While an entrepreneur may be at the top of his/her fundraising game, messing up the basic terms in an investor meeting can present the notion of half-baked preparation.
And that can make investors reluctant in pouring their capital into a venture. That’s why it is essential to have not only a robust foundation but also the proper lingo at your end to present it well.
At KredX, we are comparatively much less stringent on the vocabulary front with our entirely digital process of fundraising. Nevertheless, learning the terminology is still a crucial aspect of entrepreneurship.
This term refers to the expenses a company is incurring periodically, concerning its capital. Burn rate, therefore, shows at what rate a company is burning through its cash. Typically, it’s presented monthly.
It denotes the period that a company is left with, before it runs out of funds. With fundraising in India, start-ups usually acquire capital, based on the runway at each level.
Milestone is often used to denote revenue projections or some form of achievement a company is aiming at. Businesses raise capital from investors, based on the milestones they claim to achieve in a fixed period. Follow-up investments depend on whether a company has been able to make good on the milestones.
It’s a summary of the terms at which potential investors offer their capital to a business. Entrepreneurs can leverage a term sheet to negotiate better deals with other investors.
It is an abstract term technically denoting the investigation that investors carry out at their own expense. Offers on a term sheet convert to actual-incoming funds after such due diligence. This process becomes more extensive with each level of fundraising.
A straightforward term, board seats, mean a position in a company’s board of directors. Usually, big-time investors ask for board seats to gain control over how their money is being utilised.
Companies with robust potential for growth can attract venture capital, which is often the largest source of funds for start-ups.
Individuals who pour their capital into a business in its nascent stages are called angel investors. They usually claim a stake in the company in exchange for the investment.
Family offices often act as a crucial source of fundraising in India. These are the investment verticals of wealthy families. It deals with how they recoup their investment as well as the strategies applied, and how they differ from that of venture capitalists and angel investors.
When an entrepreneur accepts investments through fundraising, he/she forsakes a portion of the stake in the company. Here, technically the business is founded on the premise of eventual exit, either by going public or via merger or acquisition.
It refers to the process of acquiring funds based on a company’s monthly or annual recurring revenue. Revenue-based financing does not involve staking a company’s share, but acts more like a loan. Businessmen unwilling to forgo their shares, often opt for revenue-based funding.
It refers to the rate at which a company is churning customers. Basically, it represents the relation between a number of customers a business is acquiring and losing at any point in time. A substantial rate aids in fundraising.
A highly essential term in raising funds, elevator pitch, is a terse description of a business idea by which an entrepreneur piques an investor’s interest. It’s named so because such descriptions do not take more than 20 – 60 seconds to convey the whole idea.
Some stakeholders may only agree to bring in capital from other investors under the clause that their shares would not be diluted. This clause is called the anti-dilution protection.
It’s the summary of a venture or idea that a business is undertaking. Investors read the executive summary far more times than they go through the actual business idea during fundraising.
Financial forecast refers to profit and growth estimates of a company, based on concrete market data and research. Investors base their decision heavily on the financial forecast of a company.
It’s a clause that mentions the order in which investors will be repaid in the event where a company is liquidated. Often, big-time investors like venture capitalists claim higher liquidation preference.
It illustrates the share of equity held by each investor in a company. A cap table aids businesses in understanding the dilution and value of equity, after each investment round.
With these terms, not only an entrepreneur will be better armed verbally during fundraising, but also have a profound understanding of the theories that go into it.