Venture Capital (VC) is a form of financing that is private and provided by investors, investment banks, or other financial institutions to startup companies and small businesses, particularly those with long-term growth potential. Often seen as the “engine of economic growth”, venture capital investors provide funds to early-stage companies or start-ups in exchange for equity or ownership stake. To help introduce you to the world of Venture Capital, we’ve compiled a list of some of the most common terms in this field.
Common Venture Capital Terms & Concepts
Venture Capitalist (VC): A venture capitalist is the first term that is essential to understanding VC lingo. A venture capitalist is an investor that provides venture capital funding to startups that have demonstrated growth potential. The provision of funding is conducted in exchange for a stake in the company, or equity.
Ideation: All companies or startups start with an idea. Ideation is the process of coming up with an idea through brainstorming, prototyping, sketching, and more. This process is essential to establishing the value of a startup when attempting to receive venture capital funding.
Target Market: The target market is the specific group of consumers to whom you aim and market your service or idea to. This is essential to know when attempting to market your startup product or service, as the type of target audience can change the marketing strategy.
Software as a Service (SaaS): SaaS is where web-based software presented as a service. It is licensed on a subscription basis and accessed online.
Startup Capital: Startup capital is the money that you need to start a new company or startup. This money is essential to cover required expenses for the planning, equipment, licenses, inventory, and product development.
409A Valuation: A 409A Valuation is a third-party valuation of a company’s common stock. Startups use this to determine the exercise price for company stock options, which is necessary in the venture capital process.
Common Stock: Common stock is a type of equity security often used in the venture capital world, that represents ownership in a company.
Proof of concept: The proof of concept is essential in the world of venture capital, as it is the evidence that demonstrates the business plan is feasible.
Liquidation Preferences: Liquidation preferences are what determine the payout process. It also determines the distribution of stocks if the company pays dividends, enters into a merger, or liquidates.
Control Rights: Control rights are the rights of an investor or shareholder in relation to a company’s affairs.
Sources:
- https://hbr.org/1998/11/how-venture-capital-works
- https://medium.com/rbl1/100-venture-capital-terms-the-ultimate-vc-glossary-71a08b938b7a
- https://www.infoworld.com/article/3226386/what-is-saas-software-as-a-service-defined.html