Our spotlight topic for May and June is Finance. Here our Innovation Development Manager Jenny Kwok has explained ten finance terms that you may or may not have come across in business. How many do you already know?
Mezzanine finance is often described as a ‘hybrid’ or ‘halfway house’, combining elements of debt and equity funding. Mezzanine finance can be an effective way to finance growth strategies that entail an element of risk.
The general term for a process where an outside entity (e.g., lender, investor, acquirer, partner, client) reviews detailed information concerning a company's business, products, competitive position, staff, financial strength, and capitalization. This is usually carried out before an investor formally invests in a company.
A term sheet is a nonbinding agreement setting forth the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up, and investment is made.
An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist or business owner to liquidate a position in a financial asset or dispose of tangible business assets once certain predetermined criteria for either has been met or exceeded.
is a reduction in an existing investors proportional ownership in a company when a company issues additional shares.
A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period. The term Blue Chip is borrowed from poker, where the blue chips are the most valuable.
Peer-to-peer funding (P2P)
Is a method of lending money to individuals or businesses through online services that match lenders with borrowers. New businesses tend to use this form of funding if they have no financial track-record, which makes them unsuitable for more traditional lending sources. P2P is also known as "social lending" or “crowd-funding”.
People or organisations which supply businesses with money in exchange for a share of ownership. Informal investors are business angels and family/friends.
Is a loan (a debt obligation) that can be turned into equity (stock ownership), generally upon the occurrence of future financing. Often used to help investors hedge against dilution of their first round investments in early-stage companies.
is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.