Business Financing Terminology - dummies

Business Financing Terminology

People in the world of business financing talk a language all their own. When you enter the world of VCs and angels, you need a glossary of jargon to know to talk the talk.

  • Venture capitalists (VCs) range from small, independent operators to large firms that evaluate thousands of new business-funding proposals every year.

  • Angel investors are high net-worth individuals (that is, rich people) who are interested in getting richer by investing in promising new companies.

  • Seed financing: The initial investment in a start-up business. This funding may go toward testing and proving your business concept, developing your product prototype, or conducting market research.

  • Start-up financing: The initial level of investment required to get your company off the ground. The funds are used for everything from assembling your business team to developing your product or service, testing it, and bringing it to market.

  • First-stage financing: Additional money that comes in after your initial start-up funds run out. These funds are often used to support further growth by ramping up new product development, production, marketing, or your sales efforts.

  • Second-stage financing: Money raised down the road after your business has initially proven itself. The funds are typically used to allow the company to expand quickly by supporting growth in all areas of the company’s operations.

  • Mezzanine financing: We’re not talking about theater tickets here. Mezzanine means in between, and this financing falls in between an equity investment and a standard bank loan. This money allows your company to expand in a particular direction without having to give up additional ownership in the business.

  • Bridge financing: Like a bridge over troubled waters, this kind of financing can help your company through temporary rough spots. For example, companies sometimes get bridge loans before an Initial Public Offering (IPO) to smooth out any cash shortfalls that may occur before the IPO is completed.