A Practical Guide to Angel Investing: How to Achieve Good Returns

Glossary of Terms

Accredited Investor

Defined under the Multilateral Instrument 45-106, Capital Raising Exemptions, as:

• an individual who, either alone or jointly with their spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000; or

• an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of their spouse exceeded $300,000 in each of the two most recent years and who, in either case, reasonably expects to exceed that net income level in the current year; and

• an individual who has such knowledge and experience in financial and business matters to be capable of evaluating the relative merits and risks of any investment.

Advisory Board

A group of external advisors to a private equity group or portfolio company. Advice provided varies from overall strategy to portfolio valuation. Less formal than a board of directors.

Allocation

The amount of securities assigned to an investor, broker or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process, depending on market demand for the securities.

Angel Financing

Capital raised for a private company from independently wealthy investors. This capital is generally used as seed financing.

Angel Group

A formal or informal assembly of active Angel investors who cooperate in some part of the investment process. Key characteristics of an Angel group are: control by member Angels (who manage the entity or have control over the entity's managers), and collaboration by member Angels in the investment process.

Angel Investing

An Angel investor is an individual who makes direct investments of personal funds into a venture, typically early-stage businesses. Because the capital is being invested at

a risky time in a business venture, the Angel must be capable of taking a loss of the entire investment, and, as such, most Angel investors are high net worth individuals. Government regulations require that these individuals be Accredited Investors.

Anti-Dilution Provision

The right of current shareholders to maintain their fractional ownership of a company in the event of a down round without having to pay additional funds.

Authorized Shares

The maximum number of shares of stock that a company can issue. This number is specified initially in the company's articles of incorporation, but it can be changed with shareholder approval. Generally a much greater number of shares are authorized than required, to give the company flexibility to issue more shares as needed. Also called authorized stock or shares authorized.

Balance Sheet

A condensed financial statement showing the nature and amount of a company's assets, liabilities and capital on a given date.

Book Value

Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities, and the

liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding, and the result is book value per common share.