Glossary

 

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  • Accredited Investor

    See Qualified Investor

  • Angel Investor

    An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors invest online through equity crowdfunding or organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies. Angel investors typically use their own money, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.

  • Crowdfunding

    Crowdfunding is a crowdsourcing method employed by startup companies of raising capital through the collective effort of friends, family, customers, and individual investors. This approach taps into the long tail of the collective efforts of a large pool of individual. The pool is primarily accessed online, via social media and crowdfunding platforms, leveraging their networks for greater reach and exposure.

    There are a variety of crowdfunding types. The 3 primary types are donation-based, rewards-based (i.e. Kickstarter, Indiegogo), and equity crowdfunding. Per the JOBSAct, equity crowdfunding can either be through a Title III web portal or with Title IV and Regulation A+.

    Title III actually created the ability to have a crowdfunding portal for stocks. There are three levels: under $100K, over $100K but under $500K, and over $500K up to $1MM (in any calendar year). As the amounts go up, so does the reporting requirements (and the need for audited financials). The sites act as arbitrage portals connecting unqualified investors to companies looking for capital. There are also restrictions on how much people can invest in any one project or fund raise to $100K per investor.

    Title IV involves the development of Regulation A+ unregistered stock to non-qualified investors. Regulation A Tier 1 limits the amount raised to $5MM in any calendar year. What makes Reg A so appealing is that you do not have the reporting burden of Reg D or Sarbanes-Oxley, and the financial reporting is less burdensome, but can be preempted by individual States’ requirements. Most importantly, unlike Regulation D requirements, you are NOT limited by the number of investors you have for reporting. Reg D requires if you have more than 35 unaccredited investors, you now have to have your stocks registered. Also, there is a provision to allow a company to raise up to $50MM under certain circumstances under a Regulation A+ Tier 2 filing and only need SEC review.

  • Crowdsourcing

    Crowdsourcing is the process of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, especially an online community, rather than from employees or suppliers.It was coined in 2005 as a portmanteau of crowd and outsourcing. By definition, crowdsourcing combines the efforts of numerous self-selected volunteers or part-time workers; each person’s contribution combines with those of others to achieve a cumulative result. Crowdsourcing is distinguished from outsourcing in that the work can come from an undefined public (instead of being commissioned from a specific, named group) and in that crowdsourcing includes a mix of bottom-up and top-down processes. Advantages of using crowdsourcing may include improved costs, speed, quality, flexibility, scalability, or diversity.

    Crowdsourcing refers to a wide range of activities, providing different benefits for its organizers. Crowdsourcing has also been used for noncommercial work and to develop common goods (e.g., Wikipedia). Arguably the best-known example of crowdsourcing as of 2015 is crowdfunding, the collection of funds from the crowd (e.g., Kickstarter) employing the principle of the long tail.

  • Disintermediation

    In economics, disintermediation is the removal of intermediaries from a supply chain, or “cutting out the middleman” in connection with a transaction.  Instead of going through traditional distribution channels, which had some type of intermediary (such as an underwriter, distributor, wholesaler, broker, or agent), companies may now deal with customers directly.

  • Founder’s Stock

    Founder’s Stock refers to the equity interest that is issued to founders and others at or near the time the company is formed and begins operations.  No stock in a company is free – all stock in a company is purchased. It is often issued for a nominal cash payment for time invested (aka “sweat equity”) and/or for compensation due to assignment of intellectual property.  This stock is considered unrestricted common stock.

  • Initial Public Offering

    An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded.

  • IPO

    See Initial Public Offering

  • JOBS Act

    On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law by President Barack Obama. The Act required the SEC to write rules and issue studies on capital formation, disclosure, and registration requirements. This page provides details on the rulemaking and studies by the SEC as required by the JOBS Act.

  • Liquidation Preference

    This is a preference given to preferred stock that sets the value of the stock purchased at a liquidation value.  Essentially, it is a protection to a stockholder against the value of the stock going down in the event of liquidation of the company being acquired.  As an example, preferred stock with value of $5 per share and a liquidation preference means that the shareholder gets its $5 per share back prior to any other money given to common stockholders.

  • Long Tail

    The long tail comes into play when the cost to distribute or sell one (1) unit of a product drops to a point that you can profitably sell it for only a fraction more that if you sold 10,000 units. Essentially, the economies of scale no longer come into play. This now applies to film, books, records, etc. Now, a producer can “ship” one song on the internet and it costs the consumer under $0.01 to do so. Before, there needed to be someone to “make” an album. Studio time, press vinyl, market, stock and distribute “physical” products. The “ENTRY FEE” to do that made it prohibitive for “start ups” (i.e. bands) to make their own albums and as such the ecosystem was controlled by recording companies and radio.. Oh, on radio, over the air radio is losing out to on demand and streaming stations (again the long tail). The long tail also allows something called “mass customization” but that is another lecture.

    Think of the long tail this way: millions of markets selling hundreds of “items” instead of hundreds of markets selling millions of a few items.

    Again, let’s look at the music industry. It is moving from the short tail: a handful of artists selling millions of records, which are heavily promoted by a handful of record companies that make millions of dollars; to the long tail: tens of thousands of independent artists doing what most successful small business Internet entrepreneurs do now – niche and localize their market. Most artists may not become multi-millionaires, but by marketing locally they will be able to establish a niche following. As search engines and content delivery methods become more and more individually tailored, localized and instantly delivered, services will be offering a massive inventory of unsigned independent artists. Music distribution has the potential to benefit from a long tail effect online. That is a good thing for artists.

    Traditionally, the idea of the “long tail” dealt with the declining part of the product life cycle. It is usually called “end of life” or declining phase but it might have been used to describe the portion of product distribution that represents a period in time when sales for less common products return a profit due to reduced marketing and distribution costs. That would make a “tail” a period of time when sales are made for goods not commonly sold. The period could be short or long. This term was hijacked by Chris Anderson in 2004 when he coined the term “long tail” to describe a phenomena where products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, but only if the store or distribution channel is large enough. Today in the Internet Age, that is what Long Tail is most often referred to.

    In regards to investing, according to a 2008 Businessweek study there are 5 million accredited investors in the US. On average they invest $10,000 to $50,000 in a startup. In the US, about 55% of the people own stock in the US, but the estimate is that 70% would invest in a startup if they could. So that is 255 million people who might put $500 to $1,000 into a startup (that is $125B bigger that VC and Angels COMBINED).

  • New-New

    Is a phrase used to describe any type of subject that is a boot-legged, alteration or improved version of an original idea or product. Many consider the term a signal of a trend that has not quite caught on, but is at the tipping point of doing so. As an example, emojis were once the new-new in texting and now Regulation A+ is the new-new in fundraising for startups.

  • Preferred Stock

    Preferred stock is listed separately from common stock. Unlike common stockholders, preferred stockholders are not usually entitled to voting rights, but they do have a higher claim on assets and earnings than do common shareholders, such as a liquidation preference.  This stock is called ‘preferred’ because preferred shareholders have superior rights to assets and cash flows of a company versus common shareholders in the event of a bankruptcy or liquidation; however, bondholders’ claims are senior to those of preferred shareholder.

  • Qualified Investor

    A Qualified or Accredited Investor must have a net worth of over $1,000,000 excluding one’s primary residence, or have at least $200,000 a year for the last 2 years (if married a $300,000 combined income a year for each of the last 2 years) and have the expectation of  making the same or more this year.

  • Regulation A+

    Regulation A+ (Reg. A or Reg. A+) is an SEC (Securities and Exchange Commission) reviewed and authorized public stock under Title IV of the JOBS Act initiated by George Bush, signed into law by President Obama, and formally implemented by the SEC in the spring of 2015. Unlike the older Reg. D stock that you see traded on the NASDAQ and the New York Stock Exchange (NYSE), Reg. A+ stock is intended to be available to the average man rather than accredited investors bought through Broker and Exchanges with their associated commission

  • Regulation D

    Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (or Reg D) contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC. For more information about these exemptions, read our publications on Rules 504, 505, and 506 of Regulation D.

    Companies relying on a Reg D (17 CFR § 230.501 et seq.) exemption do not have to register their offering of securities with the SEC, but they must file what’s known as a “Form D” electronically with the SEC after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s promoters, executive officers and directors, and some details about the offering, but contains little other information about the company. If you are thinking about investing in a Regulation D offering, you should access the EDGAR database to determine whether the company has filed Form D.

  • SEC

    See Securities and Exchange Commission

  • Securities Act of 1933

    Often referred to as the “truth in securities” law, the Securities Act of 1933 has two basic objectives:

    • require that investors receive financial and other significant information concerning securities being offered for public sale; and
    • prohibit deceit, misrepresentations, and other fraud in the sale of securities.

    The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.

  • Securities and Exchange Commission

    The Securities and Exchange Commission (SEC) is a U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception.

    The SEC was created during the Great Depression with the passage of the Securities Exchange Act of 1934, which was designed to bolster confidence in capital markets by providing investors with reliable information and by requiring that individuals and corporations deal with each other honestly.

  • Sweat Equity

    Sweat equity is a party’s contribution to a project in the form of effort and toil, as opposed to financial equity such as paying others to perform the task. Sweat equity has an application in business for example where the owners put in effort and toil to build the business (especially in startups), in real estate it is where owners can do improvements and increase the value of the real estate and in other areas such as an auto owner putting in their own effort and toil to increase the value of the vehicle.

  • Testing the Waters

    This is a period of times allowed by the SEC to see how much interest there would be prior to any stock being sold to the general public. No money or other consideration is being solicited for our Regulation A+ offering at this time and if sent in to ManeGain, Inc. will not be accepted. No offer to buy securities in a Regulation A+ offering of ManeGain can be accepted and no part of the purchase price can be received until ManeGain’s offering statement is qualified with the SEC. Any such offer to buy securities may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date. Any indications of interest in ManeGain’s offering involves no obligation or commitment of any kind.

  • Unrestricted Stock

    Typically, start up stock has some form are restriction, vesting period, employment condition, or other property that either restricts the ownership of the stock or the sale of the stock to another person. With Regulation A+ stock, there is not such restrictions, and purchasers are fee to resell their stock to any other individual. Note, the sale of said stock must be recorded with the Company’s transfer agent.