Key Terms
FINANCING
The process of raising money.
ACCOUNTING
Recording, classifying, and communicating financial transactions via financial statements.
Short version
Financing is how you GET the money; accounting is how you TRACK and REPORT what happens to it once you have it.
ANGEL INVESTOR
Accredited wealthy individual investing in early stage companies; higher risk, higher potential return.
VENTURE CAPITALIST (VC)
An individual or investment firm that specializes in funding early stage companies. Differences from angel investors:
PRIVATE EQUITY
Later-stage investors; take companies private or invest in private companies toward an eventual IPO or acquisition.
INITIAL PUBLIC OFFERING (IPO)
The first time a company offers ownership shares for sale on a public stock exchange. Before an IPO, the company is priv
IPO ADVANTAGES
Access to a massive pool of potential investors.
SMALL BUSINESS ADMINISTRATION (SBA)
A government agency that partners with banks and credit unions to guarantee loans for small businesses. Typically guaran
ADVANTAGE of debt
Once repaid, the creditor has no further claim on the business. You keep full ownership.
DISADVANTAGE of debt
Repayment starts quickly; creates immediate cash outflow pressure; can be burdensome for new businesses.
VALUATION
Estimate of a company's total worth.
ADVANTAGE of equity
No immediate cash outflow requirement.
DISADVANTAGE of equity
The investor owns a percentage of future profits permanently; buying that ownership back is expensive.
TAX-EXEMPT STATUS
If a nonprofit generates a profit from operations, it is typically not subject to taxes. Must apply to the IRS and demon