Genesis Exchange
Learning Center

Glossary Of Investment Terms

By Genesis Exchange Member Services

Authorized Capital	Authorized shares are the total number of shares that a company can issue. This number is set in the company's charter, but can be changed with shareholder approval. In general, a greater number of shares are authorized than required to offer the company flexibility in issuing more stock when needed. Also known as authorized stock or shares authorized.
Acceleration Clause	A stipulation leading to a result or action that is triggered by a particular event. For example, a stipulation that all shares become fully vested in the event of the company’s change of ownership.
Accredited Investor	The SEC’s designation for an individual or entity that meets specific criteria to invest in, for example, certain restricted stock offerings, limited partnerships and angel investor networks.
Aggregate Exercise Price	The strike price of an option multiplied by the number of underlying securities in the contract. The premium paid or received on the option is not included in the aggregate exercise price calculation.
Angel Investor	Angel investors, a term originally applied to wealthy individuals who backed Broadway plays, provide financing to early-stage companies, and add their expertise and relationships to help grow the business.
Automatic Conversion Trigger	An event that initiates the changeover of a convertible security, such as a bond or preferred stock, into the common shares.
Beneficial Rights Holder	An individual who maintains the benefits of ownership even when the title is in another name. This holder may, for example, have mutual fund shares held by a custodian bank or securities held by a broker in street name for safety and convenience. Although the bank or broker holds title, the individual is the beneficial rights holder.
Beneficial Owner	An investor whose securities are registered in the name of a broker, trustee or bank to ease transfer or to preserve anonymity, but who retains ownership rights.
Block	A large quantity of securities being held or traded; usually at least 10,000 shares or $200,000 in bonds.
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."
Board of Directors	Individuals elected by a company’s shareholders to oversee the firm’s management. Board members are paid in cash and/or stock, meet several times annually and assume legal responsibility for corporate activities.
Burn Rate	The rate (usually calculated monthly) at which a new company or venture spends its capital before it starts to realize profits.
Callable	Securities such as bonds and convertible issues that are redeemable prior to maturity. The conditions under which the security may be called are set at the time of issue. In general, there is a certain initial time period in which the security cannot be called. A bond is usually called when market interest rates fall below the bond’s yield. To reflect this risk, callable securities are usually priced lower than non-callables.
Capital Assets	All tangible property that cannot easily be converted into cash and which is usually held long term. This includes real estate and equipment.
Capitalization Table (“Cap Table”)	This document 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.
Class	Class refers to securities with similar features, or groups of shares that sell at different market prices, have different dividend policies, or have voting or sales restrictions on ownership. Class also indicates ownership in a specific division or subsidiary of a company.
Collateral	Collateral, or security, is the assets pledged by a borrower to secure a loan or other credit. It is subject to seizure in the event of default.
Common Stock	A basic security that signifies ownership in a company and that represents a claim on part of the corporation's assets and earnings. Common stockholders usually have the right to vote at shareholder meetings and to receive dividends declared by the company. Also referred to as shares or equity.
Company	Designated term for a corporation, incorporated association or organization, body corporate, partnership, trust, association, or other entity; not an individual.
Consideration	Assets or services provided by one entity to another in exchange for an act or guarantee.
Convertible Debt	Bonds that can be exchanged for a specified amount of another security at the option of the issuer and/or the holder.
Conversion	The process of exchanging a convertible security, such as a bond or preferred stock, into a predetermined number of the common shares.
Date of Expiration	The date on which an option, right or warrant becomes worthless if not exercised. It also refers to the date on which an agreement is no longer in effect.
Debenture	Unsecured debt backed solely by the credit worthiness of the borrower. Debentures have no collateral and the agreement is documented by an indenture. Yields on these bonds vary and are dependant on the issuer’s credit worthiness.
Director	An individual elected by a company’s shareholders to set corporate policies, such as the selection of operating officers and dividend payment terms.
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 performance, assets and liabilities,
EBIT	Earnings before interest and taxes is a measure of a company's earnings from ongoing operations. It does not include income and expenditures from one-off, non-recurring or discontinued business. Creditors monitor EBIT more closely if a company records minimal depreciation and amortization activities as it represents the total funds available to pay off creditors. It is also referred to as operating profit.
Equity	Ownership interest in a company in the form of common or preferred stock. This is the risk-bearing portion of the firm’s capital in contrast to its debt capital, which is usually secured by assets. Creditors take priority over shareholders should the company become insolvent and its assets distributed.
Exemption	Regulations that govern the sale of securities of non-publicly traded companies under the Federal Securities Act.
Exercise	To exercise the rights of an option on an underlying asset by buying (in the case of call options) or selling (in the case of put options), or the exchange of a right or warrant for a predetermined number of the underlying shares.
Fair Market Value	The price determined for an asset where neither the buyer nor seller are under pressure to conduct the trade.
General Partner	A business partner who maintains unlimited liability. As such, this partner’s personal assets may be subject to liquidation in order to meet the entity’s obligations. Often serves as the managing partner, active in the business’s day-to-day operations. In limited partnerships, only one of the partners serves as general partner. The other partners have limited liability, meaning their personal assets are not at risk.
Incentive Stock Option	These options are a means to reward the holders for future services provided to a company. They are not meant to be a substitute for salaries or wages, or compensation for past services.
Indenture	A contract between an issuer and the holder of a bond that states the time period for repayment, the interest to be paid, conversion rates (for convertible issues), and the total repayment amount. Also referred to as a deed of trust.
Independent Director	Someone whose professional, familial and/or financial connection to a company, its chairman, CEO or any other executive officer is his/her directorship.
Initial Public Offering (IPO)	The first issuance of securities from a company’s treasury stock.
Inside Director	Any director on a company's board who is also either an employee or shareholder; usually management or a major shareholder.
Insider Blocks	The percentage(s) of a company’s stock available for sale to company insiders.
Instrument	A document containing some legal right or obligation, such as notes, agreements and contracts.
Issue	Any of a company’s securities or the act of distributing these securities.
Issuer	A corporation, investment trust or government entity that offers (or has already offered) securities for sale to investors.
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.
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.
Loan	An arrangement in which a lender provides funds or property to a borrower who agrees to return the property or repay the money, usually along with interest, at some future set date. The lender usually bears the risk of nonpayment although capital markets have developed ways of managing this risk.
Management Buyout (MBO)	An operating management’s purchase of a product line or business from its own company, whether public or private.
Marquis Investor	A high-profile or well-known investor or company that adds value to a firm just by virtue of its reputation.
Material Change	A change in the business, operations, assets or ownership of an entity that is likely to have a significant impact on the market price or value of any of its securities.
Material Fact	In relation to securities issued or proposed to be issued, a fact that will significantly affect the market price of the securities now or in the future.
Maturity Date	The date on which a debt instrument is due for payment.
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.
Non-accredited Investor	An individual who does not meet SEC criteria to invest in certain securities (see Accredited Investor).
Note	A short-term debt security (maturity of five years or less).
Offering Memorandum (OM)	A legal document that states the objectives, risks and terms of an investment involved with a private placement.
Options	A privilege that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed price during a certain time period or on a specific date.
Outside Director	A member of a company’s board of directors who is not an employee nor a person who holds any of its operational responsibilities.
Outsider Blocks	The percentage(s) of a company’s stock that is available for sale to the public.
Portfolio	The range of an individual or institution’s investment holdings, such as stocks, bonds and/or businesses.
Post-Money Valuation	A company’s value after external financing alternatives are included in its balance sheet.
Preferred Stock	A class of ownership in a company, with a stated dividend that is paid before dividends to common stockholders. Preferred shares rarely hold voting rights. Preferred shareholders have priority over common stockholders on earnings and assets in the event of liquidation, after creditors are repaid.
Pre-Money Valuation	A company’s value before external financing alternatives are included in its balance sheet.
Private Equity	Shares in a company that are available to investors but are not quoted on a stock market. Companies often use these funds to develop new products, expand working capital, make acquisitions, or strengthen the balance sheet.
Private Placement / 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.
Promissory Note	A written, dated and signed two-party agreement containing an unconditional promise by the writer of the note to pay a specified sum of money to the payee on demand or at a specified future date. A promissory note differs from a bill of exchange in that the writer pays the payee directly rather than through a third party. Promissory notes written by banks are called certificates of deposit (CDs) and are repaid with interest.
Prospectus	A legal document outlining the securities to be issued for sale to the public (usually for an IPO). The prospectus information must conform to the requirements of applicable securities laws and include details about the company and investment risks.
Proxy Statement	Under SEC regulations, companies are required to send shareholders a proxy statement which outlines all matters on which shareholders can vote.
Registered Name	The name of the registered owner of a security.
Reorganization	This refers to a company’s merger, amalgamation, restructuring, or the structure of a take-over bid.
Restricted Security	Securities with limited transferability; these are usually issued in a private placement.
Rights Offering	An offering of common stock to current shareholders that entitles them to buy subsequent issues at a discount to the offering price.
Round	The stage of a start-up company’s financing. The usual progression is from startup to first round (angel investments) to venture capital and to mezzanine prior to its IPO.
Secured	Securities backed by collateral.
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 Act of 1933	Federal legislation enacted as a result of the 1929 stock market crash. These laws 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.
Series	Securities with similar characteristics, including voting rights, par values and/or dividend yields.
Security Interest	The right of a creditor to acquire all or part of a property offered as security.
Shareholder	Any person, company or entity that owns at least one share in a company; also referred to as a stockholder.
Shares	Certificates denoting ownership in a company; also known as stocks or equities.
Small Corporate Offering Registration (SCOR)	An over-the-counter sale of securities of up to $1 million used by small businesses to avoid the costs and formalities of an IPO. Often used in a leadup to an IPO.
Strike Price	The predetermined exercise price on an option contract at which the contract may be exercised. This allows the call option buyer to purchase, or the put option buyer to sell, the underlying shares at the set price. The buyer's profit from exercising the option is the amount by which the strike price exceeds the spot price (in the case of a call) or the amount that the spot price exceeds the strike price (for puts). In general, the smaller the difference between the spot and the strike price, the higher the option premium paid.
Subscription Agreement	A company record that shows an investor’s purchase of securities in the firm.
Super Angel	An angel investor who commits more capital to a startup firm than typical angel investors. Super angels have substantial funding resources and are sometimes referred to as micro VCs.
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.
Tombstone	A published advertisement placed by investment bankers in regards to a public offering of a security, usually after the issue has been sold. A tombstone provides basic details about the issue, the underwriting groups involved in the offering and other basic information, including red herring/prospectus orders.
Treasury Shares	A company’s authorized but unissued stock or previously issued shares that have been reacquired by the firm.
Trigger	An event, such as reaching a specified price target, which indicates an investor will make a specific trade.
Underlying Warrant Shares	Securities to be delivered if a warrant contract is exercised.
Unsecured	A security backed the integrity of the borrower rather than by collateral.
Unsecured Loan	A loan, such as commercial paper, issued and backed solely by the borrower's creditworthiness, rather than by collateral. Borrowers usually need high credit ratings to receive unsecured loans.
Vested	Having rights of ownership, although the benefits of these rights may be delayed until a future date.
Vesting Cliff	Vesting that occurs on a specified date, rather than over time.
Vesting Period	The waiting period before shares are owned unconditionally.
Vesting Rate	The frequency at which vesting rights are calculated.
Warrants	A certificate entitling the holder the right to purchase securities (usually equity), from the issuer at a specified price within a certain time period. New issuers often provide warrants as a sweetener to increase the marketability of a bond or preferred share offering. Warrants differ from call options in that they are issued and guaranteed by the company; options are exchange instruments not issued by the company. Also, a warrant is a longer-term security than a typical option.
Warrant Coverage	An agreement between a company and its shareholders in which the company issues warrants equal to a certain percentage of the dollar amount of each shareholder's investment.

Genesis Exchange -- Helping Entrepreneurs Find Angel Investors And Raise Venture Capital