Starting a business can be exciting, seeing your vision come to life and positively impacting the world.
However, it’s no secret that starting a business requires capital, and finding funding sources can often be challenging and intimidating.
As entrepreneurs, we understand the struggle of navigating investment and funding terms.
That’s why we’ve compiled a list of 12 essential terms that every business owner should know when seeking investment and funding for their business. So, let’s dive in!
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- Equity refers to a company’s ownership interest. When a business owner raises funds by selling shares, equity is diluted as new shareholders are given ownership rights.
- Debt financing: Debt financing occurs when a company borrows money from an external source, such as banks or financial institutions, to fund its operations. The borrowed money must be paid back with interest within a specified time period.
- Angel Investor: An angel investor is an individual who provides financial backing to startups or small businesses in exchange for equity ownership.
- Venture capital is a type of private equity financing that investors provide to high-growth potential startups and early-stage companies.
- Crowdfunding: Crowdfunding is raising funds for a project or business venture by obtaining small amounts of money from many people, typically via the internet.
- Initial Public Offering (IPO): An IPO is the process through which a private company offers its shares to the public for the first time, thereby becoming a publicly traded company.
- Seed Capital refers to the initial capital required to start a business or launch a new product. It is usually provided by family, friends, or angel investors.
- Series A funding is the first significant round of investment that a startup receives from institutional investors in exchange for an equity stake in the company.
- Valuation: Valuation refers to determining a company’s or its assets’ worth. It is an essential factor in attracting investors and negotiating equity deals.
- Run Rate: Run rate is a financial term referring to a company’s projected annual earnings based on its current performance. Investors often use it to evaluate a business’s potential success.
- Due Diligence: Due diligence is conducting a thorough investigation and analysis of a company before making an investment decision. It involves reviewing financial statements, legal documents, and other relevant information.
- Exit Strategy: An exit strategy is a plan that outlines how investors can eventually sell their equity stake in a company to realize their returns on investment. It is an important consideration for investors as it determines the potential success of their investment.
Investing in your business is a crucial step towards growth and success. It allows you to secure financial stability, expand your operations, and increase your profits. However, navigating the world of investment and funding can be overwhelming, especially for those unfamiliar with the jargon used in this field.
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