Getting Started Terminology at Allocations

The information provided in this document does not, and is not intended to, constitute legal, tax, investment or accounting advice; instead, all information, content, and materials available are for general informational or educational purposes only and it represents the personal view of the author. Please consult with your own legal, accounting or tax professionals.

Should you have an investment background or not, you’re likely to come across some foreign terminology when exploring platforms such as Allocations for raising and deploying capital quickly. We’ve compiled a library of vocabulary as a resource and tool for investors.

• Syndicate: a VC fund made to make a simple investment. Synonymous with SPV.
• Securities: financial instruments that hold value (stocks, bonds, mutual funds, other investments you can buy and sell).
• Accredited Investor: any person whose income exceeds $200,000 ($300,000 for joint income) for the last two years with the expectation of earning the same or a higher income in the current year or their net worth exceeds $1m or if they are a general partner, executive officer, or director for the company that is issuing the unregistered securities. (The SEC has recently adopted amendments to the “accredited investor” definition).
• SPV (Special Purpose Vehicle): business vehicle that has a special limited purpose. Allows investors to pool funds to acquire and manage a specific asset or multiple assets.
• Fund: a way of investing alongside other investors used to raise money to invest in multiple assets over a period of time.
• SPAC (Specialty Purpose Acquisition Company): also known as a “blank check company” is a shell corporation listed on a stock exchange with the purpose of acquiring a private company, thus making it public without going through the traditional initial public offering process.
• Regulation Crowdfunding (Reg CF): allows eligible companies to raise funds from the public by both accredited and unaccredited investors. All transactions under Regulation Crowdfunding must take place online through an SEC-registered intermediary- either a broker-dealer or a funding portal.
• Private Equity (PE): investment funds generally organized as limited partnerships (LP’s), that buy and restructure companies that are not publicly traded.
• Venture Capital (VC): type of private equity financing that invests in a project where there is a substantial element of risk- typically new and emerging companies.
• Limited Partnership (LP): type of investment partnership in which partners have limited liability- they are not liable for business debts that exceed their initial investment.
• General Partner (GP): investors who carry all of the liability of their investment and assume day to day role of managing it.
• Fund Manager: an individual or entity that manages the investment of money on its own behalf or on that of outside clients.
• Management Fee: paid periodically to fund manager and is also set by fund manager when forming investment vehicle (SPV).
• Carry Fee, Carried Interest: charged to LP’s in fund based on the performance and return on investment. Through the Allocations platform, this is customizable by the fund manager and can differ by LP.
• Recycling Funds: option for fund manager to inject much needed short term capital into a fund through methods such as co-investments, borrowing from 3rd party lenders, and reinvesting cash received by fund from investments. Allocations allows fund managers this option whereas other competitors (AngelList) do not.
• SEC (US Securities and Exchange Commission): large independent agency of the United States federal government that was created to protect investors, promote fairness in the securities markets, and share information about companies and investment professionals to help investors make informed decisions and invest with confidence.
• FINRA (Financial Industry Regulatory Authority): private American corporation that acts as a self-regulatory organization which regulates member brokerage firms and exchange markets.
• Exempt Reporting Advisor (ERA): Investment advisor that makes investment recommendations and securities analysis.
• AML (Anti Money Laundering): umbrella term for range of regulatory processes and regulations intended to prevent criminals from disguising illegally obtained funds as legitimate income.
• KYC (Know Your Customer): component of AML that consists of firms verifying their customers’ identity.
• Commingling Funds: When a fiduciary, a person entrusted with the management of funds other than his or her own in trust, mixes trust money with that of others, the fiduciary is commingling funds and thereby breaching his or her fiduciary duty.
• Warrant: a security that entitles the holder to buy the underlying stock of the issuing company at a fixed price called exercise price until the expiration date.
• SAFE (Simple Agreement for Future Equity): an agreement between an investor and a company that provides rights to the investor for future equity in the company similar to a warrant, except without determining a specific price per share at the time of the initial investment.
• Blue Sky Laws/Fees: state-level, anti-fraud regulations that require issuers of securities to be registered and to disclose details of their offerings. Each state has their own regulations and fees.
• Side Letter: an agreement between the fund and one particular investor to vary the terms of the limited partnership agreement with respect to that particular investor (almost always to the benefit of the investor).
• Resyndication: the sale of existing properties to new limited partners, so that they can receive the tax advantages that are no longer available to the old partners.
• Secondary: investors purchase existing shares from shareholders in a fund.
• K-1: federal tax document used to report the income, losses, and dividends of a business’ or financial entity’s partners or an S corporation’s shareholders. The Schedule K-1 document is prepared for each individual partner and is included with the partner’s personal tax return.
• Follow-On: a subsequent investment made by an investor who has made a previous investment in the company, generally a later stage investment in comparison to the initial investment.
• SLUGs (State and Local Government Series): Special non marketable certificates, notes, and bonds offered to state and local governments as a means to invest proceeds from their own tax-exempt financing. Interest rates and maturities comply with IRS arbitrage provisions.

Disclaimers

The information provided in this document does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available are for general informational purposes only.

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