Angel Investor Definition

  Glossary Resources Definitions  

Defining Angel Investors - When seeking startup capital from private sources, entrepreneurs need to first understand them. What are they looking for? What do they want? And where to angel investors live?

Welcome to our glossary site, where we will provide definitions to help you to understand what it takes to attract a seed investment.

Dictionary of Investment Terms

abandonment option Abandonment option is a term used for the option of terminating an investment earlier than originally planned.
acceleration request Acceleration Request is a request to the SEC to waive the statutory 20-day waiting period and declare the registration statement effective at an earlier date.
accredited investor Accredited Investor refers to a person or institution deemed capable of understanding and affording the financial risks associated with the acquisition of unregistered securities. An accredited investor has to meet certain SEC requirements for net worth and income as they relate to some restricted offerings. Some limited partnerships and angel investor networks accept only accredited investors.
act of state doctrine Act of state doctrine says that a nation is sovereign within its own borders, and its domestic actions may not be questioned in the courts of another nation.
all-or-none All-or-None is a specific type of a best efforts underwriting, that is, if the underwriter is not able to sell all of the shares being offered, none of the shares will be offered and the offering will be canceled.
antidilutive securities Antidilutive Securities refers to the securities whose assumed exercise would create an increase in earnings per share or a reduction in net loss per share. These securities are generally excluded from the computation of earnings per share.
bid and ask Bid and Ask is collectively called the "quote". The bid refers to the highest price a buyer is willing to pay for a stock, while the asked is the lowest price a seller will accept. The difference between the bid and ask prices is known as the "spread."
blue sky laws Blue Sky Laws is a popular name for laws various states have enacted to protect the public against securities frauds. The term "blue sky laws" is believed to have originated when a judge ruled that a particular stock had about the same value as a patch of blue sky.
carved-out entity Carved-out Entity refers to a subsidiary, division, or lesser business component that is separated from another entity. This carved-out entity may become a separate registrant through an IPO.
comfort letter Comfort Letter is letter provided by independent accountants reporting on the financial condition of a company, usually for an interim period since the last audit. Comfort letters provide "negative assurance" to the underwriter and are not included in the registration statement.
dilution Dilution refers to a reduction in a shareholder's relative ownership percentage of a company or the company's earnings per share (EPS) as a result of the company's issuance of more shares. Dilution in an IPO results from a disparity between the IPO price and the net book value of tangible assets for existing shares and is usually reflected in the registration statement in tabular format, referred to as a dilution table.
earn-out arrangements Earn-out Arrangements are arrangements in a business acquisition in which sellers receive additional future consideration for their security interests usually based on future earnings.
electronic data gathering, analysis, and retrieval (EDGAR) Electronic Data Gathering, Analysis, and Retrieval (EDGAR) is an electronic system developed by the Securities and Exchange Commission. EDGAR permits companies to file electronically with the SEC all documents required for securities offerings and ongoing disclosure obligations. EDGAR became fully operational mid-1995.
escrow account Escrow Account is a n account in which the offering proceeds are kept prior to closing, usually in a best efforts underwriting.
exempt offering Exempt Offering is a securities offering that does not require a registration statement to be filed with the SEC. Exempt offerings include Regulations A and D and intrastate offerings.
financial reporting releases Financial Reporting Releases or FRRs are releases designed to communicate the SEC's positions on accounting principles and auditing practices.
foreign corrupt practices act (FCPA) Foreign Corrupt Practices Act or FCPA is an amendment to the 1934 Act that requires reporting companies to keep adequate accounting records, maintain adequate internal accounting control systems, and not make certain payments to specified foreign officials and politicians.
f-series forms F-Series Forms is used by foreign companies to comply with the 1933 and 1934 Acts. Examples include (1) Forms F-1 through F-10, registration statements similar to Forms S-1 through S-4 and Forms SB-1 and SB-2, and (2) Form 20-F, an annual report similar to Form 10-K.
going public Going Public is an industry term used to describe the initial sale of shares of a privately held corporation to the public. To fund corporate expansion, a company may go public to raise capital.
green-shoe option Green-shoe Option or overallotment offer is an option contained in the underwriting agreement that allows the underwriter to purchase and sell additional shares if the market's demand for the shares is greater than originally expected.
industry pop - industry flurry Industry Pop or industry flurry is an industry where there has been a significant number of successful IPOs. Generally, in that industry, there may be many "me too" companies trying to follow the leaders.
insiders Insider is a term used for individuals that may have access to nonpublic information. In general, employees of a company that have knowledge that is not known to the public are considered insiders. Management, directors, and significant stockholders fall in this category, as well as others with knowledge of the operations of a company.
ipo backlog IPO backlog is the number of companies that have filed initial registration statements with the SEC but whose registration statements are not yet effective.
limited offering Limited Offering is an offering of securities exempt from registration due to exemptions for the size of offering and the number of purchasers.
listing application Listing Application is a document, similar in nature to a registration statement, formally requesting that an issuer's securities be listed on a national securities exchange.
lock-up period Lock-up period usually appears as a provision in the underwriting agreement, representing the period of time after an IPO during which (at the underwriter's request) insiders are prohibited from selling their shares. Lock-up period can range from a few months to several years.
market maker Market Maker is an underwriting firm that stands ready to buy and sell a company's stock and thus make a market where shareholders or prospective shareholders can dispose of or purchase shares.
national association of securities dealers (NASD) National Association of Securities Dealers or NASD is the largest securities-industry self-regulatory organization in the United States. The NASD develops rules and regulations, conducts regulatory reviews of members' business activities, disciplines violators, and designs, operates, and regulates securities markets and services for the benefit and protection of investors.
no action letter "No Action" Letter is a letter issued by the SEC stipulating that it does not object to a course of action proposed by a registrant. "No action" letters are generally issued after a request has been made by a registrant.
nonaccredited investor Nonaccredited Investors refers to those wealthy, sophisticated investors who do not meet SEC net worth requirements. Nonaccredited investors require less protection because of large financial resources, but only 35 nonaccredited investor can be included per investment.
over-the-counter market (OTC) Over-the-counter market is the market for securities issued by companies usually not listed on any stock exchange. OTC trading is the principal market for U.S. government and municipal bonds.
phantom stock plans Phantom Stock Plan is an incentive compensation arrangement where the employee is credited with a hypothetical number of shares (phantom stock units) of the company. Some phantom stock plans also provide for dividend equivalents, i.e., employees will receive amounts equal to dividends declared on the stock. Also known as Stock Appreciation Rights (SAR).
preliminary prospectus Preliminary Prospectus is the offering document printed by the company containing a description of the business, discussion of strategy, presentation of historical financial statements, explanation of recent financial results, management and their backgrounds and ownership. The preliminary prospectus has red lettering down the left hand side of the front cover of the prospectus and is called the "red herring."
price earnings ratio Price Earnings Ratio (P/E ratio) is a ratio used to evaluate the relationship between a company's price per share and the earnings per share (EPS). Price Earnings Ratio is an indicator of current financial performance and investor expectations for future performance. The higher the P/E ratio a company commands, the higher the expectations for future rates of growth.
primary offering Primary Offering is an offering in which all of the proceeds from the sale of previously unissued stock are received directly by the company.
qualified institutional buyer (QIB) Qualified Institutional Buyer or QIB primarily refers to institutions that manage at least $100 million in securities including banks, savings and loans institutions, insurance companies, investment companies, employee benefit plans, or an entity owned entirely by qualified investors. QIB also include registered broker-dealers owning and investing, on a discretionary basis, $10 million in securities of non-affiliates.
quiet period Quiet Period is the period which begins on the date an offering commences, usually once the company and its underwriter reach a preliminary understanding, and generally ends 90 days following the effective date of the registration statement. Referred to as the quiet period because of the SEC's restrictions on publicity about the company and/or its offering.
regulation a Regulation A are the provisions of the 1933 Act that contain the rules governing certain public offerings of no more than $5,000,000 which are exempt from registration. A Regulation A issue may require a shorter prospectus and carries lesser liability for directors and officers for misleading statements.
regulation d Regulation D is a regulation of the SEC that sets forth conditions necessary for a private offering exemption.
regulation s-b Regulation S-B specifies the form and content of financial statements as well as the disclosure requirements for the nonfinancial statement portion of filings to be filed with the SEC by small business issuers. Regulation S-B is an integrated and simplified version of Regulations S-K and S-X.
regulation s-k Regulation S-K contains the disclosure requirements for the nonfinancial statement portion of filings with the SEC.
regulation s-t Regulation S-T governs the preparation and submission of documents filed via the SEC's EDGAR system.
regulation s-x Regulation S-X specifies the financial statements to be included in filings with the SEC and provides rules and guidance on their form and content.
road show Road Show is a presentation to potential investors, brokers, and dealers by the company's management and underwriters in order to facilitate a securities offering.
rule 144a Rule 144A is a safe harbor exemption from the registration requirements of Section 5 of the 1933 Act for resales of certain restricted securities to qualified institutional buyers, which are commonly referred to as QIBs.
rule 504 Rule 504 is a rule under Regulation D that permits an issuer to raise up to $1,000,000 within a 12-month period. Under Rule 504, a company may offer securities to an unlimited number of investors and need not provide an offering circular to them.
rule 505 Rule 505 is a rule under Regulation D that exempts from registration offers and sales of securities of up to $5,000,000 during any 12-month period. Rule 505 limits the number of non-accredited investors to 35; however, there can be an unlimited amount of accredited investors.
rule 506 "Rule 506 is a rule under Regulation D that allows for the private placement of securities with an unlimited number of accredited investors and up to 35 sophisticated non-accredited investors regardless of the dollar amount of the offering."
safe harbor rule Safe Harbor Rule is SEC provisions that protect issuers from legal action if specified requirements have been satisfied or, in certain cases, if a good-faith effort has been made to comply with specified requirements.
secondary offering Secondary Offering is the registered offering of a large block of a security that has been previously issued to the public. The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company. The proceeds of a secondary offering are received by the selling shareholders, not by the company.
securities act of 1933 (1933 act) Securities Act of 1933 or 1933 Act is a federal law which requires full and fair disclosures that must be filed with the SEC before securities can be offered for sale in interstate commerce or through the mail. The 1933 Act also contains antifraud provisions that apply to offerings of securities.
securities exchange act of 1934 (1934 act) Securities Exchange Act of 1934 or 1934 Act requires companies registered under the 1933 Act to file periodic reports (e.g., Forms 10-K and 10-Q) with the SEC and to disclose certain information to shareholders. Companies traded over the counter with 500 or more shareholders and total assets of more than $10 million and companies that elect to be listed on a national stock exchange must file a registration statement to register under the Act.
seed financing Seed Capital is the money used to purchase equity-based interest in a new or existing company. This seed capital is usually quite small because the venture is still in the idea or conceptual stage.
short-swing profit recapture Short-Swing Profit Recapture is a requirement, included in the 1934 Act, whereby officers, directors, and persons deemed to have beneficial ownership of ten percent or more of a class of a company's equity securities are required to turn over to the company any profits realized from sale of the company's stock held for less than six months.
silent filing Silent Filing is a filing to the SEC that entails sending a written registration statement for initial review and waiting until all SEC comments are resolved before printing the registration statement and prospectus, i.e., the first printed version is the amended registration statement. Also known as a quiet filing.
sophisticated investor Sophisticated Investor is a potential investors who are capable of evaluating the merits of the investment venture as related to certain exempt offerings.
staff accounting bulletins (SABs) Staff Accounting Bulletins or SABs represent accounting interpretations and practices followed by the SEC staff in administering the disclosure requirements of the federal securities laws.
stock option plans Stock Option Plans are plans whereby employees are granted options to purchase stock of the company at a stated price within a specified period of time.
tender offer Tender Offer is a formal offer, usually by another company, to purchase a company's shares in order to gain control. Tender offers can be bilateral (friendly) or unilateral (unfriendly).
tombstone ad Tombstone Ad is an advertisement, usually in a business periodical, announcing the offering and its dollar amount, identifying certain members of the underwriting syndicate and indicating where a copy of the prospectus can be obtained.
treasury stock method Treasury Stock Method is a method by which options, warrants, and their equivalents are included in earnings-per-share computations. Treasury stock method assumes that the options and/or warrants are exercised at the beginning of the year (or issue date if later) and the proceeds are used to repurchase outstanding shares of common stock.
waiting period Waiting Period is a time during which the SEC studies a firm's registration statement. During waiting period the firm may distribute a preliminary prospectus.
window Window refers to the time during which the market is receptive to a particular type of offering.

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