There is a lot of legal and non-legal terminology thrown around in the investor and venture capitalist world. The legal terminology can be difficult at first, but there are many resources that help investors understand these terms. However, there may not be equivalent resources when it comes to the non-legal lexicon that has become prominent in investor vernacular. We have put together a list of some of the more common jargon investors may encounter. These terms may apply exclusively to the private market or public market, or might be used inter-changeably between the two.
Glossary of Investor Jargon
Accelerator – A program that supports an early-stage startup through education, mentorship, and financing, typically in exchange for monetary compensation or for equity or securities convertible to equity. See also Accelerators 101.
Acqui-hire – The process of one company acquiring another company primarily to recruit their employees. A combination of “acquisition” and “hire”, the focus rests on talent acquisition rather than product or customer base acquisition.
Angel – The shortened form of “Angel Investor” – a high-net-worth individual or entity who provides financial backing for an early-stage company, typically in exchange for ownership equity. May be lumped in with Angels that provide financial backing without an exchange or intention of repayment.
Apes – A specific collection of Non-Fungible Tokens (NFTs) titled “The Bored Ape Yacht Club”. May be used in reference to multiple NFTs from this same collection.
Bootstrapping – A business strategy in which an early-stage company self-funds operations instead of seeking funding from investors.
Bridge Loan – A short term loan used to help a company fund operations between larger financing rounds. Typically occurs when a company needs immediate capital but has not reached the point where they could close their next financing round with reasonable terms.
Decacorn – A privately held company valued at more than $10 billion. See also “unicorn”.
Delaware Flip – A business strategy that creates an American holding company in Delaware for an international company. Used to attract US-based funding and operate better in the US markets. Based off the US state Delaware because of the bi-partisan consensus to keep Delaware’s corporation statute modern and up-to-date.
Diamond Hands – Holding a volatile investment in the face of pressure to sell. Most commonly used with high-risk assets such as cryptocurrency or meme stocks. Investors considered to have “diamond hands” are commonly signified as having a very high-risk tolerance in the face of value plunges in expectation of eventual profitability. See also “paper hands”.
Direct Public Offering (DPO) – A way for companies to become publicly traded without a bank-backed Initial Public Offering (IPO). This forgoes the safety net an underwriter provides, but gives a quicker and less expensive alternative to public listings. Also known as direct listings.
Dry Powder – The amount of money a VC firm has available for new investments.
Due Diligence – The process of confirming the validity of the information a company has provided and evaluating that information to help an investor determine if a potential decision to provide funding is based on accurate details.
Environmental, Social, Governance (ESG) – Criteria that may be used to evaluate a company’s environmental, social, and governance track record and how it performs in these areas. See also ESG Investing & Venture Capital.
Exit – The event through which investors are offered an opportunity to realize a gain or a loss on their investment. Exits typically manifest when a privately held company is acquired or combined with another company or its securities become publicly traded.
Hitting the Rocks – The moment in which an investment’s value has declined to its lowest historical value.
HODL – Derived from a misspelling of “hold”, this slang term for “hold on for dear life” is frequently associated with cryptocurrency investing.” See also “diamond hands” and “paper hands”.
Hurdles – Additional fees, hoops to jump through, or other speedbumps an investor may encounter when attempting to make an investment.
Initial Coin Offering (ICO) – A currently unregulated means by which funds are raised for a new cryptocurrency. The cryptocurrency industry’s version of Initial Public Offering (IPO). Unlike IPOs, Initial Coin Offerings typically do not provide ownership interest in the new cryptocurrency.
Initial Public Offering (IPO) – The process of a private company offering equity shares in the company to the public in a new stock issuance. Typically underwritten by one or more investment banks that arrange for the shares to be listed on one or more stock exchanges.
Grandfather Rights – A provision in which old rules continue to apply to existing situations, while new rules will apply to all future situations. Also known as “grandfathered in”.
J Curve – The typical trajectory of investments made by private equity firms. A visual representation that the value of the investment may initially decrease before theoretically resulting in a steep improvement in performance.
Paper Hands – Selling an investment “too early” in the face of high financial risk. In other words, selling a stock or cryptocurrency to maintain a comfortable risk tolerance. The term tends to have negative connotations, and investors with “paper hands” can be labeled by investors who may have a higher tolerance for risk. See also “diamond hands”.
Post-Money Valuation – A company’s estimated worth after securing additional financing. The post-money valuation is calculated by adding the pre-money valuation plus the amount of new equity from outside investors received during a funding round.
Pre-Money Valuation – A company’s estimated value before securing new financing. Pre-money valuations are subjective and are typically based off factors like the company’s financials, comparable companies in the market, and other market factors.
Right of First Refusal (ROFR) – A contractual first right to enter into a business transaction with a person or company. Most commonly used in reference to real estate and private equity. Unlike Right of First Offer (ROFO), the owner is not obligated to contact the ROFR holder before seeking out a third party. See also Right of First Refusal (ROFR) Explained.
Right of First Offer (ROFO) – A contractual first right that requires the owner of an asset to negotiate the sale or lease of the asset with the holder of the ROFO before offering the sale or lease to a third party.
Secondary Sale – When a shareholder of a private company sells their shares to another buyer prior to an exit.
Special Purpose Acquisition Company (SPAC) – A shell corporation listed on a stock exchange with the purpose of merging with private company. An alternative to a traditional Initial Public Offering (IPO), the acquired company becomes listed on the public stock market. Also known as a blank check company. See also SPACs vs. IPOs.
Ten Bagger – A stock that provides a 1000% return on investment. For example, a $10 stock increasing in value to $100. First used by Fidelity mutual fund manager, Peter Lynch, in the 1980s and 1990s. Also known as Ten-Fold.
“The Next ____” – A phrase used to describe an early-stage company on the same trajectory as a successful, established company. For example, “The Next Uber” or “The Next Airbnb”.
“To the Moon” – A phrase used when a volatile asset such as cryptocurrency rapidly increases in price and volume.
Unicorn – A privately held startup company with a valuation of at least $1 billion.
Valuation – The quantitative process of determining the fair market value of an asset. Professional evaluators will consider multiple aspects such as company’s management, capital structure, future earnings prospects, and other factors.
Valuation Cap – A provision that limits (caps) the price at which a convertible note or simple agreement for future equity (SAFE) converts to equity in the event of a subsequent qualified financing.
This glossary is not an exhaustive list of jargon an investor might come across, but rather an easy to digest explanation of some of the more popular terminology an investor may come across. This blog will be updated on a semi-regular basis to include additional jargon and slang terms as they are created and increase in popularity. This is not legal vernacular, and it is important to ask questions if you do not understand what certain terminology means. Our investor support team may be able to help. Sign up for a MicroVentures account at https://my.microventures.com/signup
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.