The Book of Jargon®

Acronym for the Foreign Corrupt Practices Act. This statute prohibits US companies from bribing foreign governmental officials in exchange for contracts, concessions or other benefits conferred by the foreign government.

Acronym for Fear of Missing Out.

For Stock, the current value that a third party would pay for Shares in a company on a per share basis in an “arm’s length” transaction, usually without regard to any discounts for lack of a trading market or minority interests. For shares of Common Stock in a Startup, the Fair Market Value is usually determined by the Board or an independent third-party valuation firm through a 409A Valuation.

Just ask a teenager, often used to describe an Investor's decision to invest in a Startup based on a fear of missing out on the next big thing.

A party with a duty to act solely in the interests of another party. Officers and Directors of a corporation serve as fiduciaries for the corporation’s Stockholders and as such owe Fiduciary Duties to such Stockholders.

See Fiduciary. See also, e.g., Duty of Candor, Duty of Care and Duty of Loyalty.

In a transaction with multiple Closings, Final Closing is the last Closing.

The Income Statement, Balance Sheet and Cash Flow Statement of a company.

A transaction in which a company receives funds from Investors, in exchange for Equity or Debt. The payoff after many calls, emails, texts and meetings with potential Investors, countless Pitches and other hard work.

Generally describes the type of Financing by referring to the nature of the Investors (i.e., an “Angel Round” or “Friends and Family Round”) or to the Security being sold in a Financing (i.e., an “Equity round” or “Convertible Promissory Note round”). When Equity is sold, the particular Financing Round is normally identified by the series of Stock being issued in a particular Financing, such as a Series Seed Round, Series A Round, Series B Round, Series C Round, Series D Round, etc.

Someone who uses his/her connections and resources to find Investors to put money in a company. Companies should be careful if they pay any compensation to a Finder based on the success of a Financing — subject to limited exceptions, such Finders are required to be registered as Broker-Dealers with the SEC.

A public offering of Common Stock by a public Issuer subsequent to their Initial Public Offering (IPO).

When a corporation is doing business in a state that is not its state of Incorporation, the corporation needs to file an application to qualify to do business in that “foreign” state. Whether a Foreign Qualification is necessary depends on the level of business the corporation is conducting in the foreign state (things like presence of an office or Employees in a state typically trigger this requirement). Since each state has its own rules and requirements, it is a good idea to consult with your legal or tax advisors when deciding where you should apply for Foreign Qualification.

Refers to provisions found in a Restricted Stock Purchase Agreement, which provide that when a Stockholder is no longer employed or providing services to the company, any unvested shares will automatically be forfeited back to the company for no additional consideration at the time such services end. Forfeiture Provisions are typically seen when the Restricted Stock is issued to the Stockholder in consideration for services or at nominal cost. Compare to Repurchase Provisions.

A securities law filing made with the SEC after a Financing to procure a safe harbor exemption under Rule 506 under the Securities Act (i.e., Reg D). Startups should understand that once made, this filing is publicly available through the SEC’s EDGAR system and may be picked up and written about in the press.

The SEC form Registration Statement filed by an Issuer in connection with an Initial Public Offering.

One of the initial Stockholders of a company who brings Intellectual Property or other valuable contributions to the company to get the business started. The Founders also typically serve as the initial Officers and Directors of the company. Despite the common misconception, being called a Founder does not bring with it any additional rights above those held as a result of the Equity or positions held within the company. Founder is not a legal term.

Also referred to as Series FF Preferred Stock, is a separate class of stock sometimes issued by corporations to Founderat Incorporation. The goal of Founder Preferred Stock is to better facilitate the sale of stock by founders in connection with a future Equity Financing.

Founder Preferred Stock is closer to Common Stock than Preferred Stock, except that the terms of the Founder Preferred Stock (as set forth in the corporation’s Certificate of Incorporation) provide that if the Founder sells Founder Preferred Stock to Investors in connection with a future Equity Financing, the Founder Preferred Stock sold automatically convert into the same class of Preferred Stock issued by the corporation in the Equity Financing.

Representations made by a Founder in a Stock Purchase Agreement. These representations are typically only seen, if at all, in early Financing Rounds (like a Series Seed or Series A round) and are not common in subsequent rounds. Investors sometimes request these representations in early Financing Rounds where the Founders are essentially the entire company and are aware of every facet of its business, which becomes less and less true as a company grows.

Equity held by Founders, which is typically Common Stock in a Startup.

A pricing strategy that offers a basic version of a product to users for free with the goal of selling them additional features for a fee.

Generally, one of the first Financing Rounds that a Startup completes. Usually the Investors in a Friends and Family Round invest smaller amounts, and this investment is often structured as Convertible Debt Financing (allowing the company to postpone valuing itself too early). Also, as the name describes, most Investors in this type of Financing Round are friends and family members of the Founders. So while friends and family members may be more willing to invest because of their relationship to the Founders, the friends-and-family relationship dynamic can also put extra pressure on the Founders who do not want to let these people down.

The most drastic type of Anti-Dilution Protection; very rarely seen in VC Financing. Full Ratchet Anti-Dilution Protection means that if a company sells Shares at a price below that paid by Investors in the company’s most recent Financing, then the Investors with Full Ratchet Anti-Dilution Protection have their Conversion Ratio adjusted so that when their Shares of Preferred Stock convert into Common Stock they would receive the same number of Shares of Common Stock as if they had originally purchased their Shares at the new lower price. Full Ratchet Anti-Dilution Protection could result in a significant transfer of ownership from holders of Common Stock (usually Founders) to holders of Preferred Stock, and can be counter-productive if the Dilution to the Founders leaves them without sufficient incentive to continue to build the business. Compare to Weighted Average Anti-Dilution Protection.

A way of describing the total Equity of a company that includes both the Outstanding Shares and all Options, Warrants and any other Convertible Securities. Fully Diluted is often used in the context of determining what percentage of a company one person holds — if you describe percent ownership on a Fully Diluted basis, that simply means you’ve included all Convertible Securities (as if they have converted) in the denominator, as opposed to just the Outstanding Shares.

An amount equal to the revenue of a company divided by the total number of shares on a Fully Diluted basis.