ABA Section of Business Law

Business Law Today
September/October 2001 (Volume 11, Number 1)

VC jargon lexicon (partial)

Law #1 of VC terms

Any term that can be shortened must be shortened - that is, Venture Capital = VC; Registration Rights = Reg Rights. Think of the productivity gains by turning five syllables into one - you undoubtedly save a few hours, when spread over your lifetime.

Anti-dilution protection

Price protection for the VC investors. If the next round of financing is done at a lower price, your per share purchase price is adjusted on the basis of a formula.

Business issue

Something the lawyers want to punt to their clients, rather than resolve themselves.

Cats and dogs

The smaller "friends and family" type investors who sometimes participate alongside the professional venture investors in an early-stage deal.
Double dip preferred Synonym for participating preferred. In liquidation, investor gets back: (1) original investment, plus (2) dividends, plus (3) gets to participate on an as-converted basis in residual value of company.

Down round

Subsequent round done at a lower valuation than previous round.
Drag-along rights Right to force other stockholders to sell if there is an acquisition approved by the investors.

Exit strategy

How do we get our money out? IPO or acquisition?
Herding cats The process of trying to get a large syndicate of investors to agree on and sign off on a financing deal.

Jungle rules*

The rules of combat and survival for an early-stage start-up - in other words: There are no rules.

Lemming

Synonym for venture capitalist, in the old days.

Like a dog on a pork chop

A laudable character trait in a start-up CEO.

Living dead

What you are after a few down rounds. No more financing available. See also, "Sideways scenario."

Mezzanine

Pre-IPO round of financing. Late stage equity investment.

Pay to play provisions

If you do not participate in the next round, you suffer negative consequences, from losing your anti-dilution rights to converting to common stock.
Peace with honor* Not the home run you had hoped for out of the deal, but the best result in a challenged situation.

Piggyback reg rights

If you pronounce the second word with a hard rather than a soft "G," you will immediately be branded as someone who just fell off the turnip cart. This gives the investors the right to "piggyback" their shares on a company registration statement, so that they can be sold to the public free of restrictions.
Pre Pre-money valuation (value of company, before taking into account amount to be invested by VCs).

Raise

You will not get one if you do not know that this means a financing round, as in, "their last raise was 10 mil, on a 20 mil pre."

Sideways scenario

The direction you are headed in, on your way to becoming the Living Dead.

*Courtesy of ex-Marine and CRV partner Mike Zak, whose personal vocabulary of colorful expressions is far too extensive to reproduce here.