SAFE Note (Financing)
A SAFE note is a form of financing used by early-stage startups (typically seed stage) to raise capital from investors. They are short five-page documents with standard, non-negotiable terms (other than the valuation cap). Like options or warrants, they allow investors to buy shares in a future priced round at a discount, however, unlike convertible notes, they are not debt and do not accrue interest.
Scalability
Scalability refers to the relative ability of a business to scale its operations. The scalability of a business directly affects its valuation, because it is related to how fast and how profitable it can be given the right market conditions. The more scalable a business’s model is, the more it is worth. Software startups and SaaS startups with asset-lite business models are often the highest valued companies because they can essentially scale indefinitely without inventory, physical assets, or intense amounts of labor.
Secretary’s Certificate
Secretary’s certificate is exactly what it sounds like: a certificate signed by the secretary of a company—that is delivered at the closing of a transaction. It typically contains the following information: certified copies of the organizational documents of the company, certified copies of the authorizing resolutions for the transaction, statements to the incumbency of all individuals executing the operative agreements, and all other necessary documents.
Securities Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is an independent governing body that oversees the rules and regulations related to the purchase, sale or transfer of securities in the US. The primary goal of the SEC is to enforce laws against market manipulation.
Securities Law Compliance
Securities law compliance refers to the adherence of the rules and regulations provided by the U.S. Securities and Exchange Commission (SEC) Financial Industry Regulatory Authority (FINRA). The penalties for violating securities laws range from time in prison to large monetary fines.
Seed Funding
Seed funding is typically the first official round of equity funding into a business (preceded occasionally by a pre-seed round). Seed funding is leveraged by companies to finance their first round of market research and product development, along with the hiring of a couple of key individuals. The typical investors of a seed round include: friends, family, incubators (like YCombinator), and angel groups and angel syndicates. The typical amount of seed funding ranges from $25,000-$2 million (the medium was $1 million in 2020), at a valuation between $3-6 million.
Senior Creditor
Senior creditor refers to a financier that is paid back first in the event of a bankruptcy, followed by junior or subordinated debt holders or hybrid debt holders (e.g. convertible notes), preferred shareholders and lastly common shareholders. Senior creditors are often bondholders or banks that have revolving credit lines, and typically require a lien against a company’s collateral to secure the credit facility.
Senior Debt
Senior debt, also known as senior notes or senior loans refers to a form of debt financing that is repaid first in the event of bankruptcy, followed by junior or subordinated debt holders or hybrid debt holders (e.g. convertible notes), preferred shareholders, and lastly common shareholders. Senior debt typically requires a lien against a startup’s assets or collateral, and a personal guarantee from the founders of said startup to secure the capital.
Serviceable Available Market (SAM)
Serviceable available market (SAM) refers to the portion of a company’s TAM that is targeted by a company’s products and services, and is within its geographical reach. The SAM of a business is always smaller than its TAM, and larger than its serviceable obtainable market (SOM).
Serviceable Obtainable Market (SOM)
Serviceable obtainable market (SOM) refers to the portion of a company’s SAM that can be reasonably expected to be captured. The SOM of a business is always smaller than its SAM and
TAM.
Shareholders’ Agreement
A shareholders agreement is a pre-arranged document that outlines how the company will operate, and the rights and obligations that the shareholders of the company have. The purpose of this document is to ensure that shareholders are treated fairly and that their rights are protected. It typically includes: the number of shares issued; a cap table; any restrictions on transferring shares; pre-emptive rights; and payments details in the event of an exit. Shareholders’ agreements are optional and are most helpful when an organization has a small number of active shareholders.
Silent Partner
A silent partner is an investor who shares in a startup’s profits and losses but is not involved in the day to day operations or management of the business. Typically a startup’s pre-seed and seed investors, such as angel groups or angel syndicates, are silent partners. But as a startup matures and raises additional rounds of funding, the investors become active partners, occasionally through a seat on the company’s board of directors.
Single Entry Bookkeeping
Single-entry bookkeeping refers to a method of accounting in which each transaction is recorded as a single-entry in a journal. The cash-based bookkeeping method tracks incoming and outgoing cash for a business, leading to a cash balance at the end of a period. Typical cash books include the following for each transaction: date, description, value, cash on hand. A great example of single entry bookkeeping, is the daily activity of balancing your physical checkbook (assuming you still have one).