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Terms Venture Capitalists Should Know

Contacts+ Team | April 26, 2022

Photo by RODNAE Productions

Whether you’re a venture capitalism newbie or someone who wants to refresh your knowledge about the industry, an understanding of terminology is indispensable. 

Being able to “talk the talk” is essential in helping you gain confidence as a venture capitalist, find sound footing in the industry, and to flow better when you engage in discussions or meetings.

We compiled this list so you’d have some of the industry’s key terms at your fingertips.

What 7 Venture Capitalist Terms Mean

What is Equity?

As a venture capitalist, this term is a predominant one that will spring up in various discussions. Simply put, it is the percentage of ownership an individual possesses in a business. Usually, when venture capitalists invest in an entity, it is done in exchange for equity, or the percentage held in a company’s shares.

What is a B2B?

Knowledge of the kind of model an organization utilizes is expedient and can be very helpful in your decision-making process. B2B, business-to-business, means that a company’s target customers are other businesses, and it sells its products and services to other businesses, rather than an individual consumer. 

Another related term and probably the more common business model employed is the B2C, business-to-consumer, the typical delivery of goods and services directly to customers.

What’s the difference between Merger and Acquisition?

While these terms have been used in close relation and often interchangeably, they do not mean the same thing and have subtle implications. 

A merger occurs when two companies pull together resources to form a joint company. In contrast, an acquisition occurs when a more established company purchases and takes over another company, usually one with less strength. 

Acquisitions can either be friendly, which is when it is done with an agreement, or hostile, one which is done without any agreement drawn up.

Explain Liquidation and Liquidation Preferences.

Liquidation is a reasonably common occurrence in the business sphere. It happens when a business does away with its assets and inventory by selling it off and bringing it to a halt.

Typically, a contract is drawn up that serves to protect the interest of investors, thereby giving them access to obtaining their money in the occurrence of liquidation; this contract clause is referred to as the liquidation preference.

What is a Proof of Concept?

A proof of concept portrays the feasibility of a startup idea or concept. As a venture capitalist, this would be demonstrated when startups pitch their ideas to you for funding. 

What is an Initial Public Offering (IPO)?

The initial public offering refers to the initial time a company tenders its shares of stock to the public on the stock exchange. When this occurs, the company switches from a private company to a public company. Any other subsequent stock made by the company is referred to as a secondary public offering.

What does Benchmark refer to for VCs?

Benchmark refers to the yardstick a startup company uses to measure its success. As an investor, it refers to the specific pointers investors look out for to measure a startup’s growth, usually used in deciding whether to invest in the startup or not.