acquiring or merging
with the already public company, which is usually dormant or flat in growth. There are many pros and cons for pursuing a reverse
merger and therefore should be fully explored before using this as an alternative to an IPO. Reverse Mergers are not
shortcuts to the public market and a decision to do so or to invest in one that is planning to take that action should be
analyzed and pursued for strategic business reasons.
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Rights of First Refusal
The right of the investors to have the first choice in whether they want to purchase additional
company stock that’s being offered to new investors. This is fairly common with institutional investors, however Super
Angel and Active Angels may be able to negotiate this if their investment is large enough to consider special considerations
or they have the potential to take the entire round being offered.
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First Round
Financing provided to companies that have exhausted personal and Angel sources of capital and require further funds
from serious VCs, often to initiate commercial manufacturing and sales. Sometimes, entrepreneurs will consider their “friends
and family round” or the “direct offering round” their first round. Institutional investors consider their
first round to be with “outside” investors.
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Second Round
Working capital for the initial expansion of a company that typically has a product but needs
funding for its initial sales rollout. Could also simply be the round following the first institutional round.
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Royalty Fund
A venture fund, usually established through limited partnership with Angel Investors,
which "loans" money to Start-up and Early-Stage companies. Funds are used to take a product to market so sales are directly
generated from the influx of capital. The company pays the fund a percentage or royalty on sales until an agreed-upon
amount is paid back to the fund for the loan. This falls within the realm of private equity because it is in effect secured
by equity. This is a good investment option for investors who want to spread their risk over many companies and want
to have an ongoing revenue stream from the royalty payments.
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Secret Sauce
The special
attribute or function of the company’s product which differentiates them from the competition and cannot be easily duplicated.
It is the reason “why” somebody will buy the company’s product.
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Seed Capital
Money used to purchase equity-based interest in a new or existing company (seed
stage) that still has to be developed and proven. 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.
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Senior
Debt
Lower
cost financing from banks or insurance companies, generally a secured loan, on a first priority status by company assets.
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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.
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Small Business Investment Companies (SBIC)
SBICs (Small Business Investment Companies) are lending and investment firms
that are licensed by the federal government. Licensing enables these firms to borrow from the federal government to supplement
the private funds of their investors. Some of these funds engage only in making loans to small businesses or invest only in
specific industries. The majority, however, are organized to make Venture Capital investments in a wide variety of businesses.
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Snowballing
The process of using contact with one business Angel to find many more such investors through personal referral. Angels
in particular often personally know many others, some of whom may be interested in new investment opportunities.
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Staging
The process of providing an investment amount in increments dependent on time or performance quotas being reached. Staging
gives investors the option to revalue, abandon or expand commitment to the investment. Often, institutional investors will
take a large investment and break it into stages to keep the investee firm focused on achieving the agreed-upon milestones.
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Start-up
A new business that is usually completing its product development and initial marketing. It can be of any size, but
usually small. “Start-up” comes after “seed stage.”
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Subordinated
Debt
Debt which
generates higher interest rates than Senior Debt in exchange for higher risk. This type of debt gets paid off after Senior
Debt at the point of liquidation and is sometimes packaged with warrants.
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Subscription
Warrant
A security that can be converted into or exchanged for company stock.
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Sweat Equity
Equity shares of a venture given to its founder(s) in recognition of his or her effort (sweat) expended to start and
build the venture. Entrepreneurs tend to value their sweat equity more than investors. Sweat equity to create an idea and
develop a business plan is not very valuable because that is the “expected” behavior for an entrepreneur. Sweat
equity that gets a product developed or a first customer on board is significant.
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Syndication
The process whereby a group
of Venture Capitalists or other investors will each put in a portion of the amount of money needed to finance a small business.
A lead investor often coordinates such deals and represents the group’s members. Within the last few years, syndication
among Angel Investors has become more common, enabling them to fund larger deals than they could individually.
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Takedown Schedule
The
plan stated in the fund prospectus or offering memorandum specifying the actual transfer of funds from the Venture Capital
fund’s limited partners to the general partners’ control.
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Tag along
Investors’ right to also sell their shares
if the founder or another investor is selling.
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Term Sheet
A non-binding agreement setting forth the basic terms and conditions under which an investment will be made.
The Term Sheet is a template that is used to develop more detailed legal documents. Typically a 3-5 page document which outlines the fundamental business terms of a Venture Investment.
This document serves to drive the final business agreement for closing the deal. Angel Investors operate from the terms within
the direct offering or the private placement memorandum; Venture Capitalists generate their own terms and are negotiated with
the company utilizing ZOPA.
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Turnaround
The process by which a company’s management moves the business from being unprofitable to becoming profitable. Typically, a turnaround involves restructuring debt, selling off assets or other such
activity to minimize financial pressure in order to focus on money-making activities of the business.
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Valuation
The process of assessing the value or price of something, an estimation or appreciation of worth or merit. Valuation
may be derived from ratios and multiples, discounted cash flows or net assets. Different methods are used depending on the
purpose of the valuation. Financial ratios are used for stable strong companies
that are profitable but may not have assets. Multiples were used heavily during
the IPO frenzy a few years ago when a comparable firm would be targeted and a ratio chosen, such as after tax earnings, then
that multiple would be applied to the private company to estimate what a future value would be to justify the price of the
stock currently for sale. Discounted Cash Flow (DCF) is used in high growth, Early-Stage
companies with little or no income stream. Based on the future forecast of the expected after-tax cash flow for a business
for each future year, that amount is discounted back to present value. The risks with this method are the validity of the
forecasts. Net assets are straight-forward for companies in operations with any fixed assets. Often this is used as part of
an overall valuation given when a company is due to be acquired.
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Venture Capital
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. Venture Capital offered by business Angels tends to be more speculative and
early-stage than that traditionally provided by the formal Venture Capital industry.
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Voting Rights
Rights given to stockholders to vote on a company’s operations and financial transactions, including its repurchase
of stock, mergers and seeking more money. These rights give investors a
loud say in a company’s future, including exit events.
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Walking Dead
Refers to companies who after 3-5 years have neither gone public, been acquired or filed for bankruptcy.
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Warrants
An option given to an investor to buy stock in a company at a predetermined time and a predetermined cost. Warrants
may not have an expiration date. Outstanding warrants can postpone an investor’s exit, enabling him or her to become
more, not less involved with the company. Warrants are often included in private loans which investors make as their “icing,”
and sometimes are added as part of an early investor’s option for later investments. Warrants seem harmless as an incentive
at the time they are offered during the Early-Stages of a company's development, but may become an albatross for a company
which is trying to secure additional funding at a higher valuation.
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ZOPA (Zone of Possible Agreement)
The range of investment terms or amounts open to possible negotiation, ranging from the
lowest the entrepreneur is willing to accept (the minimum) to the most the investor is willing to pay (the maximum). |
