Accredited Investor: A person with a net worth of 1 million dollars or more excluding the value of their primary house, or an income of $200,000 a year for the last two years, or a couple with a joint income of $300,000, or a qualified institutional buyer. Accredited investors are currently legally allowed to invest in non-publicly traded startup companies and can offer or purchase certain securities.
Broker-Dealer: Registered professionals, firms, or agencies that buy and sell securities on behalf of clients, including large stock brokerages. Broker-Dealers execute securities sales and purchases on behalf of clients, provide investment advice to customers, supply liquidity through market-making activities, publish investment research, raising capital for companies, and operate market platforms. Broker-Dealers must be registered with the SEC and are closely regulated. Several types of investment crowdfunding and general solicitation activities require that the issuer work with a registered broker-dealer.
Blue Sky Laws: State specific regulations in the united states meant to protect investors from fraud. These laws vary from state to state, but in general they require the registration of all securities offerings and sales with each states appropriate regulatory agency. Some SEC registration exemptions, such as Registration A Tier 2 offerings, pre-empt blue sky laws, meaning that if a securities offering adhears to the SECs requirements it does not have to register and comply with different blue sky laws in every state.
Convertible Note: A hybrid security. It is a short term loan made to a startup which accrues interest and then converts into equity at a pre-determined time or event, usually issued when a company raises its seed investment round, and then converted to equity when its next Series A round of investment in which its valuation is better established.
Crowdfunding Platform: A website which facilitates crowdfunding by allowing people or companies seeking money to raise it from members of the public. Platforms list different projects, collect and process the payments between those the crowdfunders giving money and the crowdfundees receiving it.
Crowdfunding Portal: Similar to a crowdfunding platform, a portal does not handle investments or finances, but merely acts as an intermediary connecting investors with projects and businesses online. The term Crowdfunding Portal is strictly defined by the SEC in the JOBS act.
Crowdsourcing / Crowd Sourcing:Piecing together skills and tasks performed by many individuals to put together a larger project.
Debt Crowdfunding: Obtaining a loan from several lenders, often private individuals. The loan money must be repaid with a fixed interest rate in an agreed upon amount of time. Also called peer-to-peer lending.
Donation Crowdfunding: Money is obtained on a donation basis from several individuals and businesses but nothing is returned to those who give the money. Often donation crowdfunding is most successful among charities and non-profits.
Emerging Growth Company: A company with revenues below one billion dollars per year, as defined by the JOBS act. Companies meeting these requirements may be eligible for certain privileges, like being allowed to use test-the-waters communications with qualified institutional buyers.
Equity Crowdfunding: Funding projects and businesses through investments by people who then receive equity ownership shares in the resulting company or product.
General Solicitation: The practice advertising to potential investors outside of one’s current network with the intent of fundraising, as is now allowed by the SEC for private issuers under particular registration exemptions enabled in the JOBS act (Title II 506c, Title IV Reg A, and upcoming Title III Reg CF).
I.P.O: An Initial Public Offering. The first sale of stock to public investors by a new company or by an existing company in a new product or project.
JOBS Act: The Jumpstart Our Business Startups Act, which was signed into law in 2012. The act eases some securities regulations in order to make it easier for businesses to launch, including through crowdfunding.
Peer to Peer (P2P) Lending: A form of debt crowdfunding, peer to peer lending is when individuals or individual companies offer loans to other individuals or companies. There is a fixed rate of return for such loans.
Primary Market: The first sale of new securities to investors in order to raise investment money for the issuing company. (As opposed to a Secondary Market in which investors buy and sell securities among each other without the issuing company receiving the funds.)
Private Offering: The sale of investment securities by businesses who do not wish to raise funds through public offerings can seek private placement with a small group of investors. Private offerings must adhere to the rules of any one of several SEC registration exemptions.
Real Estate Crowdfunding: Reserved largely for wealthy investors, real estate crowdfunding involves using mainly equity and peer-to-peer lending to finance real estate purchases using multiple investors.
Reward: Something given to investors in exchange for their funds while crowdfunding, either the first run of an actual product, or a shirt, sticker, or small object related to the project or company being funded, or even just a “thank you” acknowledgement.
Rewards Crowdfunding: Crowdfunding in which backers receive a reward in exchange for their financial gift. Reward types are often based on the amount given by investors. Some are offered in various forms that the investors can choose from.
S.E.C.: Securities and Exchange Commission. The part of the United States government that regulates investment and finance, including startups and the various forms of crowdfunding.
Secondary Market: A market on which securities and assets such as stocks are bought and sold between investors. Secondary Markets provide liquidity by allowing investors to exchange their investment for cash. Also called the aftermarket. (As opposed to a Primary Market in which securities and assets are purchased directly from the issuer.)
Securities: Examples of securities include stocks, bonds, and certificates. These serve as financial and/or investment instruments that hold certain values and that can be bought, sold, and exchanged.
Venture Capital (VC): Equity funding in a startup provided by an investment company.
Venture Exchange: A secondary market in which early investors in startups and small businesses could sell their shares, and new investors could buy and trade private stocks. Meant to improve the liquidity for the securities of small companies. There is currently a draft bill in the house of representatives intended to expand the use of Venture Exchanges in the US.