15 Venture Capital Terms Every Entrepreneur Should Know

If you're thinking of securing start-up venture capital funding for your seed stage, early stage or growth company it's important to start with the basics -- 15 venture...

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7. Return on investment: ROI:

Return On Investment (ROI) is the profit or loss resulting from an investment transaction, usually expressed as an
annual percentage return. ROI is a return ratio that compares the net benefits of a project verses its total costs.

8. Due Diligence:

Due diligence is the process of investigation and evaluation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.

9. Term Sheet:

Term sheet is 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.

10. Benchmarks:

Benchmarks are performance goals against which a company’s success is measured. Benchmarks are often used by investors to help determine whether a company should receive additional funding or whether management should receive extra stock.

11. Exit Strategy:

Exit Strategy is the way in which a venture capitalist or business owner intends to use to get out of an investment that he/she has made. Often referred to as a liquidity event.

12. Acquisition:

Acquisition is the process through which one company takes over the controlling interest of another company. Acquisition includes obtaining supplies or services by contract or purchase order with appropriated or non-appropriated funds, for the use of Federal agencies through purchase or lease.

13. Portfolio Company:

A portfolio company is a company or entity in which a venture capital firm or buyout firm invests. All of the companies currently backed by a private equity firm can be spoken of as the firm’s portfolio.

14. Small Business Investment Companies:

Small Business Investment Companies or SBIC are lending and investment firms that are licensed and regulated by the Small Business Administration . The licensing enables them to borrow from the federal government to supplement the private funds of their investors. SBICs prefer investments between $100,000 to $250,000 and have much more generous underwriting guidelines than a venture capital firm.

15. Minority Enterprise Small Business Investment Companies:

Minority Enterprise Small Business Investment Companies or MESBICS are government-chartered venture firms that can invest only in companies that are at least 51 percent owned by members of a minority group or persons recognized by the rules that govern MESBICS.

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