12 Investment & Funding Terms for Business
Starting a business can be an exciting venture – seeing your vision come to life and making a positive impact in 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 put together 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!
- Equity: Equity refers to the ownership interest in a company. When a business owner raises funds by selling shares, it results in dilution of equity as new shareholders are given ownership rights.
- Debt financing: Debt financing is when a company borrows money from an external source such as banks or financial institutions to fund its operations. The borrowed money needs to 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: Venture capital is a type of private equity financing that is provided by investors to high-growth potential startups and early-stage companies.
- Crowdfunding: Crowdfunding is a method of raising funds for a project or business venture by obtaining small amounts of money from a large number of 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: Seed capital refers to the initial capital that is required to start a business or launch a new product. It is usually provided by family, friends, or angel investors.
- Series A funding: 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 the process of determining the worth of a company or its assets. It is an important factor in attracting investors and negotiating equity deals.
- Run Rate: Run rate is a financial term that refers to the projected annual earnings of a company based on its current performance. It is often used by investors to evaluate the potential success of a business.
- Due Diligence: Due diligence is the process of 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 who are not familiar with the jargon used in this field.