Glossary of Site Terminology

Home Page (Entrepreneur/Investor) -  The page where you control all access to your profile and online community functions.

My Profile (Entrepreneur) –  The Investor reviews the information located in your Profile that contains your most pertinent business information.

My Profile (Investor) - Your Profile is seen by other Investors enabling them to  exchange information, ideas, create groups, and partner on deals with you.

My Business Documents (For Entrepreneurs) - Any documents you would like for a potential investor to view; Executive Summary, Business Plan, Power Point Presentation, Video, etc.  This section can be set to public or private.

My Business Documents (For Investors) -  Any documents about your firm or investment background.  You can also upload videos, Power Point presentations, news articles, etc.   This section can be set to public or private.

Datasheet - A succinct, one page overview of the Entrepreneur’s company containing enough information to get the investor interested in your deal.  This document will be stored in your Business Documents section.

Due Diligence Questionnaire – This short questionnaire gives the investor an idea of how ready your company is to receive financing.  This document will be stored in your Business Documents section.

My Mail - The email system within the Capital MatchPoint,  where you can  exchange information with your contacts.

My Contacts (Entrepreneurs) - Entrepreneurs that you connect with and Investors who choose to form a relationship with you.

My Contacts (Investors) - Investors that you connect with and Entrepreneurs thatyou choose to form a relationship with.

Preferred Contacts (Entrepreneur) - Entrepreneurs with whom you would like to work with, partner with, etc.

Preferred Contacts (Investor) - Entrepreneurs whose deal you have interest in and would like to monitor their progress and view updates.

Glossary of Investment Terminology

Accredited Investor: An accredited investor is a person or institution that the Securities and Exchange Commission (SEC) defines as being qualified to invest in unregistered securities, such as privately held corporations, private equity investments, and hedge funds. The qualification is based on the value of the investor's assets, or in the case of an individual, annual income. Specifically, to be an accredited investor you must have a net worth of at least $1 million or a current annual income of at least $200,000 with the anticipation you'll earn at least that much next year. If you're married, that amount is increased to $300,000.

Alternative Minimum Tax (AMT): The AMT is income tax owed using a parallel tax code designed to ensure that every taxpayer, particularly rich ones and corporations, pay at least some income tax each year.

Amortization: is the gradual repayment of a debt over a period of time, such as monthly payments on a mortgage loan or credit card balance. To amortize a loan, your payments must be large enough to pay not only the interest that has accrued but also to reduce the principal you owe. The word amortize itself tells the story, since it means "to bring to death."

Angel Investor: Angel investors, a term originally applied to wealthy individuals who provide financing to early-stage companies, and add their expertise and relationships to help grow the business.

Assets: Tangible items of value to a business such as factories, machinery, and financial instruments and intangible items such as goodwill, the title of a newspaper or a product's brand name. They appear on the company's balance sheet.

Blue Sky Laws: State laws that govern the sale of securities and mutual funds in order to safeguard investors from fraudulent or unscrupulous deals. The term originated from a Supreme Court justice in his ruling to protect investors from speculative ventures that had "as much value as a patch of blue sky."

Burn Rate: The rate (usually calculated monthly) at which a new company or venture spends its capital before it starts to realize profits.

Book Value: Per-share value of shareholders' equity, excluding goodwill and other intangible assets.

Broker-dealer: A broker-dealer (B/D) is a license granted by the Securities and Exchange Commission (SEC) that entitles the licensee to buy and sell securities for its clients' accounts. The firm may also act as principal, or dealer, trading securities for its own inventory. Some broker-dealers act in both capacities, depending on the circumstances of the trade or the type of security being traded.

Capital Gain: A profit made from buying something (property, shares of stock, etc.) and reselling it at a higher price. Capital gains are typically taxed at a lower rate than other income.

Capitalization Table (“Cap Table”): The document that shows the breakdown of a company’s owners and the amount each has paid to attain that ownership. It also includes the total amount of securities issued by the firm, such as common shares, options and warrants.

Cash Flow: The flow of cash generated or used by a company during a specific period. Closely watched by lenders in particular, it increasingly merits its own Statement in a company's financial report. Corporate cash flow is very different from corporate earnings. A company's income statement is compiled on the basis of accrual: it includes sums earned for a specific period which may not have been received, or sums owed which may not have been paid. This working capital is excluded from cash flow: sums owing or owed are not actual cash received or paid.

Cash Flow Statement: Financial document detailing the exchange of cash between a business and the outside world. The flow is categorized as:

• flow "in" from Operations
  (cash the company made by selling goods and services)
• flow "in" from Financing
  (cash the company raised by selling stocks and bonds)
• flow "out" to Investing
  (cash the company spent investing in its future growth)

Each of these flows can actually flow both ways. Investors like to see that the company can cover its spending with cash from operations, without having to turn to financing. The cash flow statement also has to reconcile the net effect of these flows with the difference in its cash holdings at the beginning and end dates of the reporting period.

Collateral: Assets with monetary value, such as stock, bonds, or real estate, which are used to guarantee a loan, are considered collateral.

Common shares: These are securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. 

Convertible Bond: A bond which the holder may convert to a set number of shares of common stock.

Convertible Debt: Bonds that can be exchanged for a specified amount of another security at the option of the issuer and/or the holder.

Coupon: Annual interest rate paid by a bond, expressed as a percentage of its par value.

Current Assets: Assets that are expected to be converted to cash within one year. These include cash, accounts receivable, and inventory.

Current Liabilities: Liabilities that must be paid within one year.

Debenture: An unsecured bond. Most bonds issued by corporations are debentures, which are backed by their reputation rather than by any collateral, such as the company's buildings or its inventory.

Debt Financing: Raising capital by selling debt instruments such as bonds, bills or notes.

Depreciation: An accounting measure that records the loss of value of an asset as a result of usage, the passage of time, or obsolescence. Depreciation is applied only to tangible assets, such as property and machinery.

Dilution: An increase in the number of shares of a company's stock, causing the value of each share to decrease. The number of shares increases when the company offers new stock to the public to raise cash; or when employees exercise their stock options; or when holders of convertible bonds convert their bonds to stock. Companies that can afford to will frequently buy back issues of stock to fight dilution.

Diluted earnings per share: In addition to reporting earnings per share, corporations must report diluted earnings per share. This accounts for the possibility that all outstanding warrants and stock options are exercised, and all convertible bonds and preferred shares are exchanged for common stock

Due Diligence: A prospective investor’s investigation and evaluation of a transaction, investment or business partnership. This serves to confirm whether the investment is financially or strategically sound, and to ascertain that all information is correct. Areas evaluated in this process include management execution, assets and liabilities, and financial performance.

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization; intended to be a measure of the amount of cash generated by a company's operations (but leaving out the costs of financing and taxes - the "I" and the "T").

EDGAR: The Securities & Exchange Commission uses Electronic Data Gathering And Retrieval to transmit company documents to investors. Those documents, which are available via DBC's Smart Edgar service, include 10-Qs (quarterly reports), 8-Ks (significant developments such as the sale of a company unit) and 13-Ds (disclosures by parties who own 5% or more of a company's shares).

Employee stock ownership plan (ESOP): An ESOP is a trust to which a company contributes shares of newly issued stock, shares the company has held in reserve, or the cash to buy shares on the open market. The shares go into individual accounts set up for employees who meet the plan's eligibility requirements.

Equity: The portion of a company's assets that the shareholders own, as opposed to what they've borrowed: equal to total assets minus liabilities. Also called "owners' equity" or "shareholders' equity". Equity is detailed on the balance sheet.

Face Value: On a share certificate or bond, the face value is what appears on the face of the document. On a debt instrument, it is the amount to be repaid at maturity. On a share it is a purely nominal amount and has no relevance to the market value of the instrument. Face value is also known as 'par value' or 'nominal value'.

Fixed Assets: Assets bought by a company for its continued use for a number of years, rather than for resale. There are three categories of fixed assets: 1) tangible assets, such as land and equipment, 2) intangible assets, such as a company's logo or brand, 3) investments, such as stakes in joint ventures.

Fundamental Analysis: A method of forecasting share prices based on research into company performance and basic economic, political and environmental factors such as supply and demand, economic statistics, government policies and the financial accounts of companies. Unlike technical analysis, fundamental analysis focuses on what should happen to prices, not what has happened to them in the past.

GAAP: (General Accepted Accounting Principles). Conventions, rules and procedures that define general accounting practice, including broad guidelines as well as detailed procedures. 

Goodwill: A class of intangible assets such as a company's name and reputation. Goodwill shows up on a company's books when it acquires another company, and naturally has to pay more for it than the listed book value of its assets. The excess paid is categorized as Goodwill, added to the acquiring company's balance sheet as an asset, and then depreciated over a period of years

Gross Margin: Ratio of gross profit to sales revenue. (Also sometimes used as a synonym for gross profit). For a manufacturer, gross margin is a measure of a company's efficiency in turning raw materials into income; for a retailer it measures their markup over wholesale. Most companies would like a gross margin that's as large as possible. An exception is the discount retailer; part of their game is to make their operations and financing so efficient that they can afford to keep their markup tiny.

Gross Profit: The total profit before the deduction of tax and expenses.

Gross Revenue: "Raw" sales income; the amount customers actually pay the company when they make their purchases. Gross revenue is generally not an interesting number for investors. One case where it is interesting is when you're tracking the progress of a startup company. It's possible that at the very beginning they'll be doing such a tiny amount of business that actual sales will be less than the allowances for refunds, meaning that sales revenue will technically be a negative number.

Hedge Fund: A private investment fund which typically aims to produce high returns from rapid, short-term market movements, often by taking very leveraged positions and using aggressive strategies such as short selling, swaps, derivatives, program trading and arbitrage. Usually restricted to financial institutions and wealthy individuals.

Income statement: An income statement, also called a profit and loss statement, shows the revenues from business operations, expenses of operating the business, and the resulting net profit or loss of a company over a specific period of time.

Initial public offering (IPO): The first offering of shares to the public by a privately owned company. IPOs are used by companies to raise new funds, or to achieve a listing on an exchange. The issuer normally offers the shares to the public through an underwriter who sets the price, promotes the offering and usually guarantees to take the shares at a certain price, to protect the issuer against adverse market movements. Any company planning an IPO must register its offering with the Securities and Exchange Commission (SEC).

Intangible Assets: The non-physical assets of a company such as patents, copyright, a brand name, goodwill etc.

Internal Rate of Return, (IRR): A measure of return on an investment that takes both the size and timing of cash flows into account. The formula is identical in structure to that which is used to calculate the yield to maturity of a bond because it shows not only the total return, but takes into account how quickly that return was earned. Sometimes known as annualized rate of return.

Intellectual Property: Intangible assets, such as patents, copyrights, trademarks and software. Most of these assets are not recognized on an internal balance sheet, since it is difficult to objectively value intellectual property assets, but are included if acquired by another entity.

Insiders: These are directors and senior officers of a corporation -- in effect those who have access to inside information about a company. An insider also is someone who owns more than 10 percent of the voting shares of a company.

Issuer: A corporation, investment trust or government entity that offers (or has already offered) securities for sale to investors.

Lead underwriter: When a company wants to raise capital by selling securities to investors, it partners with an investment bank, known as the lead underwriter. That bank has the primary responsibility for organizing and managing an initial public offering (IPO), a secondary stock offering, or a bond offering.

Liability: An obligation to pay. These include accounts payable, and bond and bank debt.

Limited liability company: Organizing a business enterprise as a limited liability company (LLC) under the laws of the state where it operates protects its owners or shareholders from personal responsibility for company debts that exceed the amount those owners or shareholders have invested. In addition, an LLC's taxable income is divided proportionally among the owners, who pay tax on their share of the income at their individual rates. The LLC itself owes no income tax.

Limited partner: A limited partner is a member of a partnership whose only financial risk is the amount he or she has invested.

Limited partnership: A limited partnership is a financial affiliation that includes at least one general partner and a number of limited partners. The partnership invests in a venture, such as real estate development or oil exploration, for financial gain. What makes it a limited partnership is that everyone but the general partners has limited liability. The most the limited partners can lose is the amount they invest.

Leveraged Buy-out (LBO): The purchase of a business using mostly debt and a small portion of equity. The buyer uses its own assets as collateral for the loan in hopes that the acquired business’s future cash flow will cover the loan payments.

Long-term Debt: Debt due to be paid at a date more than one year in the future.

Market Capitalization: Total value of a company's stock; equal to the number of shares times the price per share.

Mezzanine financing: Mezzanine financing is venture capital funding, usually the final round of a younger company’s financing, usually within 6 to 12 months prior to its IPO. This loan is usually repaid from proceeds of the public offerings or used to establish a floor price for an IPO.

NASD, (National Association of Securities Dealers): An association of brokers and other companies that sell stocks, bonds, mutual funds, and other investment products. The NASD regulates important aspects of the ways its members do business, including claims they can make in advertising and minimum liquidity requirements.

Non-accredited Investor: An individual who does not meet SEC criteria to invest in certain securities (see Accredited Investor).

No Par Value: Shares with no par value assigned at the time the stock is authorized. Shares are authorized for issue as part of the legal process of setting up a company. Par value is the nominal face value of the shares and bears no relationship to the actual traded value of the shares or to the underlying assets which they represent. The advantage of issuing no par value is to avoid the situation of creating a liability to shareholders in the unlikely event of the traded share price falling below the par value of the shares.

Operating Expenses: Expenses associated with running a business but not considered directly applicable to the current line of goods and services being sold. These include Sales and Marketing, R & D, and General and Administrative costs (including the salaries of people working in these areas.

Offering Memorandum (OM): A legal document that states the objectives, risks and terms of an investment involved with a private placement.

Operating Income: Gross Profit minus Operating Expenses. Operating Income is the pre-tax, pre-interest profit from the company's operations.

OTC Bulletin Board, (OTCBB): The electronic OTC bulletin board (OTCBB) provides continuously updated real-time bid and ask prices, volume information, and last-sale prices. Approximately 3,600 companies are tracked on the OTCBB. To qualify for inclusion, they must report their financial information to the Securities and Exchange Commission (SEC) or appropriate regulatory agency.

Over-the-counter (OTC): Securities that trade over-the-counter (OTC) are not listed on an organized stock exchange, such as the New York Stock Exchange (NYSE) or the Nasdaq Stock Market. Common stocks, corporate, government, and municipal bonds (munis), money market instruments, and other products, such as forward contracts and certain options, may trade OTC. Generally speaking, the OTC market is a negotiated market conducted between brokers and dealers using telephone and computer networks.

P/E Ratio: The ratio of a stock price to its company's annual earnings per share.

Post-Money Valuation: A company’s value after external financing alternatives are included in its balance sheet.

Preferred shares: Preferred shares give investors a fixed dividend from the company's earnings. And more importantly: preferred shareholders get paid before common shareholders.

Private Placement Memorandum (PPM): Issuance from a company’s treasury stock of securities for cash. This is based on prospectus disclosure, in reliance of one or more of the exemptions under applicable securities laws, including the issuance of shares, units, warrants, convertible securities, or debt, but not including a rights offering, issuance of shares for debt, acquisition, or take-over bids. SEC registration is not required if the securities are bought for investment rather than resale. The details of the issuance are noted in the PPM.

Profit Margin: Earnings expressed as a percentage of Revenue, ie the percentage of sales the company has left over as profit after paying all expenses.

Prospectus: Document disclosing specific financial information, required by the SEC of companies issuing stocks or bonds, or selling mutual funds or other investment products to the public.

Registered investment adviser (RIA): Investment advisory firms that register with the Securities and Exchange Commission (SEC) and agree to be regulated by SEC rules are known as registered investment advisers.

Regulation D: Both the Securities and Exchange Commission (SEC) and the Federal Reserve have regulations known as Regulation D. The SEC's Regulation D specifies which securities can be sold within the United States without having to be registered with the Commission. Among the other restrictions, these securities can be made available only to accredited investors - individuals with a net worth of at least $1 million or an annual income of $200,000 or more, and institutions with assets of $5 million or more.

Restricted Security: Securities with limited transferability; these are usually issued in a private placement. The certificates will contain a legend stamped or printed on them restricting sale until such time as a Registration Statement has been filed registering them for trade.

Retained earnings: Retained earnings, also known as retained surplus, are the portion of a company's profits that it keeps to reinvest in the business or pay off debt, rather than paying them out as dividends to its investors.

Return on assets: This number tells you "what the company can do with what it's got", i.e., how many dollars of profits they can achieve for each dollar of assets they control. It's a useful number for comparing competing companies in the same industry. The number will vary widely across different industries. Capital-intensive industries (like railroads and nuclear power plants) will yield a low return on assets, since they have to own such expensive assets to do business. (And if they have to pay a lot to maintain these assets, that will cut into the ROA even more, since the maintenance costs will decrease their earnings). Shoestring operations (software companies, job placement firms) will have a high ROA: their required assets are minimal.

Return on equity: Return on equity measures the return, expressed as a percentage, earned on a company's common stock investment for a specific period. It is calculated by common stock equity, or a company's net worth, into net income. The calculation is performed after preferred stock dividends and before common stock dividends. The figure shows investors how well -- how effectively -- their money is being used by managers.

Rights offering: In a rights offering, also known as a subscription right, a company offers existing shareholders the opportunity to buy additional shares of company stock in proportion to the number they already own before any new shares are offered to the public.

Secured Note: A standard contractual obligation to lend and borrow money at a specified rate of interest. Secured notes can be modified with additional restrictions that increase their value and decrease the default risk.

Security: An investment representing ownership (stocks), debt (bonds), or rights to ownership (derivatives) that is basically a contract that can be assigned a value and traded. Securities include stocks, bonds, debentures, futures, options, swaps, rights, and warrants.

Securities and Exchange Commission (SEC): US Government agency, with the purpose of protecting investors from dangerous or illegal financial practices or fraud, by requiring full and accurate financial disclosure by companies offering stocks, bonds, mutual funds, and other securities to the public.

Securities Act of 1933: Federal legislation enacted to ensure transparency in financial statements so investors can make informed decisions about investments, and as a measure to guard against misrepresentation and fraudulent activities in the securities markets.

Shareholders' equity: A company's total assets minus total liabilities. A company's net worth is the same thing. 

Short-term Debt: Debt due to be paid off at a date less than one year in the future.

Spinoff: A company can create an independent company from an existing part of the company by selling or distributing new shares in the so-called spinoff.

Tender offer: When a corporation or other investor offers to buy a large portion of outstanding shares of another company, called the target company, at a price higher than the market price, it is called a tender offer. The tender is usually part of a bid to take over the target company. Current stockholders, individually or as a group, can accept or reject the offer.

Term Sheet: A non-binding agreement that outlines the basic terms and conditions of investment agreements and is often used as a basis for more detailed legal documents.

Warrant: Corporations may issue warrants that allow you to buy a company's stock at a fixed price during a specific period of time. How attractive the warrants are - and so how effective they are as an incentive to purchase - generally depends on the growth potential of the issuing company. The brighter the outlook, the more attractive the warrant becomes.

Working Capital: Working Capital usually refers to net working capital and is the resource that a company can use to finance day-to-day operations. It is calculated by taking current liabilities from current assets.