Participating Preferred

During a sale, holders of preferred stock get preferential treatment and are typically paid first before holders of common stock. What makes participating preferred unique even when it comes to preferred stock is that holders of this stock class are entitled to receive a share of any remaining liquidation proceeds on an as-converted to common stock basis, after they have already gotten back their liquidation preference.

Payback Period

Payback period refers to the amount of time it takes to recover the cost of an initial investment. In other words it is the length of time required for an investment to reach the break even point. The shorter the payback period, the more attractive a loan is to an investor. 

Payback Terms

Payback terms, also known as repayment terms, outline the principal, interest (or discount) rate,  and monthly payment amount.

Payment-in-Kind

Payment-in-Kind refers to the instance where goods or services are used as payment or compensation in lieu of cash. 

 

Peer-Peer Lending

Lending or personal loans provided by private investors instead of traditional financial institutions like banks or credit unions. Well known peer-peer lending companies include: 

Personal Guarantees

The term ‘personal guarantee’ represents an individual’s legal promise to repay credit issued to a business for which they serve as an executive or partner. Personal guarantees help extend credit worthiness and help businesses secure access to capital that they typically wouldn’t qualify for on their own. 

Personal Property

Personal property is a class of property that can include any asset other than real estate. The main criteria qualifying an asset as personal property is that it is movable (not fixed permanently to one particular location).

Petty Cash

Petty cash is a nominal amount of money readily accessible for paying expenses too small to merit writing a check or using a credit card. Company’s typically keep between $100-$500 on hand to pay for small transactions like office supplies or catered lunches.

Pitch Competition

A pitch competition is a business contest where entrepreneurs present their business concept to a panel of judges in hopes of securing cash prizes or investment capital. Popular pitch competitions include Y Combinator Demo Day, TechCrunch Disrupt, Hatch Pitch and Web Summit.

Pivot

A pivot is essentially a shift in business strategy to test a new approach regarding a startup’s business model or product. Startup founders and operators may choose to pivot their business strategy to better accommodate the needs of their target audience, to break into a new vertical or industry, or to better optimize their business’s finances. 

Portfolio Company

The term ‘portfolio company’ is used to describe a company in which an investor owns an ownership stake in it. Investors look to increase the value of their portfolio company to recapture and earn a return on their investment. 

Post-Money Valuation

The term ‘post-money valuation’ refers to the worth of a company after it has completed a round of funding. The post-money valuation of a company is calculated by dividing the investment amount received by the equity (percentage) purchased by the investor. The post money valuation of a business is always higher than the pre-money valuation of a business. 

Pre-Money Valuation

The term ‘pre-money valuation’ refers to the value of a company prior to completing a round of funding. It gives investors an idea of the current value of the business and provides the value of each issued share. It is calculated by subtracting the investment amount from the post-money valuation. The pre-money valuation of a business is always lower than the post-money valuation.

Pre Seed Funding

Pre seed funding typically follows friends and family rounds. It refers to the initial round of “professional” equity capital into a business. Companies raising pre-seed funding sometimes do not have a product, or even have a prototype—sometimes all they have is an idea. While the amount of capital raised from this form of fundraising can vary, it’s typically between $100-$500k.

Preferred Equity (Preferred Stock)

The term ‘preferred equity’ refers to any class of securities (stock, limited liability units, limited partnership interests) that have a higher priority for distributions in a liquidity event or a dividend event (compared to common equity). Investors typically require their portfolio companies to have two classes of stock: common and preferred—they also require their equity be considered preferred.

Prepayment Penalty

A prepayment penalty is a fee that debt-financiers charge when the debtor pays off all or part of their loan early. This fee along with other applicable fees are outlined in the “Summary of Loan Documents”.

Priced Round

In a priced round, investors purchase stock in a company at an agreed-upon price per share. Priced rounds typically follow the issuance of a SAFE or a convertible note in a prior round, and are the most common investment structure in venture capital. 

Principal

Principal refers to the amount of money that is borrowed through a loan—it generally needs to be paid back in accordance with the repayment terms and along with the predefined interest (whether variable or fixed).