Lexicon

A term defined by the Securities and Exchange Commission to refer to investors who are financially sophisticated and have a reduced need for the protection provided by mandated disclosures that are produced when a securities offering is registered with the SEC. Accredited investors typically have individual income of more than $200,000 per year ($300,000 with their spouse), or have a net worth of over $1 million excluding home value. Accredited investors also include the general partners, officers, and directors of the company offering securities.

An accounting principle that matches revenues to expenses at the time in which the transaction occurs rather than when payments are made or received. This principle allows a company to combine current cash inflows and outflows with future expected inflows and outflows to give an accurate picture of the company's current financial condition.

Anyone who invests his or her own money in a startup at the very early stage of a company’s life. That means if you invest in a startup, you are acting as an “angel” by providing financial backing to the entrepreneurial venture. Angels do not have to be millionaires, but they do need to be financially sound enough to withstand losing their investment.

The general term for the process of evaluating a person, organization, system, process, company, project, or product is an audit.

The balance sheet shows what a company owns and what is owes at a particular point in time. It provides details about a company's assets, liability, and shareholder equity. The balance sheet is based on the accounting equation that shareholder equity is equal to a company's assets minus its liabilities. Investors should bear in mind that because a balance sheet is a “snapshot” of the company’s finances on a given day, events that happen immediately before or after that date might not be reflected.

State regulations that cover the offering and sale of securities within state boundaries. The term comes from a 1917 Supreme Court decision in which Justice Joseph McKenna wrote that he wished to protect investors from securities with "no more basis than so many feet of blue sky."

Investors who buy bonds lend money to the company for a specified period of time (e.g. 3 or 5 years) and the company promises to repay the loan at a specified time with a fixed interest rate. If you buy a bond, you are in effect lending money to the company and taking a chance that it will be able to pay you back when the time comes. If the Company goes bankrupt before the bond matures (i.e. when the company promised to pay you back), you will have lost all your money. If the company is very successful and goes public, you will not be able to benefit as much as if you had bought shares since you are not an owner in the company, you are a lender or bond-holder.

The amount of money is the company is spending in the pre-revenue or start-up phase. It is called the burn rate because the company is using up its current cash without bringing in revenue to offset expenses. Investors can use the burn rate to work out how much longer the company can keep going before it has to raise more money.

A set of rules adopted by the company for the governance of its officers, directors, and shareholders.

Under the CROWDFUND Act, an investor is limited in the amount she may invest in crowdfunding securities in any 12-month period. If the annual income or net worth of the investor is $100,000 or more, the investor is limited to 10% of his or her annual income or net worth, to a maximum of $100,000, in any 12-month period.

Under the CROWDFUND Act, an investor is limited in the amount he may invest in crowdfunding securities in any 12-month period. If either the annual income or the net worth of the investor is less than $100,000, the investor is limited to investing the greater of $2,000 or 5% of his or her annual income or net worth.

Under the CROWDFUND Act, a company is limited to raising $1 million through issuing crowdfunding securities in any 12-month period. The amount the company raised through any securities crowdfunding offering in the preceding 12-month period counts towards the $1 million cap.

A cash flow statement report a company's inflows and outflows of cash. Unlike the balance sheet, a cash flow statement shows changes over time rather than provided a snapshot of the company's activities at a fixed point in time.

The basic organizational document filed with a state to legally operate as a company. It may also be called the Articles of Incorporation.

Stock in a company that entitled the holder to a share in the company's profits and a share of the voting power in shareholder elections.

A debt instrument that can be converted into other securities, such a preferred stock, under certain conditions.