The Book of Jargon®

Acronym for “private investment in public Equity.” In a PIPE transaction, a Public Company issues Equity Securities to Institutional Investors in a Private Placement and, if required for the relevant jurisdiction, undertakes to register the Equity Securities for public resale promptly after the transaction closes.

The face value of shares of a company’s Stock as set forth in the company’s Charter and the minimum amount per Share at which Stock can be sold under the corporation statutes of most jurisdictions.

If your Latin is a little rusty, this means “on equal footing” or equality of treatment, e.g., in a right of payment. In Startups, Pari Passu typically describes classes of Preferred Stock that have the same rights (as set forth in a company’s Charter).

Preferred Stock that receives both its Liquidation Preference and is then treated as if it was converted to Common Stock and also gets to participate in any assets distributed to the holders of Common Stock (or up to a certain specified amount if there is a cap). Participating Preferred is the most Investor friendly Liquidation Preference and allows the holders of Preferred Stock essentially to get the best of all worlds. Compare to Non-Participating Preferred.

Right to participate in the Distribution of assets to Common Stock upon a Liquidation held by holders of Participating Preferred. “Participation Rights” is also a phrase used at times to refer to Preemptive Rights.

A legal entity, which is an association of two or more individuals or entities to carry on a business created under state law. A Partnership is taxed as a pass-through entity (i.e., not separately taxed on its own income) and is usually governed by a Partnership Agreement, the mandatory contents of which are specified by the relevant law.

The agreement among partners of a Partnership governing their relative rights and obligations among one another with respect to the Partnership. See also Partnership.

The grant of a property right to an inventor issued by the US Patent and Trademark Office in exchange for public disclosure of the invention. The term of a new Patent is generally 20 years from the date on which the Patent application was filed. A Patent provides the owner with the right to exclude others from making, using, offering for sale or selling the invention in the US and the holder of the Patent must enforce this right. A Patent is a form of Intellectual Property and applicants can seek either a utility or design Patent depending on the nature of the invention. A formal registration and payment of the associated registration fees are required in order to receive a Patent.

Provision pursuant to which Stockholders are required to invest their Pro Rata Amount in future Financings or face a negative consequence. These consequences can range from forced conversion to Common Stock or conversion to Common Stock at a punitive Conversion Ratio or the loss of other preferential rights provided to the Preferred Stockholders.

Price paid for one Share of Stock.

The annual report on Form 10-K and the quarterly reports on Form 10-Q required to be filed with the SEC by all US public companies. US federal securities laws specify precisely who is required to file these reports, but as a general matter, the reports are filed by companies that have completed an IPO, have Securities listed on an exchange, or have a class of Securities registered under the Exchange Act.

Registration Rights that permit holders of Private Securities to “piggyback” into a Registration Statement originally filed by the Issuer for a separate purpose. These rights give the holder the ability to “jump onto” an offering that another party (either the Issuer itself or another Security holder) initiated. In Startups, these rights are typically set forth in the Investor Rights Agreement entered into in connection with a VC Financing. Compare Demand Registration Rights.

A presentation that entrepreneurs make to Investors or other constituents to describe why the company is a good investment, often focusing on a description of the company, its products or services, the problem the company is trying to solve, the market opportunity, financial projections and what the funding will be used for, among other things. If the pitch is a hit, you may enjoy a home run. See Elevator Pitch.

To change directions. For a Startup this typically means when the company decides to go after a different market or use a product/service for a different purpose than originally intended.

In a Private Placement, the agent responsible for introducing the Issuer to QIBs and Accredited Investors that may purchase Securities of the Issuer on the terms and conditions set forth in the Private Placement Memorandum (typically a Stock Purchase Agreement in VC Financings) or the Note Purchase Agreement.

A company that has been invested in by a Venture Capitalist and now sits in that Venture Capitalist’s “portfolio” of companies.

The valuation of a company after giving effect to a Financing. For example, if a company has a Pre-Money Valuation of US$20 million and raises US$10 million, the Post-Money Valuation is US$30 million (the Per Share Price in the last Financing multiplied by the Fully Diluted Shares in a company immediately after that Financing will also give you the Post-Money Valuation).

The night before Closing when you complete all the work so you can have a smooth Closing the next day. Don’t plan on getting much sleep.

Valuation of a company prior to the receipt of the investment in connection with a Financing calculated by taking the Per Share Price to be paid by Investors and multiplying that amount by the number of Shares outstanding immediately prior to the Financing (including any proposed increase to the Option Pool).

The repayment of a Debt obligation prior to the Maturity Date. Pre-Payment is generally not allowed in connection with Convertible Promissory Note (lest a company be able to pay off notes that are about to convert at an attractive price).

A relatively new investment choice, typically in the six-figure or lower realm, that some Startups complete after or concurrent with the Friends and Family Round and before Seed Capital is raised. With some Seed Capital Investors raising larger amounts for larger Financings, Pre-Seed Financing is becoming more common.

The rights given to existing Stockholders to have first refusal on the transfer of existing Shares or the issue of new Shares by a company. In Startups, these rights are typically given to Preferred Stockholders in a Preferred Stock Financing and are found in the Investor Rights Agreement. Okay, technically Preemptive Rights in Delaware can only exist in the Charter, but these rights are the contractual equivalent and generally people still (incorrectly) refer to them as Preemptive Rights. This is a Book of Jargon after all, so who are we to correct them?

The Director or Directors appointed by the Preferred Stockholders pursuant to the designation rights typically provided to Preferred Stockholders in a Preferred Stock Financing and set forth in the Voting Agreement.

Stock generally issued to Investors in connection with a Financing that has preferential rights (rights not held by Common Stockholders) that are set forth in the Charter and usually include rights relating to Liquidation, Dividends, Anti-Dilution Protection and Voting Right, among other things.

A transaction in which a corporation receives funds from Investors in exchange for shares of Preferred Stock, which have certain specified “preferential” rights that are set forth in the corporation’s Charter (usually as amended and/or restated in connection with the Financing) and a set of transaction documents that typically include a Stock Purchase Agreement, Investor Rights Agreement, ROFR Agreement and Voting Agreement.

A Stockholder that holds Shares of Preferred Stock in a corporation.

A company with Stock that does not trade in public markets. The term is often used in counter-distinction to the term Public Company. All Startup companies are Private Companies until they go public in an IPO.

A generic term sometimes used as shorthand for a Private Equity sponsor and/or the business of raising and managing Private Equity funds, which invest primarily in mature companies with the goal of buying a controlling stake in a company to make operational and other improvements prior to an Exit. By contrast, Venture Capital, although technically also “Private Equity,” generally refers to the purchase of a substantial (but usually minority) stake in a Startup viewed as having high growth potential. See Venture Capital.

A term coined to refer to a large private Financing (typically with a raise of more than US$40 million), including Investors such as mutual funds that are typically considered to be public market Investors, completed by a Late Stage company that would have traditionally completed an IPO.

A Private Placement of Securities (rather than a Registered Public Offering) done pursuant to an exemption from Section 5 of the Securities Act. VC Financings and almost all Financings done by Startups are Private Placements. See Section 4(a)(2) and Regulation D.

An information document prepared by a company, sometimes with the assistance of external Advisors such as lawyers and bankers, to market Securities of the company to potential Investor. A Private Placement Memorandum is sometimes called an offering memorandum.

Securities in a Private Company.

An amount in proportion, or prorated. For Startups, Pro Rata Amount is often used to refer to the amount of Stock one Investor will be able to purchase in a Financing pursuant to its Preemptive Rights.

A financial benefit realized when the amount earned from a specific activity exceeds the amount spent on such activity.

An agreement that all Startups should obtain from every Employee (including the Founders) immediately prior to beginning work for the company, pursuant to which the Employee agrees to assign any relevant inventions to the company and to clarify that all work product and inventions created while working for the company belong to company. This is critical to the protection of a company’s Intellectual Property. Proprietary Information and Investment Assignment Agreements are sometimes called confidential information and invention assignment agreements.

A marketing document included in the Registration Statement filed with the SEC that registered or public offerings are effected through. Plural is “Prospectuses.”

A type of veto rights that is often negotiated for in connection with a VC Financing that require the approval of the holders of a specified amount of the Preferred Stock before the corporation can take certain actions as set forth in the corporation’s Charter. These actions often include amendments to the Bylaws or Charter, subsequent Equity or Debt issuances and increases to the Option Pool. Protective Provisions are one of the key ways VC's maintain some control over actions that could impact their investment even if they don’t hold a majority of the Stock in the corporation or control a majority of the Board.

A company with Shares registered under the Exchange Act.

Another name for an Acquirer or Buyer.

A financial contract between a Buyer and a Seller, where the Seller has the right or Option to sell a specific quantity of a commodity, Security or other financial instrument to the Buyer at prices and within time periods that are stated in the contract.