finance Flashcards
(171 cards)
1
Q
Self-Funding (Bootstrapping)
A
Using personal savings or revenue to grow a business organically. Slow growth but high control and no dilution.
2
Q
Friends, Family, and Fools (FFF)
A
Early-stage funding from personal networks based on trust; minimal formality but can strain personal relationships.
3
Q
Angel Investors
A
Wealthy individuals investing early in exchange for equity or convertible debt; often offer mentorship alongside funds.
4
Q
Grants and Subsidies
A
Non-repayable funding from governments or foundations for innovation, R&D, or social impact projects.
5
Q
Crowdfunding
A
Raising small amounts of money from a large number of people, typically via online platforms like Kickstarter or Seedrs.
6
Q
Prizes and Competitions
A
Winning funds or support through pitch competitions; builds credibility but requires public disclosure of ideas.
7
Q
Accelerators and Incubators
A
Programs offering funding, mentorship, and resources in exchange for small equity stakes; ideal for early-stage startups.
8
Q
Foundations and Charities
A
Equity-free donations for mission-driven ventures, often targeting health, education, or rare diseases.
9
Q
Commercial Lenders
A
Banks or credit institutions offering debt financing via loans or credit lines; requires repayment with interest.
10
Q
Venture Capital (VC)
A
Professional investors providing large equity-based funding, targeting startups with high growth potential.
11
Q
Corporate Venture Capital (CVC)
A
Large companies investing in startups for both financial return and strategic market access or technology insight.
12
Q
Private Equity (PE)
A
Investment in established private companies to grow, restructure, or prepare for sale; involves active management.
13
Q
Equity Financing
A
Raising capital by selling shares; no repayment obligation but results in ownership dilution.
14
Q
Debt Financing
A
Borrowing capital through loans or bonds; must be repaid with interest but retains full ownership control.
15
Q
Convertible Loans
A
Hybrid financing starting as debt but convertible into equity later, often used in early startup rounds.
16
Q
SAFE Agreements
A
Simple Agreement for Future Equity; a lightweight contract where investors get future equity without setting a valuation today.
17
Q
Start-up Funding Stages
A
Typical path: Pre-seed → Seed → Series A → Series B → Series C+ → Mezzanine → IPO.
18
Q
Angel Rounds
A
Very early investments by individuals before significant traction or revenue.
19
Q
Venture Debt
A
Loans tailored for startups with VC backing, offering cash without immediate dilution.
20
Q
Initial Public Offering (IPO)
A
When a private company first sells shares to the public, raising significant capital and increasing visibility.
21
Q
SPAC Merger
A
Alternative to IPO; merging with a listed shell company to go public faster and sometimes with less scrutiny.
22
Q
Importance of Cash Management
A
Essential for survival; businesses must balance incoming and outgoing cash to maintain operations, especially in tough markets.
23
Q
Impact of Economic Downturns on Startups
A
Suppliers tighten credit terms and customers delay payments, increasing the need for cash flow management.
24
Q
Working Capital Cycle
A
Measures how long it takes to convert resources into cash; efficient cycles improve liquidity.
25
Smart Money vs Dumb Money
Smart money brings strategic support and networks; dumb money provides funds only without value-add.
26
27
What is Equity Financing?
Raising funds by selling ownership shares. No repayment obligation but dilutes control.
28
What is Debt Financing?
Borrowing funds to be repaid with interest. No ownership dilution but creates repayment risk.
29
What is Hybrid Financing?
Instruments combining debt and equity features, e.g., convertible bonds or preferred equity.
30
What are the advantages of Debt?
No ownership dilution, tax-deductible interest payments, quicker to arrange.
31
What are the advantages of Equity?
No repayment obligation, lower risk of financial distress.
32
What are the disadvantages of Debt?
Mandatory repayments, financial distress risk, cash flow strain.
33
What are the disadvantages of Equity?
Dilution of ownership and control, higher cost of capital expectations.
34
What is Bootstrapping?
Self-funding the business; slow growth but high control.
35
What is Friends, Family, and Fools (FFF)?
Early informal investment from personal networks; risky for relationships.
36
What are Angel Investors?
Wealthy individuals investing personal funds, often offering mentorship.
37
What is Venture Capital (VC)?
Professional investors funding high-growth startups, expecting high returns.
38
What is Corporate Venture Capital (CVC)?
Large companies investing in startups for strategic or financial reasons.
39
What is Private Equity (PE)?
Investment in mature companies for growth, restructuring, or buyout.
40
What is Crowdfunding?
Raising small amounts of money from many individuals, often via online platforms.
41
What are Accelerators and Incubators?
Programs providing mentorship, resources, and early funding.
42
What are Foundations and Charities?
Grant funding for mission-aligned startups, typically non-repayable.
43
What are Grants and Subsidies?
Non-repayable government or institutional funding for innovation or R&D.
44
What are Sovereign Wealth Funds?
State-owned investment funds investing globally for returns.
45
What are Family Offices?
Private wealth management firms for high-net-worth families investing in startups.
46
What are Commercial Bank Loans?
Debt financing secured against assets, involves interest payments.
47
What is Factoring?
Selling receivables to a third party for immediate cash at a discount.
48
What is Leasing?
Using an asset without owning it, paying rental fees over a contract period.
49
What are Overdrafts?
Short-term bank facility allowing businesses to withdraw more than their account balance.
50
What is Microfinance?
Small loans offered to individuals or very small businesses.
51
What is Peer-to-Peer Lending?
Borrowing directly from individuals through online platforms.
52
What is the Working Capital Cycle?
The time it takes to convert working capital (current assets and liabilities) into cash.
53
What is Cash Flow Forecasting?
Predicting cash inflows and outflows to manage liquidity.
54
What is Burn Rate?
The rate at which a company uses cash reserves before generating positive cash flow.
55
What is Runway?
The amount of time a startup can operate before needing new funding.
56
What is Smart Money?
Investors who provide capital plus strategic guidance and networks.
57
What is Dumb Money?
Investors who provide only capital without strategic support.
58
What are SAFE Agreements?
Simple Agreements for Future Equity, promising equity at a later date without valuation now.
59
What are Convertible Loans?
Debt that can convert into equity at a later stage under pre-agreed conditions.
60
What are Preferred Shares?
Equity shares with preferential rights to dividends and liquidation payouts.
61
What is Commercial Paper?
Short-term unsecured debt used by corporations to finance immediate needs.
62
What is Pre-Seed Funding?
Earliest funding stage, typically from founders, friends, or family.
63
What is Seed Funding?
Funding to support MVP development and early market entry.
64
What is Series A?
Funding for scaling a validated business model.
65
What is Series B?
Funding for expanding market reach and scaling operations.
66
What is Series C+?
Funding for major growth initiatives like international expansion.
67
What is Mezzanine Financing?
Hybrid financing between debt and equity, often pre-IPO.
68
What is Venture Debt?
Loans given to VC-backed startups with less dilution than equity.
69
What is an IPO (Initial Public Offering)?
First sale of shares to the public, raising significant capital.
70
What is a SPAC Merger?
Startups merging with a publicly listed shell company to go public faster.
71
What is Startup Stage Financing?
Funds from founders, FFF, micro-VCs, or angels.
72
What is Growth Stage Financing?
VCs, CVCs, venture debt for scaling up.
73
What is Maturity Stage Financing?
Public markets, PE, bonds for expansion or M&A.
74
What is the Cash Conversion Cycle?
Measure of how efficiently a company manages cash tied up in operations.
75
What happens to the Cost of Capital with More Debt?
Cost of debt rises; cost of equity rises even faster due to risk.
76
What is the Higgins 5-Factor Model?
Decision framework balancing tax benefits, distress costs, incentives, flexibility, and market signaling.
77
What is the Debt Affordability Matrix?
Evaluates debt cost versus company's ability to service it through profits.
78
What are Bond Characteristics?
Issuer type, seniority, collateral, coupon rate, maturity, and credit rating.
79
What are Credit Ratings (Moody’s, S&P)?
Independent assessments of issuer's ability to meet debt obligations.
80
What is the Yield Curve?
Graph showing interest rates across different maturities for similar credit quality.
81
What are Zero-Coupon Bonds?
Bonds issued at discount without periodic interest payments.
82
What is Securitization?
Pooling various financial assets and selling them as securities.
83
What is a Leveraged Buyout (LBO)?
Acquisition financed heavily by debt, repaid through the acquired company's cash flow.
84
What is a Management Buyout (MBO)?
Company management buying out the company, often using significant debt.
85
What are Going Private Transactions?
Buying back public shares to delist and become a private company.
86
What was the Amazon Startup Funding Journey?
Started with founder's own money and FFF, progressed to angels, then VC, IPO.
87
What was the Snoozy Case - Equity Raise?
Raised £3m at a £15m pre-money valuation from VC.
88
What was the Snoozy Case - Venture Debt?
Raised $20m in debt at 8% annual interest for US expansion.
89
What was the Snoozy Case - IPO?
Listed 30% of equity on Nasdaq, raising $10m new funds.
90
What was the Snoozy Case - Post-IPO Funding?
Options to raise $30m through either bond issue or secondary stock offering.
91
Self-Funding (Bootstrapping)
Using personal savings or revenue to grow a business organically. Slow growth but high control and no dilution.
92
Friends, Family, and Fools (FFF)
Early-stage funding from personal networks based on trust; minimal formality but can strain personal relationships.
93
Angel Investors
Wealthy individuals investing early in exchange for equity or convertible debt; often offer mentorship alongside funds.
94
Grants and Subsidies
Non-repayable funding from governments or foundations for innovation, R&D, or social impact projects.
95
Crowdfunding
Raising small amounts of money from a large number of people, typically via online platforms like Kickstarter or Seedrs.
96
Prizes and Competitions
Winning funds or support through pitch competitions; builds credibility but requires public disclosure of ideas.
97
Accelerators and Incubators
Programs offering funding, mentorship, and resources in exchange for small equity stakes; ideal for early-stage startups.
98
Foundations and Charities
Equity-free donations for mission-driven ventures, often targeting health, education, or rare diseases.
99
Commercial Lenders
Banks or credit institutions offering debt financing via loans or credit lines; requires repayment with interest.
100
Venture Capital (VC)
Professional investors providing large equity-based funding, targeting startups with high growth potential.
101
Corporate Venture Capital (CVC)
Large companies investing in startups for both financial return and strategic market access or technology insight.
102
Private Equity (PE)
Investment in established private companies to grow, restructure, or prepare for sale; involves active management.
103
Equity Financing
Raising capital by selling shares; no repayment obligation but results in ownership dilution.
104
Debt Financing
Borrowing capital through loans or bonds; must be repaid with interest but retains full ownership control.
105
Convertible Loans
Hybrid financing starting as debt but convertible into equity later, often used in early startup rounds.
106
SAFE Agreements
Simple Agreement for Future Equity; a lightweight contract where investors get future equity without setting a valuation today.
107
Start-up Funding Stages
Typical path: Pre-seed → Seed → Series A → Series B → Series C+ → Mezzanine → IPO.
108
Angel Rounds
Very early investments by individuals before significant traction or revenue.
109
Venture Debt
Loans tailored for startups with VC backing, offering cash without immediate dilution.
110
Initial Public Offering (IPO)
When a private company first sells shares to the public, raising significant capital and increasing visibility.
111
SPAC Merger
Alternative to IPO; merging with a listed shell company to go public faster and sometimes with less scrutiny.
112
Importance of Cash Management
Essential for survival; businesses must balance incoming and outgoing cash to maintain operations, especially in tough markets.
113
Impact of Economic Downturns on Startups
Suppliers tighten credit terms and customers delay payments, increasing the need for cash flow management.
114
Working Capital Cycle
Measures how long it takes to convert resources into cash; efficient cycles improve liquidity.
115
Smart Money vs Dumb Money
Smart money brings strategic support and networks; dumb money provides funds only without value-add.
116
117
Statement of Cash Flow
A financial statement showing where cash resources come from and how they are used, split into operating, investing, and financing activities.
118
Cash vs Profit
Cash and profit are different. Cash transactions affect liquidity directly; profit reflects revenue recognition and expense matching under accrual accounting.
119
Buying Inventory for Cash
Reduces cash but does not immediately affect profit.
120
Sale to a Credit Customer
Increases profit (revenue recognized) but does not immediately increase cash.
121
Repaying a Bank Loan
Reduces cash; has no impact on profit.
122
Purchase of Non-current Asset on Credit
No immediate effect on cash or profit.
123
Depreciation of Non-current Asset
Reduces profit but has no cash impact.
124
Direct Method (Cash Flow Statement)
Lists cash inflows and outflows directly, such as receipts from customers and payments to suppliers.
125
Indirect Method (Cash Flow Statement)
Starts with operating profit and adjusts for non-cash transactions and changes in working capital.
126
Importance of Cash
Cash is critical for operational flexibility, survival during downturns, and investment opportunities.
127
Cash Flow Cycle
Cycle from purchasing supplies, paying suppliers, selling products, and receiving cash from customers.
128
Supplier Issues in Tough Times
Suppliers may demand faster payments and be less flexible.
129
Customer Issues in Tough Times
Customers may delay payments or default.
130
Cash Flow Management in Health Start-ups
Focuses on maintaining liquidity by matching cash inflows with outflows and optimizing the revenue cycle.
131
Working Capital Cycle
The time it takes to turn current assets and liabilities into cash through operational activities.
132
Improving Cash Flow
Increase profitability, control expenses, diversify revenue, improve billing and collection, and negotiate better supplier terms.
133
Valley of Death
The critical early stage for startups where cash burn exceeds inflow, requiring survival until profitability or new funding.
134
Stages of Start-up Growth
Runway (cash burn), Take-off (becoming cash generative), Airborne (profitable and self-sustaining).
135
Cash Flow Forecast
A forward-looking tool to predict cash needs, revenues, expenses, and capital expenditures.
136
Financial Model
A structured tool to test business assumptions, plan cash flow, and forecast profitability.
137
Importance of Assumptions
All financial models rely on assumptions; regular updates are needed, especially during change.
138
Profit and Loss Forecast
Helps determine whether the business can generate sustainable profits within a reasonable timeframe.
139
K.I.S.S. Principle in Financial Models
Keep models simple initially to focus on the rough direction of the business.
140
Forecasting Realities
All forecasts will be wrong; they should be viewed as flexible guides, not precise predictions.
141
Investor Expectations
Investors expect credible upside potential and a financial plan, even if early forecasts are optimistic.
142
What is a Profit & Loss Statement?
A financial statement summarizing revenues, costs, expenses, and profits or losses over a specific time period. It shows a company’s ability to generate profits, manage costs, and does not directly reflect cash flow.
143
What is Gross Profit?
Revenue from sales minus the direct costs of producing or purchasing goods/services (cost of sales). It excludes operating expenses and reflects profitability at a basic product/service level.
144
What is Net Profit?
The final profit after all costs have been deducted, including operating expenses, interest, and taxes. It represents the company’s bottom line profitability.
145
What is a Balance Sheet?
A snapshot financial statement that lists what a company owns (assets), owes (liabilities), and the shareholders' residual value (equity) at a specific point in time.
146
What is the Balance Sheet Formula?
Assets – Liabilities = Shareholders’ Equity. This fundamental equation must always balance.
147
What is a Cash Flow Statement?
Financial report showing how cash enters and leaves a business through operating, investing, and financing activities. Tracks liquidity and the ability to fund operations and growth.
148
What are the Three Categories of Cash Flow?
Operating activities: cash from business operations; Investing activities: cash from buying/selling assets; Financing activities: cash from investors or lenders.
149
What is the Gross Margin Ratio?
Gross Profit ÷ Sales. Measures how efficiently a company produces goods/services relative to sales. High margins indicate strong profitability.
150
What is the Operating Margin Ratio?
Operating Profit (EBIT) ÷ Sales. Shows how much profit a company makes from its core operations, excluding financing and taxes.
151
What is Return on Capital Employed (ROCE)?
Operating Profit ÷ (Shareholders’ Equity + Debt). Measures how efficiently a company generates profits from total capital employed.
152
What is Return on Equity (ROE)?
Profit after Tax ÷ Shareholders’ Equity. Indicates how effectively the company uses shareholders’ funds to generate profits.
153
What is the Debt to Equity Ratio?
Debt ÷ Shareholders’ Equity. Measures financial leverage. A ratio >1 means the company has more debt than equity.
154
What is the Current Ratio?
Current Assets ÷ Current Liabilities. Indicates a company’s ability to cover short-term obligations. A ratio >1 suggests good short-term financial health.
155
What is the Quick Ratio?
(Current Assets − Stock − Prepayments) ÷ Current Liabilities. A stricter liquidity measure by excluding inventory and prepayments from assets.
156
What is the Payback Period?
Time it takes to recover the initial investment from net cash inflows. Shorter payback periods are preferred for lower investment risk.
157
What is Net Present Value (NPV)?
Sum of present values of all cash inflows and outflows over time, discounted at the opportunity cost of capital. A positive NPV indicates a profitable investment.
158
What is Internal Rate of Return (IRR)?
The discount rate at which NPV equals zero. Represents the expected annual return on an investment.
159
What is Opportunity Cost?
The potential benefits lost when choosing one alternative over another. In investment, it is the return foregone by not choosing the best alternative.
160
What is the Discount Rate?
Interest rate used to determine the present value of future cash flows, factoring in risk, cost of capital, time, and opportunity costs.
161
What is Weighted Average Cost of Capital (WACC)?
The average rate a company pays for its financing (debt and equity combined), weighted by the proportion of each financing source.
162
What is Pre-Money Valuation?
Company valuation before new external investment. Reflects its current financial health and achievements.
163
What is Post-Money Valuation?
Valuation of the company immediately after investment is added. Formula: Pre-Money Valuation + Investment Amount.
164
What are the Sources of Equity Finance?
Includes Bootstrapping, Friends & Family, Business Angels, Crowdfunding, Accelerators/Incubators, Venture Capital, and Stock Market listings.
165
What are the Types of Crowdfunding?
Reward-based, Lending-based, Equity-based, and Donation-based crowdfunding methods, each offering different returns and project types.
166
What is the difference between Scale-up and Start-up?
Start-ups are early stage and focus on finding product-market fit, facing high uncertainty. Scale-ups have validated models and aim for rapid expansion.
167
What is a Term Sheet?
A non-binding document that outlines the key financial and control terms of an investment before legal documents are finalized.
168
What is Liquidation Preference?
Clause specifying how investors are paid back first in liquidation before common shareholders. Types include non-participating, capped, and uncapped.
169
What is an Anti-Dilution Clause?
Protects investors from losing value if new shares are issued at a lower price than they originally paid.
170
What is a Pay-to-Play Clause?
Requires investors to participate in future financing rounds to maintain ownership rights and privileges.
171
What is Due Diligence?
Detailed investigation into a business’s financial, operational, and legal aspects by investors before closing a deal.
