Entrepreneur Dictionary for Startups

The entrepreneur dictionary for startups contains terms and definitions commonly used by entrepreneurs, investors, accelerators, and others who interact with startup ventures and startup financing.
For more entrepreneur resources check out our  Acronyms for StartupsInfographics, or Startup FAQ.

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R&D -  Research and Development
Raising Capital -  Raising capital refers to obtaining capital from investors or venture capital sources.9
RAM -  Random Access Memory
Recapitalization -  The reorganization of a company’s capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility. Recapitalization can be an alternative exit strategy for venture capitalists and leveraged-buyout sponsors. (See also: Exit Strategy and Leveraged Buyout.)3
Reconfirmation -  The act a broker/dealer makes with an investor to confirm a transaction.3
Red Herring -  The common name for a preliminary prospectus, due to the red SEC required legend on the cover. (See also: Prospectus.)3
Redeemable Preferred Stock -  Redeemable preferred stock, also known as exploding preferred, at the holder’s option after (typically) five years, which in turn gives the holders (potentially converting to creditors) leverage to induce the company to arrange a liquidity event. The threat of creditor status can move the founders off the dime if a liquidity event is not occurring with sufficient rapidity.3
Registered Offering -  [“Public Offering”] A transaction in which a Company sells specified securities to the public under a Registration Statement which has been declared effective by the SEC.3
- Synonyms: Public Offering
Registration -  The SEC’s review process of all securities intended to be sold to the public. The SEC requires that a registration statement be filed in conjunction with any public securities offering. This document includes operational and financial information about the company, the management, and the purpose of the offering. The registration statement and the prospectus are often referred to interchangeably. Technically, the SEC does not “approve” the disclosures in prospectuses.3
Registration Obligation -  The obligation of Company to register the shares issued to an investor in a private offering for resale to the public through a Registration Statement which the SEC has declared effective.3
Registration Rights -  The right to require that a company register restricted shares. Demand Registered Rights enable the shareholder to request registration at any time, while Piggy Back Registration Rights enable the shareholder to request that the company register his or her shares when the company files a registration statement (for a public offering with the SEC).³
Registration Rights Agreement -  Separate agreement in which the investor’s registration rights are evidenced.3
Registration Statement -  The document filed by a Company with the SEC under the Securities Act in order to obtain approval to sell the securities described in the Registration Statement to the public. [S-1, S-2, S-3, S-4, SB-1, SB-2, S-8, etc.] Includes the Prospectus.3
Regulation A -  SEC provision for simplified registration for small issues of securities. A Reg. A issue may require a shorter prospectus and carries lesser liability for directors and officers for misleading statements.3
Regulation C -  The regulation that outlines registration requirements for Securities Act of 1933.3
Regulation D -  Regulation D is the rule (Reg. D is a “regulation” comprising a series of “rules”) that allow for the issuance and sale of securities.3
Regulation D Offering -  (See Private Placement.)3
Regulation S -  The rules relating to Offers and Sales made outside the US without SEC Registration.
Regulation S-B -  Reg. S-B of the Securities Act of 1933 governs the Integrated Disclosure System for Small Business Issuers.3
Regulation S-K -  The Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934, and Energy Policy and Conservation Act of 1975.3
Regulation S-X  -  The regulation that governs the requirements for financial statements under the Securities Act of 1933 and the Securities Exchange Act of 1934.3
Reporting Company -  A company that is registered with the SEC under the Exchange Act.3
Representations and Warranties -  A list of material statements or facts that are included in the investment documentation and to which the entrepreneur unequivocally commits.7
Resale Registration -  Registration by a Company of the investor’s sale of the shares purchased by the investor in a private offering.3
Restricted Securities -  Public securities that are not freely tradable due to SEC regulations. (See also: Securities and Exchange Commission.)3
Restricted Shares -  Shares acquired in a private placement are considered restricted shares and may not be sold in a public offering absent registration or after an appropriate holding period has expired. Non-affiliates must wait one year after purchasing the shares, after which time they may sell less than 1% of their outstanding shares each quarter. For affiliates, there is a two-year holding period.3
Retained Earnings -  Retained earnings are the corporate profits that are neither paid out in cash dividends to stockholders nor used to increase capital stock, but are reinvested in the company. It is calculated by adding company's net income to beginning retained earnings and subtracting any dividends paid to shareholders.9
Return on Investment - 
  • (ROI) This term is also referred to as the rate on return (ROR) or rate of profit. It is the amount of money that is gained in a past or existing investment. For example, angel investors tend to invest in startups and early stage companies. Because such investment is considered to be risky, they expect a large ROI to compensate for such risk.4
  • Return On Investment or ROI is the profit or loss resulting from an investment transaction, usually expressed as an annual percentage return. ROI is a return ratio that compares the net benefits of a project versus its total costs.5

- Synonyms: ROI
Reverse Vesting -  When founders of a company agree that they will give back part of their stock holdings if they leave the company before a specified date (typically four years).  This is usually required by investors, and a good thing for founders themselves in the case of multiple founders.7
RFP -  Request for Proposal
Right of First Refusal -  A right is given to enter into a business transaction before others. For example, preferred stockholders have the right to purchase additional shares issued by the company.2 The right of first refusal gives the holder the right to meet any other offer before the proposed contract is accepted.3
Rights Offering -  Issuance of “rights” to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering.  Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed-end funds, which cannot otherwise issue additional ordinary shares.3
Risk -  The probability that part or all of an original investment will be lost or that investment returns will be lower than anticipated.  Numerous factors may impact these potential investment and return losses, including but not limited to demand risk, economic risk, environmental risk, funding risk, legislative risk, maintenance risk, operational risk, procurement risk, technology risk and timing risk.6
ROA -  Return on Assets
ROC -  Return on Capital
ROE -  Return on Equity
ROI -  Return on Investment
ROIC -  Return on Invested Capital
ROR -  Ruby on Rails
Royalty Based Financing -  Royalty based financing presumes a fundamental trade-off between the investor and the business owner. In lieu of an equity ownership stake given to the investor, business owners agree to return to the investor the original principal plus either a predetermined multiple of the original investment (fixed dollar payback) or payment of the royalty until a fixed period of time has elapsed (fixed time payback). In some cases the royalty is based on a percentage of sales of a specific product or set of products.9
RRR -  Required Rate of Return
RTO -  Reverse Takeover
Rule 144 -  Rule 144 provides for the sale of restricted stock and control stock. Filing with the SEC is required prior to selling restricted and control stock, and the number of shares that may be sold is limited.4
Rule 144A -  A safe-harbor exemption from the registration requirements of Section 5 of the 1933 Act for resales of certain restricted securities to qualified institutional buyers, which are commonly referred to as “QIBs.” In particular, Rule 144A affords safe-harbor treatment for reoffers or resales to QIBs — by persons other than issuers — of securities of domestic and foreign issuers that are not listed on a U.S. securities exchange or quoted on a U.S. automated inter-dealer quotation system. Rule 144A provides that reoffers and resales in compliance with the rule are not “distributions” and that the reseller is therefore not an “underwriter” within the meaning of Section 2(a)(11) of the 1933 Act. If the reseller is not the issuer or a dealer, it can rely on the exemption provided by Section 4(1) of the 1933 Act. If the reseller is a dealer, it can rely on the exemption provided by Section 4(3) of the 1933 Act.3
Rule 144A Exchange Offer -  A transaction in which one class of securities that were issued in a private placement are exchanged for another, unusually almost identical, class of securities, in a transaction registered with the SEC on a Form S-4 Registration Statement.3
Rule 501 -  Rule 501 of Regulation D defines Accredited Investor, among other definitions and regulations.3
Rule 505 -  Rule 505 of Regulation D is an exemption for limited offers and sales of securities.3
Rule 506 -  Rule 506 of Regulation D is considered a “safe harbor” for the private-offering exemption of Section 4(2) of the Securities Act of 1933. Companies using the Rule 506 exemption can raise an unlimited amount of money if they meet certain exemptions.3
Runway -  How long a startup can survive before it goes broke; that is, the amount of cash in the bank divided by the burn rate.7

Notes: 

  1. Source: Crowdfunding Professional Association website
  2. Source: 37 Angels website
  3. Source: Angel Capital Association website
  4. Source: Go4Funding website
  5. Source: FundingPost website
  6. Source:  FundingSage, LLC
  7. Source:  Angel Investing,  by David S. Rose
  8. Source: Institutional Limited Partners Association website
  9. Source: Venture Choice website

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