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START-UP LEXICON


Here you will find the most important terms in the start-up world, which every founder should know.
 
 

A

Accelerator

Accelerators pursue similar goals as incubators but have a different approach. Generally speaking, accelerators have a fixed frame and start date. Several pre-selected start-ups will start at this date. During the initial phase of a few months, the start-ups are under intensively supervision with the aim of creating a first marketable product at the end of the program. In the end, a so-called Demo Day will be held where start-ups pitch their ideas to investors.

Articles of associations
Anti Dilution Protection

B

Bootstrapping

The term boostrapping describes the financing of a start-up, in which founders get along without external financing. By minimizing all costs, the founder’s goal is to achieve early turnovers and a positive cash flow. If external money is needed for scaling, these start-ups are welcomed by investors.

Business Angel

C

Contract of participation

You’ll find any details about a participation of an investor associated with a start-up program in the contract of participation. In comparison to the partnership agreement (charter) it doesn’t need to be recorded in the trade register. Thus it’s non-accessible for the general public. A clause of secrecy is obligatory.

Crowdinvesting, Crowdlending
Capital increase

D

Down Round Protection

In case of a lower valuation of the start-up in a later financing round, an anti-dilution protection will be established. This means that the investment of the previous investor will be adopted to the lower valuation, as if he made his investment based on the current valuation. This is usually limited to one period or the next financing round. See also "Step Up".

Drag-along right
Due Diligence

F

Family Office

Wealthy entrepreneurs and their dependents often have their money managed by so-called family offices. These family offices only accept assets in excess of millions of euros. Due to their proximity to entrepreneurship, current figures show that up to 50% of the assets are invested in participations (shares and private equity). That means that beside venture capital companies, family offices can also be a good way to finance a start-up. Generally, family offices are not that prominent and difficult to find and get in touch with.

G

Guarantees of the founders

Investors protect themselves with regard to legal, economic, technical and fiscal circumstances of the start-up and define legal consequences as well as damages, if founders have given untrue information. For minor violations a damage allowance will be agreed on. At the same time, a maximum limit is agreed that is set, for example, on the amount of the investment.

I

Incubator

An inQventures is an institution and collaborative program designed to help start-ups to grow. There are many incubators from university for instance, who support start-ups with coaching and infrastructure (office space). Start-ups that are supported by incubators have a significantly higher chance of surviving on the market.

In addition to public facilities, corporate incubators have focused on helping start-ups in their early stages. inQventures assists in completing the founding team, provides infrastructure such as office space and helps not only strategically with the structure of the IT structure but also with the professional implementation with experienced architects and developers.

L

Letter-of-Intent (LOI), Term-Sheet, Heads of Agreement

A Letter-of-Intent is a written declaration of intent, in which two parties express their fundamental interest in concluding a contract. A LOI includes roughly the main points of the main contract – for example the economic ideas. As a rule, the LOI is non-binding, however, in participation negotiations, exclusivity and the confidentiality of the exchanged information are often legally binding for a certain period of time.

Liquidation preferences

M

Managing employment contract

Usually every company agreement has its solid lifetime so that the investor is able to keep a commitment with the founder and its start-up for a certain period of time.  Recorded are the agent’s authority, subject to approval businesses, non-compete agreement and general requirements and regulations; like for example salary (and bonus), additional services and sick pay or paid holiday.

Milestones
Mitverkaufsrechte und Mitverkaufspflichten

N

Nachrangiges Darlehen

Ein nachrangiges Darlehen wird in der Start-up Finanzierung oft mit einer Eigenkapitalbeteiligung kombiniert. Nachrangige Darlehen gehören zum sogenannten Mezzanine-Kapital, die im Falle einer Liquidation oder Insolvenz im Rang hinter anderen Forderungen stehen. Diese Darlehen werden verzinst und mit einem Fälligkeitsdatum ausgestattet. Gegenüber der Eigenkapitalbeteiligung hat das nachrangige Darlehen den Vorteil, dass es immer noch vor dem Rang des Eigenkapitals steht. Eigenkapital Investoren erhalten insbesondere bei einer Liquidation oder Insolvenz immer als letztes Geld, wenn noch welches vorhanden ist. Der Nachteil ist, dass sich aus dem nachrangigen Darlehen kein Mitspracherecht ergibt. Deswegen werden beide Finanzierungsformen kombiniert.

Non Disclosure Agreement (NDA)
non-compete agreement

P

Participation

An investor’s participation is registered and regulated in the articles of associations and in the contract of participation. Other important contracts - in relation to a participation - are the rules of regulation and their contracts.

R

Rules of Regulation

The relation between business executives and between manager and general assembly are regulated in the rules of regulation. Also very important is the catalogue of subject to approval arrangements and its right of information. The point is to represent the company by the manager without any limitations by law. In other words contracts are valid even though shareholders are disagreeing.

S

Smart Capital

Apart from venture capital, smart capital is an investments into a start-up with long term and strategic management support, which means that the company will profit from the experience and network of the investor. At inQventures, smart capital also means operational IT support from years of experience in different branches. In addition, the success of a start-up. In addition, market access (networks) are fundamental for the success of a start-up. That’s why more and more founders are looking for smart capital since experience and the right network is the key advantage to succeed in the marketplace.

Step-up rule

T

Tag-along right

The tag-along right ensures an investor or (minority) shareholder to sell his shares to the same price, to which another, often the majority shareholder sells his stakes. The tag-along right protects minority shareholders gives them the ability to participate in a deal.

V

Vesting

The know-how of a start-up in the early stage especially focuses on the founders. In order to prevent the operational know-how leaving the company, investors insist on a vesting clause in the participation agreement. Depending on the time and the reason, the founder must leave shares at nominal value or with a lower valuation when leaving the company. It is also crucial whether the founder leaves the company through no fault of his own (so-called good leaver) or for an important reason (so-called bad leaver).

In this context, a specific time is defined for which a vesting rule applies and can be subdivided into periods that individually determine the consequences. The vesting rule is also important for an exit. The know-how of the founders has to be handed over to new know-how carriers and founders often have to commit to remaining in the company for a certain period of time.

Venture Capital

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