Venture Capital Definitions, Part 1

What is an "Accredited Investor?"
* Accredited investor is a wealthy investor who meets certain SEC requirements for net worth and income as they relate to some restricted offerings.

Who is included in the definition of "Accredited Investors?"
* Accredited investors include institutional investors, company directors and executive officers, high net worth individuals, and certain other entities. Some venture capital investments and real estate limited partnerships require accredited investors.

What is an "Acquisition?"
* An acquisition is the process through which one company takes over controlling interest of another company (at least 51%).

What is an "Add-on" Service?
* Add on Services are the services provided by a venture capitalist that are not monetary in nature, such as helping to assemble a management team and helping to prepare the company for an IPO.

What is an "Adventure Capitalist?"
* Adventure capitalist is an entrepreneur who helps other entrepreneurs financially and often plays an active role in the company's operations. Frequently an adventure capitalist will have a seat on the board of directors.

What is an "Angel Investor?"
* An Angel (or angel investor) is an investor who provides capital to a new business either in the idea stage or start-up phase of a business.

What is the difference between a partner and an angel investor?
* Unlike a partner, the angel investor is rarely involved in management. The angel is usually looking for financial returns with no involvement.

How do angel investors usually add value to a business?
* Through their contacts and expertise.

What are "Benchmarks?"
* Benchmarks are performance goals which provide a baseline against which a company's success or failure is measured.

What do investors often use benchmarks for?
* To help determine whether a company should receive additional funding or whether management should receive extra stock.

What Is a "Blind Pool?"
* A blind pool is a form of limited partnership that does not specify what investment opportunities in which the general partner plans to pursue but rather instead the investment decisions to the general partner.

What Is a "Bridge Loan?"
* A short-term loan (2 weeks to 3 years), that is assists in financing a business or a person until more favorable financing can arranged.

When does the need for a bridge loan arise?
* Rapidly growing businesses often run out of cash before it can obtain more capital investment through long-term debt or selling equity.

What Is a "Buyout?"
* When one company or person acquires the controlling interest of a corporation's stock or product line.

What Is a "Leveraged Buyout?"
* A leveraged buyout (LBO) is the acquisition of a business in which the purchase price is financed through selling equity (stock) or acquiring debt (bank loans or bonds). The business' cash flows and/or the sale of assets are used to repay the debt.
* Still in common practice today, leveraged buyouts were heavily used during the private equity slump during the late 1980s.

What is a "Capital Gain" on a security?
* A Capital Gain is the gain to investor from selling a stock, bond or mutual fund at a higher price than the purchase price.

Dr. Brent Lundell owns, a venture capital sourcing and consulting company, and is a partner in The Guinn Consultancy Group, Inc. The Guinn Consultancy Group provides a wide array of business services, including seminars, webinars, and venture capital sourcing services. See the group website at or contact them for additional information at 800-335-9269.

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