Recapitalization The reorganization of a company’s capital structure. A company may seek to save on taxes by replacing preferred shares with bonds in order to gain interest deductibility. Recapitalization can be an alternative exit strategy for venture capitalists and leveraged-buyout sponsors. Redeemable Preferred Shares Redeemable preferred shares, 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 to act if a liquidity event is not occurring with sufficient rapidity. Right of First Refusal The right of first refusal gives the holder the right to meet any other offer before the proposed contract is accepted. Risk The chance of loss on an investment due to many factors, including inflation, interest rates, default, politics, foreign exchange, call provisions, etc. Securities Includes all types of equity and debt instruments and rights in and to them. Seed Money The first round of capital for a startup business. Seed money usually takes the structure of a loan or an investment in preferred shares or convertible bonds, although sometimes it is common shares. Seed money provides startup companies with the capital required for their initial development and growth. Angel investors and early- stage venture capital funds often provide seed money. Seed-Stage Financing An initial state of a company’s growth characterized by a founding management team, business plan development, prototype development and beta testing. Shell Corporation A corporation with no assets and no business. Typically, shell corporations are designed for the purpose of going public and later acquiring existing businesses.
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