The Obu Investment A - Z

Accredited Investor

An accredited investor is another name for a high net worth individual, or HNWI. That’s a term defined by the Financial Conduct Authority (FCA) to mean someone who’s either got an annual income of over £100k, or net assets of over £250k on top of their pension fund and the value of their home.

To protect both angel investors and entrepreneurs, anyone considering becoming an angel investor needs to self-certify with the FCA as a high net worth individual or sophisticated investor (see below) before they can start receiving business plans or making investments.

Activation

For businesses, activation is an important milestone in the customer journey, because it’s the moment a customer first actually uses their product or service. It’s not about when they first find it, download it or register for it – it’s about when they actually jump in and experience how it works, and what it can do for them.

Advance Assurance

Advance Assurance, or AA, is a provisional green light from HMRC that an investment in a business will be eligible for tax relief, as long as both the business and its investors meet all the necessary conditions.

Early-stage businesses aren’t obliged to get AA before they start an investment round, but it can be an extremely valuable way of attracting and reassuring investors – especially if they’re considering investing through a tax-friendly route like the UK government’s SEIS and EIS initiatives (more on those below).

Advisory Board

An advisory board gives strategic advice to a company’s management team. It’s non-binding advice, so the company doesn’t have to follow it, but it can help to fill gaps in the management team’s knowledge, keep them working within the company’s strategy, hold them accountable and strategically introduce new customers and partners

Allocation

An allocation is the number of shares an entrepreneur will give to an investor in exchange for investing in their company.

Angel Investor

An angel investor is someone who invests money in start-ups or early-stage businesses, giving them the financial backing they need to grow. In return, the angel investor receives shares (part ownership) of the business. At Obu we like to describe it as placing a bet on the businesses you want to see in the world. Yes, it comes with risks, but it’s about backing the founders and ideas you want to see thrive.

Angel investors might choose to purely invest money (capital) and be relatively hands-off in the business. On the other hand, they might agree at the outset to also share their know-how, experience and networks, opening new doors and helping the business develop. We believe this second, capital+ approach is where angel investing gets really exciting – for investors and entrepreneurs – as they pool their resources to get the business growing, succeeding and making an impact on the world.

AML (Anti Money Laundering)

Anti-money laundering activities are the safety checks carried out by financial institutions to make sure they comply with their legal requirements to monitor and report suspicious transactions. Because the Obu platform will be FCA regulated, we’ll be making sure everyone who comes on board completes an AML check, so other users can work with them safely and confidently.

Articles of Association

A company’s articles of association are like a user guide, setting out things like its purpose, the way it’s organised, the way it carries out day-to-day tasks, and how its shares are structured. Exactly what’s included can vary depending on where the business is based, and what it does.

B2B

B2B is short for business to business. It refers to a company that sells its products or services to other businesses, instead of directly to the consumer. For example, a company that makes jam might sell B2B to supermarkets.

B2C

B2C is short for business to consumer and it’s used to describe any company that sells its products or services straight to the consumer. For example, a company that makes eyewear might sell its glasses directly to customers through its website.

Board of Directors

A board of directors is a group of people elected to represent a company’s shareholders and supervise the running of the company (they don’t have to be shareholders themselves). Members of the board are responsible for making sure the management team delivers value – not just to its shareholders, but also to its customers and employees.

Burn rate

A company’s burn rate is the amount of its capital (the money it raised in its latest investment round) it spends each month to cover its overheads before making any profit. For example, if a company has a burn rate of £500k, that means it’s spending £500k per month.

Cap Table

A cap table (short for capitalisation table) is a list showing what percentage of a company is owned by which people, whether they’re its founders, investors or other owners. For example, if a company was owned entirely by its two co-founders, the cap table would show 50% ownership for each of the founders.

Crowdfunding

Crowdfunding is often used to raise money to get a new idea off the ground, with large numbers of people each making relatively small donations, to add up to a bigger overall target amount. These donations are typically made through a website like Seedrs or Crowdcube.

Deal Flow

A deal flow is the number of investment opportunities available to an investor at any one time.

Dilution

Dilution happens when a business releases new shares, lessening the value of the shares already released in earlier investment rounds. Investors can ask to have dilution protection written into their contract to prevent this from happening.

Director’s Loan

A director’s loan is money that an entrepreneur might pay into their business as a loan, for example to cover initial set-up expenses. At a later point, when the business has more available capital, the entrepreneur can then draw that money back out. Because it’s the repayment of a loan rather than a salary or dividend, that payment is tax free.

Due Diligence

Due diligence is an in-depth review of a business carried out by a potential investor or buyer (or their legal team) before they decide whether to go ahead. It will usually include the commercial potential of the business, the strengths of its founding team, its assets and liabilities.

EBIT

EBIT stands for earnings before interest and tax. Also known as operating income or net income, it’s a way of measuring how profitable a business is.

EBITDA

EBITDA stands for earnings before interest, taxes, depreciation and amortisation (gradually writing off the initial cost of an asset). It’s an alternative to EBIT that strips out non-cash depreciation and amortisation to represent the cash profit a company generates

EIS

The Enterprise Investment Scheme (EIS) is a UK government initiative that incentivises investment in early-stage businesses (up to seven years old) by offering investors up to 30% income tax relief.

Equity

Equity is the value of the shares issued by a business. For example, an investor might own 35% of a business’s equity.

Exit

An exit is when a founder decides to permanently step away from their business, either by selling their shares or by negotiating for another company to acquire the business as a whole.

Exit Strategy

An exit strategy is the plan a founder develops for selling the ownership of their business to investors or another company. It’s often a long-term plan for the future, timed to enabled them to retire or move on to new projects.

FCA

FCA stands for the Financial Conduct Authority, the organisation that regulates financial services firms and financial markets in the UK. When the Obu investment platform goes live in spring 2023, it’ll be fully approved and regulated by the FCA.

FFF

FFF stands for friends, family and fools funding, and it’s often the first type of funding a start-up raises. As the name suggests, it tends to be investment from people a founder knows, who want to help them get their business off the ground (friends and family). The fools element refers to people willing to invest in the very earliest stages of a business, when risks are often highest. This type of funding is also often referred to as pre-seed investment.

FinTech

Fintech means technology that supports or enables banking or financial services.

Founder

A founder is a person who starts a business. They’re also often called entrepreneurs or owners. If more than one person starts the business, they’re called co-founders.

Go To Market Strategy

A go-to-market strategy is a step-by-step plan put together by a business to successfully launch a new product or service. It will generally include defining their unique proposition, identifying their target customers, creating a marketing and sales plan and establishing logistics.

Hypergrowth

Hypergrowth is a period of rapid expansion, when a business achieves an average annual growth rate of over 40% for more than a year. It usually happens after a company’s initial product or service is defined, but before it matures, and tends to attract a lot of interest from investors. Famous examples of companies that achieved hypergrowth include Amazon, Uber and Facebook.

HNW Individual

HNWI stands for high net worth individual. It’s a term defined by the Financial Conduct Authority (FCA) to mean someone who either has an annual income of over £100k, or has net assets of over £250k, on top of their pension fund and the value of their home.

To protect both angel investors and entrepreneurs, anyone considering becoming an angel investor needs to self-certify with the FCA as a high net worth individual or sophisticated investor (see below) before they can start receiving business plans or making investments.

Impact Investing

Impact investing means making an investment in a business, organisation or investment fund with the aim of creating a positive social or environmental impact, as well as a financial return.

Investment Round

When a business wants to raise money to develop or scale up, they often decide to start an investment round. It’s a period of time where they actively look for investors to invest money in their business, in exchange for shares of the business’s ownership, also known as equity.

IPO

IPO stands for initial public offering – it’s the process a private business goes through when they want to go public (sell shares to the general public). It’s a move that large, established businesses often choose to make so they can generate capital, reduce debt or fund their future growth.

KPI

KPI stands for key performance indicator and most businesses use a set of KPIs to measure how well they’re doing. They’re also something investors might look at when considering whether to invest. KPIs can include a whole range of things specific to the business, but common examples include the number of new customers gained each month, the time it takes to deliver a product or the profits made each month.

Liquidity

A company’s liquidity is the amount of money they have available to pay their overheads on time and keep operating. Liquidity is sometimes a challenge for rapidly growing start-ups, and it’s one of the reasons they might look for outside investment to fund their growth plans.

Market Opportunity

A market opportunity is a situation where a business identifies a product or service that customers want or need – and that other companies currently aren’t offering.

Multiplier

A multiplier is a factor that amplifies the base value of a business. Different sectors have different average multipliers, and these are applied to a business during an investment round to reflect the potential growth of a sector – and the likely impact that will have on the return an investor can expect.

MVP

Short for minimal viable product, an MVP is a basic, early version of a product that has just enough features to satisfy its first customers and can be launched while development continues.

NDA

NDA stands for non-disclosure agreement – a contract between two or more people or organisations where they agree not to disclose certain information (listed in the NDA) to anyone else.

Pitch Deck

A pitch deck is a presentation put together by a business and shown to potential new investors, with the aim of convincing them to invest. It explains the problem the company’s product or service solves, the benefits it offers, the experience of the founders and their team, the market opportunity, the success they’ve had so far and the aspirations they have for the future.

Pitch

A pitch is an opportunity to explain a business idea. In the investment world, it’s usually a founder talking to an investor, in person or on a call, with the aim of convincing them to come on board and invest their capital in the business and its future growth. However it can also apply to businesses presenting ideas to clients, or employees presenting ideas within a company.

Post Money Valuation

A company’s post-money valuation is how much it’s worth after receiving outside funding or closing its latest investment round. So, for example, if you invested £50k into a business with a pre-money valuation of £950k, its post-money valuation would be £1m.

Pre Money Valuation

A company’s pre-money valuation is how much it was worth before it brought in outside funding or closed its latest investment round. So, a company might have a pre-money valuation of, say, £1m, then raise investment of £500k, giving it a post-money valuation of £150k.

Pre-seed Investment

Pre-seed investment is the name given to the very first round of funding a business raises to get its idea off the ground – also known as FFF (friends, family and fools) funding. As that name suggests, investment at this stage often comes from the founder and people they know. But it can also come from angel investors who feel comfortable with the higher level of risk that comes from investing in such a young business.

The purpose of pre-seed funding is usually to develop an idea for an initial product or service to a point where the business can demonstrate that it fulfills a market need.

Pre-emption rights

Pre-emption rights help investors protect their ownership stake in a business if its founders decide to raise further investment. They mean that existing investors have a contractual right to be able to buy new shares in any new funding round.

Product-market fit

For a business to achieve product-market fit, they need to get to a point where their target customers are buying, using and recommending their product in large enough numbers for it to be profitable and able to keep growing. It’s a major milestone which prospective investors will often look for, to give them the confidence that a business, product or service is successful, sustainable and wanted by customers.

Runway

For any business, their runway is the number of remaining months they can afford to keep operating, taking into account their burn rate (see above), their monthly revenue and the amount of money they have in the bank to cover their overheads. Early-stage businesses will often be looking for investment extend their runway.

Scale

In its simplest terms, scaling (also known as scaling up) means growing. It’s usually used to describe a period of rapid growth in a business, when it’s actively increasing its operations, customer numbers and revenue.

Seed investment

Seed investment (also known as seed capital) is money raised by an early-stage business to develop their product or service to the point that they can prove product-market fit (see above). Unlike pre-seed investment, which often comes from the founder or people they know, seed investment usually comes from outside angel investors.

SEIS

The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative that incentivises investment in early-stage businesses by offering investors up to 50% tax relief. For example, if you invested £50k in a business through SEIS, you’d get £25k in tax relief and the business would still get the full £50k.

Initially businesses had to be less than two years old to qualify, but thanks to Obu’s #overbeingunderfunded campaign, that deadline’s being extended to three years, as of 6 April 2023.

Series A

Series A funding is the money raised in a company’s first investment round, after the initial seed round. By this point, the early-stage business usually has a clear idea of their product and target market and needs the funding to grow quickly so it can work with more customers. Typically, Series A funding ranges from £2m to £10m.

Series B

As you’d expect, a Series B investment round is the next one a business holds after it’s secured Series A funding. By this point, the business is likely to be exploring new products or markets and looking for funding to pursue these. Typically, Series B funding ranges from £10m to £20m.

Series C

As the name suggests, a Series C investment round is the next one a business holds after it’s secured Series B funding. The money is generally used to fund the company’s growth plans, including things like bringing in new people, developing new products, opening new premises or investing in new technology. Typically, Series C funding ranges from £20m to £80m.

Series Funding

Series funding refers to all the investment rounds a business might go through after their initial pre-seed and seed funding. These include Series A, B and C funding.

Serviceable available market (SAM)

A company’s serviceable available market (also known as serviceable addressable market) is the portion of their total addressable market, or TAM (see below), that they can potentially reach using their business model.

Serviceable obtainable market (SOM)

A company’s serviceable obtainable market is the percentage of their serviceable available market (see above) that they’ll realistically be able to sell to. Unless they’re a monopoly, they’re unlikely to be able to hit 100%, because some customers will inevitably choose a competitor instead.

Shareholders Agreement

SITR

A shareholders’ agreement sets out how a company should be run, including what rights, obligations, privileges and protections its shareholders have.

Social Investment Tax Relief is an initiative created by the UK government to incentivise investment in social enterprises and certain charities. It was set up because these organisations often don’t qualify for investment under other schemes such as EIS (see above).

Sophisticated Investor

A sophisticated investor is a term defined by the Financial Conduct Authority (FCA) to mean someone who’s done one of these things in the last two years:

Been a director of a company turning over at least £1m.
Made more than one investment in a company that’s not on the stock exchange.
Worked professionally in private equity or finance for small and medium sized enterprises.

You can also be called a sophisticated investor if you’ve been a member of a business angels network (like the Obu Angel Collective) for at least six months.To protect both angel investors and entrepreneurs, anyone considering becoming an angel investor needs to self-certify with the FCA as a sophisticated investor or high net worth individual (see above) before they can start receiving business plans or making investments.

Start-up

A start-up is a new business working to bring its product or service to market.

Term Sheet

A term sheet is a non-binding agreement that sets out the basic terms and conditions of an investment. It’s usually presented by the lead investor, and once all of the other investors are happy with it, it’s used as a template to create a more in-depth, legally binding contract.

TAM (Total Addressable Market)

Ticket Size

The total addressable market is the maximum size of the opportunity for a company’s product or service. So, if every absolutely everybody who could potentially appreciate that product or service started using it, giving the business 100% market share, the TAM tells you how big that market would actually be.

Put really simply, ticket size means investment size. When an entrepreneur is raising investment, they’ll often have a minimum ticket size, which means a minimum amount they’d like to raise from each individual investor – for example £5,000. They’ll often do this to make sure their cap table (their list of investors) doesn’t get too big and unwieldy. An investor might also have a ticket size in mind when they’re choosing what to invest in. For example, they might want to invest in two businesses this year, and have a ticket size of £5,000 for each.

Traction

Traction is the progress and momentum a start-up has achieved. If, as an early-stage business, you can demonstrate good traction, it shows you’re heading in a positive direction and gives investors confidence.

Unicorn

A unicorn is a privately owned start-up that’s been valued at more than $1 billion. When the term was created by investor Aileen Lee in 2013, unicorns were rare, impressive and highly-sought after by investors. Today they’re more common but still in high demand.

According to Crunchbase, who compile their Unicorn Board as a record of the most valuable companies in the world, in 2022 a total of 595 new companies became unicorns, of which 83 were founded or co-founded by women. While both of these figures are encouragingly bigger than the previous year, there’s still a huge gender disparity – something we believe our platform will help to address.

Valuation

A valuation is an estimate of how much something – like a business – is worth. The valuation of a start-up is usually done by its founder and might take into account things like its cash flow, traction and competition.

Investors use a company’s valuation to understand how much money they’re likely to make when they eventually exit the business.

Value Proposition

A value proposition is a statement that sums up what a business promises to deliver, and who it’s going to deliver that to. Businesses might use their value proposition in a pitch deck (see above) to help investors quickly understand what they do. It will also play an important part in their marketing strategy.

Venture Capital

Venture capital is a type of funding given by investment organisations or financial institutions to early-stage businesses that have long-term potential. In contrast to angel investing, larger sums of money are usually involved and investors are purely focused on shareholder value, rather than nurturing the business or being a positive force in the world.

Vesting

Vesting means earning ownership of shares, over an agreed timeframe, as set out in a shareholders’ agreement or employment contract. For example, as an investor, founder or employee, you might sign a contract that says you’ll get a certain number of shares once you’ve been with the company for five years. If you decide to leave after just two years, you won’t get the full value of those shares.

Working Capital

Working capital is the amount of money a business has available to fund its day-to-day operations. It’s the value of its current assets – things like cash, unpaid customer invoices, stock and supplies – minus its current liabilities – things like bills and debts it needs to pay. Investors like to get a clear picture of a company’s working capital to understand its short-term health.