Glossary

Glossary created by Funderbeam. Contributions from the Business Angel Institute and Invesdor.com

Terms beginning with: R


Ratchets

Various types of anti-dilution provisions to protect existing shareholders. Full ratchet anti-dilution protection allows an investor to have their ownership percentage remain the same as it was after the initial investment in case the next funding round is completed at a lower valuation. Weighted average anti-dilution protection considers the weighted average price and size of the funding rounds.

Rate of return

Please see Internal rate of return

Redemption rights

The right of an investor to request the company to buy back (redeem) the investor's shares.

Replacement method

An asset-valuation method that assesses the cost of replacing the asset with another of equal value and character.

Repurchase

A repurchase of outstanding securities by a company that wants to reduce the number of shares issued. By cancelling the shares being bought back, the value of the remaining shares increases. Also known as buyback.

Reward crowdfunding

A form of crowdfunding in which contributors receive rewards for their contributions. There are three categories based on the benefits the contributors receive: sponsor, pre-selling and reward-based crowdfunding. In sponsor campaigns contributors gain visibility in exchange for their financial support. In pre-selling operations contributors have the right to receive the product before it is sold on the market. In general reward campaigns funders receive some kind of benefit, which may or may not be monetary. The target crowd is the same as in the donation model. 

Right of first refusal

A preferential right of a shareholder to buy new shares in the company before a third party.

Roles

Please see Investor roles

Round

Please see Financing rounds

Rule of thirds

A rule of thumb for angel rounds, often employed as a sanity check for valuation ideas. It stipulates that typically around a third of the company equity will go to investors, another third will be held by the founders, and the final third will be reserved for employees (in an option pool).

Runway

The amount of time a startup has until it goes runs out of money given its funding situation and assuming that income and expenses stay constant. It is calculated by dividing current cash reserves by the current monthly burn rate.