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Business.
Merrill, R. (1993). The New Venture Handbook. New York, NY: American
Management Association.
Miller, E. et al. (1991). Attracting the Affluent. Naperville, IL: Financial
Source Books.
Nicholas, T. (1991). 43 Proven Ways to Raise Capital for Your Small
Business. Wilmington, DE: Enterprise Publishing.
Nichols, J. (1994). Pinpointing Affluence. Chicago, IL: Precept Press.
O™Hara, P. (1990). The Total Business Plan. New York, NY: John Wiley &
Sons.
Rappaport, S. (1990). The Affluent Investor. New York, NY: New York
Institute of Finance.
Reynolds, P. et al. (2002). The Entrepreneur Next Door. Kansas City, MO:
Kauffman Foundation.
Rupert, R. (1993). The New Era of Investment Banking. Chicago, IL: Probus
Publishing.
Silver, A.D. (1994). The Venture Capital Sourcebook. Chicago, IL: Probus
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359
Suggested Reading List


Smith, B. (1984). Raising Seed Money for Your Own Business. Brattleboro,
VT: Lewis Publishing.
Soja, T.A. & Reyes M. (1990). Investment Benchmarks. Needham, MA:
Venture Economics.
Spencer, M. (1999). Money Hunt. New York, NY: Harper Business.
Stanley, T. (1988). Marketing to the Affluent. Homewood, IL: Business One
Irwin.
Stanley, T. (1993). Networking with the Affluent and Their Advisors.
Homewood, IL: Business One Irwin.
Thomsett, M. (1990). The Ultimate Guide to Raising Money for Growing
Companies. Homewood, IL: Dow-Jones Irwin.
Tuller, L. (1991). When the Bank Says No! New York, NY: Liberty Hall
Press.
Tuller, L. (1994). The Complete Handbook of Raising Capital. New York,
NY: McGraw-Hill.
Van Osnabrugge, M. et al. (2000). Angel Investing. San Francisco, CA:
Jossey-Bass.
Vinturella, J. et al. (2004). Raising Entrepreneurial Capital. Boston, MA:
Elsevier.
Webster, M. (1999). Raising Venture Capital for the 21st Century. Bryn
Mawr, PA: Buy Books on Web.
Wetzel, W. (1981). Informal Risk Capital in New England. Durham, NH:
University of New Hampshire.
Wright, S. (1993). Raising Money in Less Than 30 Days. New York, NY:
Citadel Press.
Glossary


Accounts payable The amount of money owed by a business or service to
its creditors.
Accounts receivable The amount of credit a business or service has ex-
tended to its customers.
Accumulated amortization Accumulated write-off of an intangible asset,
such as goodwill or a covenant not to compete.
Antidilution The action investors must take”having to put in additional
money”to maintain the percentage of ownership they had when they
first invested in the deal.
Acquisition Occurs when one company takes a controlling interest in an-
other company.
Angel investor Although the term is of fairly recent vintage, historically, the
concept involves wealthy civic-minded individuals who contributed in
various ways to the polis; today, wealthy individuals who invest in seed
or early-stage companies.
Automatic conversion Accomplished at the time of underwriting rather
than at the time of an IPO; occurs when an investor™s priority shares are
immediately converted to ordinary shares.
Barter In lieu of cash payments, products or services themselves are ex-
changed.
Blue sky State laws that control sales of investment securities.
Board A corporation™s board of directors; persons who for the good of a
corporation™s shareholders follow”or refuse to follow”the recommen-
dations of management.
Board rights Allow an investor to become a member of a company™s board
of directors.
Boilerplate Standard wording in standard paragraphs contained in busi-
ness documents.
Break even The point at which money earned from a business equals the
money invested.
Bridge financing A venture that requires short-term capital to reach stabil-
ity and the next round of funding.
Burn rate The rate at which cash is flowing out of the business on a
monthly basis.


361
362 GLOSSARY


Business angel Private individuals who often add more than money”their
knowledge and experience”to companies they invest in.
Buyback The exit route whereby the investor expects to cash out by selling
securities back to the founders.
Buyout Investors, management, employees, or any other company person-
nel buy shares in the company in order to buy or retain ownership.
Capital gains The profit derived from selling a capital asset.
Capital loss The loss incurred from selling a capital asset.
Cash flow The money that comes in and goes out of a business; determines
the continued survival of a company; tied closely to cash management.
Collateral Assets used to guarantee payment to a creditor for money lent.
Common stock Refers to a class of stock issued most often, secondary to
preferred stock.
Consortium An association of companies for a like purpose.
Controllability A specific individual who owns enough equity in a com-
pany to control the decisions of the management.
Convertible Bonds that can be exchanged for stock at some previously set
rate; convertibles can be a source of cash for a company under financial
pressure.
Current ratio Current assets divided by current liabilities”appears on a
balance sheet; specifies a company™s liquidity, that is, its ability to meet
its short-term obligations; often helps determine credit rating.
Deal flow The number of transactions an investor is able to peruse that
may be worth further consideration.
Debenture A corporate bond not backed by a specific asset but by the is-
suer™s credit.
Debt to equity ratio Long-term liabilities divided by net worth”measures
debt financing to equity financing, that is, the degree to which a com-
pany is leveraged.
Default Failure of a borrower to repay a lender in full; when a provision in
a written agreement with an investor is violated by an entrepreneur.
Dilution Occurs when additional stock is issued, thereby reducing the per-
centage of ownership of those who already own stock.
Discount rate Face value”discount charge; what banks and other lending
institutions charge for money loaned.
Downside Equates with the amount of risk taken by an investor in an
enterprise.
Due diligence The sine qua non by the investor of the entrepreneur and by
the entrepreneur of the investor on every aspect of the other party™s his-
tory, character, and dealings past and present”and of the soundness of
the pending deal. Due diligence has no substitute.
363
Glossary


EBIT Earnings before interest and taxes, what the company has earned be-
fore having to pay interest and taxes.
Entrepreneur Dreamer extraordinaire who initiates the risk in time and
money of bringing to profitable fruition his product or service.
Equity The amount of equity is the amount of ownership someone has in a
company.
Exit The strategy by which investors realize the returns or otherwise free
themselves from involvement in a transaction.
Fully diluted ownership When a company issues all of its shares, their di-
lutive impact can be measured.
Gross margin percentage Gross profit divided by sales.
Gross margin ratio Gross profit divided by net sales”assesses the effi-
ciency in cost and pricing strategy.
Holding period How long an investor™s investment remains illiquid.
Hurdle In the investor™s judgment, the point at which anticipated compen-
sation exceeds risk in an investment.
Income statement Also known as a profit and loss statement, a report that
summarizes a company™s income and costs for a specific time period.
Initial public offering (IPO) A company™s attempt to sustain growth by
raising money on an exchange, such as the New York Stock Exchange.
Intellectual property The ideas on which a company has been built, and
upon which it becomes discernible from other companies. Such prop-
erty receives only limited protection from patents, trademarks, and
the like.
Internal rate of return (IRR) Also called the “time-adjusted rate of return”
and the “dollar-weighted rate of return”; the rate of interest that equates
the value of cash inflows with the value of cash outflows.
Inventory turnover Costs of sales divided by average inventory”specifies
the company™s average inventory cycle, that is, how many times a com-
pany™s inventory is sold and replenished within a set time.
Investee firm The firm into which investors have invested their money and
the added value of their knowledge, expertise, and experience.
Investment The purchase of shares of stocks, bonds, and so on, with the
expectation of income or capital gains.
Junior securities Upon liquidation, a firm™s investors holding junior securi-
ties will not have their claims considered until after the claims of those
holding senior securities have been met.
Lead investor The one investor who takes the lead in inducting other in-
vestors into a venture.
Leveraged buyout (LBO) One kind of transaction in the range of private
equity class of investments. A group of investors”usually including
364 GLOSSARY


management”acquires the stock/assets of the company largely through
debt financing.
Liquidation Going out of business; when creditors (this event would in-
clude shareholders) take over the assets of a company.
Liquidation preferences Allows investors on their own to liquidate the
company.
Liquidity Determined by a company™s ability to convert its assets to cash.
Living dead Financial purgatory, when an investor is stuck in a venture
with little or no liquidity.
Merger Joining of at least two companies.
Mezzanine A venture that has increasing sales volume and is breaking even
or is profitable; additional funds are to be used for further expansion,
marketing, or working capital.
Multipliers Increases the assets in dollars an entity supports with capital in
dollars.
Net present value The expected value of a future cash flow discounted to
present time using a discount factor proportionate with the risk of the ven-
ture™s projections.
Options Seen as a hedge by some and a risk by others, the right given to the
investor to buy or sell stock in the future at a preset price.
Payback period How many years it takes for an investor to recoup an ini-
tial capital investment.
Piggyback Occurs when more than one lender is involved in the same loan.
Postmoney valuation Measured by the valuation of a company after the in-
vestment has been made.
Preferred stock A class of stocks that takes precedence over common stock
in matters of payment of dividends or in liquidation.
Premoney valuation The valuation of a company before investments in it
have been made.
Prepaid expenses The money that covers expenses incurred in advance,
that is, before they are used; involves rent, for example, or insurance.
Price-earnings (P/E) ratio (or multiple) The relationship between the cur-
rent market share price of a stock to its earnings; used to determine a
share™s fair price.
Pricing The cost a company sets for the customer or client for its product
or service.
Private placement The investment in companies not traded on public
exchanges.
Profit margin percentage Measures the percentage of sales dollars that re-
sults in net income.
365
Glossary


Public offering The extremely complicated act (having to run the labyrinth
of SEC regulations) of “going public”; usually used to sustain a com-
pany™s expansion.
Rate of return After adjustment for inflation, the return realized annually
on an investment.
Receivables turnover Year-end accounts receivable credit sales divided, in
turn, by the number of days in the year; used to measure collection
problems.
Redeemable shares Shares that a company can repurchase in the future for
an agreed-upon price.
Representations What the entrepreneur vouches to an investor is true
about the venture.
Restricted stock Stocks that an investor can purchase directly from a com-
pany.
Return on equity ratio Net income divided by total shareholder equity;
used to measure the company™s and the management™s effectiveness.
Return on investment (ROI) The amount of return plus the time an in-
vestor deems acceptable in realizing that return on the investment; eval-
uates the efficiency of the company.
Screening The process by which investors weed out the deals that fail to
meet their criteria as they look for those they consider worthy of further
investigation.
Second-round financing The round of financing that follows the initial or
start-up round.
Seed stage A venture at great risk because it is in the idea stage or just in the
process of being organized.
Staging Rather than having an investor hand over the entire investment in
the beginning, he or she invests in increments as specified milestones are
met by the entrepreneur.
Start-up stage A venture at high risk because it is just completing product
development and initial marketing, and has been in business less than
two years.
Structure The way in which a company will accomplish its financing.
Structure planning The act of defining what the entrepreneurs and in-
vestors want to accomplish by the most efficient and profitable means.
Sweat equity The time and effort entrepreneurs have previously invested in
building a venture.
Syndication A major hedging strategy by which individual investors act
jointly to form a group and pool the money they invest in a deal, thereby
ameliorating financial risk.
366 GLOSSARY


Third-round financing Follows the second-round of financing for a start-up.
Treasury stock Repurchased stock previously owned by shareholders and
now held in the company™s treasury.
Turnaround A venture that is in need of capital to effect a change from un-

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