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If you are associated with a startup or going for fundraising then below mentioned are the startup’s terminology you need to learn. It is important to use a language which shows that you understand your industry. At the same time, this will help you to understand the context in a better manner in case investor throws any of such terms on you because the startup world operates on a lot of lingoes.
1) Pre Money Valuation: Referring to the valuation of a company prior to an investment or financing. This calculation results in a value of the company, as it exists today before the additional funds are received by the company from the investor.
2) Post money Valuation: Post-money valuation is a way of expressing the value of a company after an investment has been made. This value is equal to the sum of the pre-money valuation and the amount of new equity.
3) Cap Table: A capitalization table is a table providing an analysis of a company's percentages of ownership, equity dilution, and value of equity in each round of investment by founders, investors, and other owners.
4) Share Valuation: Valuation of shares is the process of knowing the value of the company’s shares as on date. In a simplified manner, Pre-money valuation is how much a startup company is worth before funding; post-money valuation is the value for the company plus the funding. The valuation happens at every round or stage of funding.
5) Term Sheet: The document that outlines what the Investors will get for what they put in and this also includes the ownership stake and voting rights. A term sheet sets the groundwork for building out detailed legal documents so if you get a term sheet then get a good lawyer as well.
6) Pitch Deck: A 7-10-slide PowerPoint presentation that covers all aspects of your business in a concise and compelling way. This is one of the most important things in case you are going for funding because a good pitch deck convince more than the founder of the business. So, please do your homework, and always onboard an experienced professional to polish the final version.
7) Exit Strategy: This is one of the most crucial deciding factors for any incoming investor investing in your business because exit strategy states that how you will sell the company and make your investors lots of money. Who is going to buy you and why? Commons options are an IPO or buyout from another company. Entrepreneurs and VCs often develop an "exit strategy" while the company is still growing.
Article By: Ms Bhavya Sharma, a Practising Company Secretary from Delhi. In order to know more about startup terms or the manner in which startup operates you can connect with us. You can contact us at legal@bhavyasharmaandassociates.com or for more details you can visit: www.bhavyasharmaandassociates.com
Disclaimer: Although due care and diligence have been taken in the preparation and uploading this Article, Bhavya Sharma & Associate shall not be responsible for any loss or damage, resulting from any action taken on the basis of the contents of this Article. Anyone wishing to act on the basis of the material contained herein should do so after cross-checking with the circulars, notifications, applicable acts, press release issued by the concerned department or seek appropriate counsel for their situation.
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