S Corporation or Sub-chapter S Corporation

(USA) A small business corporation permitted to be taxed substantially, as if it were a partnership or individual proprietorship (no corporate tax; corporate losses can be claimed by the shareholders and corporate profits are taxed directly to the shareholders). See ‘C Corporation’ and ‘Limited Liability Company.’

SBIC

Small Business Investment Company. A company licensed by the Small Business Administration to receive government leverage in order to raise capital to use in venture investing.

Schedule 13D

(USA) A form required to be filed with the SEC by any person or entity that acquires a 5% or greater ownership interest in a public company, setting forth identifying information about the investor, the source of funds used to purchase the securities, and, most importantly, the investor’s intent with respect to attempting to take control of the issuer.

Schedule 13G

(USA) A shorter form than Schedule 13D that some 5% owners who do not intend to assert any control can file in lieu of filing a Schedule 13D. Also used for persons who acquired their 5% interest prior to an issuer’s IPO.

SEAQ

The Stock Exchange Automated Quotations System (SEAQ) is a continuously updated electronic notice board containing price quotations of UK securities. Market makers use the System to display the prices at which they are prepared to buy or sell shares.

SEC

See ‘Securities and Exchange Commission.’

Second Preferred Stock or Shares

Preferred stock that has rights subordinate to those of other preferred stock on dividend and assets. Also referred to as ‘Subordinate Preferred Stock or Shares.’

Secondary Distribution (or Secondary Offering)

A public offering of a security by a selling holder of securities. The term Secondary Offering is also sometimes used more generally in reference to any public offering other than an IPO. See ‘Primary Distribution/Shares’ for comparison and ‘IPO.’

Secondary Investment

An investment where a fund buys either a portfolio of direct investments of an existing private equity fund or limited partner's positions in these funds.

Secondary Market

A market or exchange in which securities are bought and sold following their initial sale. Investors in the primary market, by contrast, purchase shares directly from the issuer.

Secondary Sale

The sale of private or restricted holdings in a portfolio company to other investors.

Section 16

(USA) A provision under the Securities Exchange Act of 1934 regulating trading by corporate insiders. It provides that any profit realized by an insider from any purchase and sale or sale and purchase of stock of such company within any period of less than six months shall be deemed to belong to and recoverable by the company. Section 16 provides for strict liability, and the intentions of the insider will not be considered in any action by the company to recover profits. Section 16 also requires insiders to report all trades in a company’s securities. See ‘Short Swing Profits’ and ‘Reporting Company Forms/Forms 3, 4, and 5.’

Secured Debt

Loans secured against a company’s assets.

Secured Obligation

A debt obligation that is secured by the pledge of assets.

Securities Act of 1933 (also ‘1933 Act’ or ’33 Act’)

(USA) A federal law regulating the offer and sale of securities by the issuer or its affiliates. It generally requires issuers seeking to raise funds from the public to provide investors with extensive information. Its liability provisions, particularly for incorrect registration statements, create a liability rule of ‘caveat vendor’ or ‘let the seller beware.’

Securities and Exchange Commission (SEC)

(USA) The primary USA federal regulatory agency for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets. The SEC enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act. The supervision of dealers is largely delegated to the self-regulatory bodies of the exchanges.

Securities Exchange Act of 1934 (also ‘1934 Act’ or ’34 Act’)

(USA) A federal law that regulates stock markets, trading in stock markets, and on-going disclosure by public companies traded on those stock markets.

Securities Management

(UK) The London Stock Exchange’s department responsible for dealing with applications for admission to trading.

Seed Capital

Initial capital for a start-up venture, usually provided by the founders, friends, or relatives, but that may also be provided by seed venture capital firms. Typically Seed Capital is provided in order to develop a business concept before a company is started.

Seed Stage

Financing provided to research, assess and develop an initial concept before a business has reached the start-up phase. See ‘Early Stage.’

Self-Regulatory Organization (SRO)

Non-government organization that has statutory responsibility to regulate its own members through the adoption and enforcement of rules of conduct for fair, ethical, and efficient practices. Examples include NASD and the national securities and commodities exchanges.

Semi-Captive Fund

A fund in which a significant share of the capital is raised from third parties, although the main shareholder contributes a large part of the capital. Compare with ‘Captive Fund’’ and ‘Independent Fund.’

Senior Debt

A debt instrument that expressly has a higher priority for repayment than that of general unsecured creditors. Typically used for long-term financing for low-risk companies or for later-stage financing. See ‘Subordinated Debt.’

Separate Account Client

A client whose account is held separately from the collective funds managed by the management company. Separate Accounts can either be discretionary or non-discretionary.

Sequence

The classification of funds by order of investment. First in a Sequence is the new fund, defined as the first fund a management group raises together, regardless of the experience level of individual professionals in that group. Next are follow-on funds, defined as subsequent funds (II, III, IV, etc.) raised by the same management group.

Share Capital

See ‘Capital Stock.’

Share Deal/Stock Deal

Making an acquisition by purchasing the company’s shares. Compare with ‘Asset Deal.’

Share Purchase Agreement/Stock Purchase Agreement

An agreement in which one or more purchasers buys shares issued by one or more target companies from one or more sellers. The agreement will set out/forth the type and amount of shares sold, representations and warranties, indemnification in the event of misrepresentation and may also include post-closing covenants (such as the obligation for the sellers not to compete with the purchasers).

Shares Outstanding

See ‘Outstanding Stock.’

Shark Repellent

Defense mechanisms or tactics designed to discourage undesired takeover bids. See ‘Anti-Takeover Provisions,’ ‘Blank Check Preferred Stock,’ ‘Poison Pill,’ and ‘Staggered Board of Directors.’

Shelf Registration

(USA) A registration statement that covers securities that are not to be sold in a single offering immediately upon effectiveness, but rather are proposed to be sold over a period of time or on a continuous basis. A similar concept is included in the prospectus directive. See ‘Prospectus Directive.’

Shell

Typically refers to a corporation that has been duly organized and is currently in existence, but that currently has no business operations.

Shoe

See ‘Green Shoe.’

Short Form Report

In the UK, the report on the accounting and financial history and position of an issuer by its auditors, normally based on its last three years’ published financial statements and reproduced in a prospectus or other offering document. Compare with ‘Long Form Report.’

Short Sale

Borrowing a security (or commodity futures contract) from a broker and selling it, with the understanding that it must later be bought back (hopefully at a lower price) and returned to the broker. SEC and NASD rules limit when investors can sell short.

Short Swing Profits

A term used in reference to profits realized by insiders from buying and selling a company’s securities within a specified period. In the USA, this period is six months, and any profits are subject to recovery by the company under Section 16 of the Securities Exchange Act. See ‘Section 16.’

Sinking Fund

An annual reserve of capital required by the creditor to be set aside out of a company’s current earnings to provide funds for retirement of an outstanding bond issue.

Small Business Administration (SBA)

Provides loans to small business investment companies (SBICs) that supply venture capital and financing to small businesses.

Soft Market

A market for securities in which supply exceeds demand. A dramatic rise in new issues of securities may create a Soft Market, leading to a general reduction in share prices and difficulty in placing new offerings of securities.

Sole Proprietorship

A business operated directly by an individual, without the use of any legal entity.

Sophisticated Investor

(US) An investor who is deemed to be sophisticated and sufficiently knowledgeable with respect to financial matters that it can fend for itself in the purchase of securities and does not require the full protection of securities law.

Spinoff

The creation of a new independent company from an existing company by the transfer of the assets of one or more business units or product lines of the company to a new corporation and the distribution of stock of that new corporation to stockholders of the old one.

Spinout

The creation of a new independent company by a university or government agency technology transfer unit whose purpose is to commercialize technology developed at such university or government agency.

Split or Stock Split

An increase in the number of outstanding shares of a company’s stock, such that the proportionate equity of each shareholder remains the same. The market price per share theoretically should drop proportionately. Usually done to make a stock with a very high per share price more accessible to small investors. Requires approval from the board of directors and sometimes shareholders.

Sponsor

In the UK, this term refers to the sponsor to an issuer on the Official List of the London Stock Exchange.

Spread

The difference between the current bid and the current ask (in over-the-counter trading) or offer (in exchange trading) of a given security; also called ‘Bid/Ask Spread.’ More generally, the difference between any two prices. Also, the purchase of one option and the simultaneous sale of a related option, such as two options of the same class having different strike prices and/or expiry dates. See ‘Inside Spread.’

Squeeze-Out

Statutory provisions entitling an offeror who has acquired the support of a certain percentage of shareholders to acquire the balance of shares in the target company.

SRO

See ‘Self-Regulatory Organization.’

Staggered Board of Directors

A board of directors divided into classes (typically three) elected for multiple-year terms, with classes coming up for re-election on a staggered basis. A Staggered Board may be used as a form of anti-takeover device. Also known as a Classified Board. See ‘Anti-Takeover Provisions,’ ‘Blank Cheque Preferred Stock,’ ‘Poison Pill,’ and ‘Shark Repellent.’

Standard & Poor’s 500 (S&P 500)

A market-value weighted index of the 500 largest stocks in the USA markets that is maintained by Standard & Poor Corporation. Generally considered to be a benchmark of the overall USA stock market. See ‘Index.’

Standard Deviation

A statistical parameter which measures how much elements in a data set vary around the mean.

Start-up

A company at its initial stages of development – even before set-up – that typically has little or no earnings and revenues. Start-up capital is typically provided for product development and/or initial marketing.

Sticky Deal

An issue of securities that the underwriter or the underwriting syndicate believes will be difficult to sell in the market.

Stock Options, Incentive

See ‘Incentive Stock Options.’

Stock Options, Non-qualified

See ‘Non-qualified Stock Options.’

Stock Power

A power of attorney enabling a person other than the owner to transfer stock ownership to another party. A stock power is sometimes granted when stock is pledged as collateral for a loan.

Stockholder Agreement

An agreement among stockholders, typically in a private company, to ensure maintenance of stable ownership and management of a company for the life of the investment. Venture capital investors will typically require a stockholder agreement that may cover, among other things: a right of first refusal in favor of the issuer or other stockholders on a proposed sale by a stockholder of his or her stock, a right to participate in insider sales (i.e. sales by existing shareholders); an agreement to elect certain directors; and provisions as to buyout.

Stop Order

(USA) An order issued by the SEC suspending the order of effectiveness of a registration statement because of misstatements in the registration statement or other improper activities by an issuer or its underwriters. Sales of new securities after issuance of the stop order will violate the Securities Act of 1933.

Strategic Investor

A corporate investor that invests for the strategic value the portfolio company adds from a business perspective rather than investing primarily for direct economic return.

Street Broker

An over-the-counter broker or ‘OTC Broker,’ as opposed to an exchange member.

Street Name

A term used to refer to securities beneficially owned by individual investors, but registered in the name of a nominee of a securities or brokerage firm such as Cede & Co., which are then allocated within that firm to the accounts of individual investors who purchase the securities. See ‘Cede & Co.’

Street or ‘The Street’

A shorthand reference to Wall Street or to the consensus opinion of the financial community generally. Often in the form ‘The Street likes...’ or ‘The Street doesn’t like...’ In the UK, ‘The City’ is used in the same manner.

Strike Price

The stated price per share for which the underlying security may be purchased (calls) or sold (puts) by the optionee upon the exercise of the optionee.

Strong Market

A securities market in which buyers outnumber sellers and stock prices trend upwards.

Sub-chapter S Corporation

See ‘S Corporation.’

Subordinated Debenture

A debenture expressly subordinated to other obligations of the issuer. A subordinated debenture may be subordinated to other debt instruments or even to general creditors. It is frequently convertible into, or accompanied by warrants to purchase, common stock.

Subordinated Debt

Debt that expressly has a lower priority for repayment than other debt, i.e., it may not be repaid until the senior debt has been repaid. See ‘Senior Debt.’

Subscription Agreement

An agreement further to which one or more investors undertake to subscribe to, and whereby the competent corporate body (or the members thereof) undertakes to decide (or to vote in favor of), an upcoming issue by one or more target companies of shares, bonds, convertible bonds, warrants or other financial instruments to such investors. The agreement will set out/forth the type and amount of instruments to be issued, the representations and warranties, the indemnification in the event of misrepresentation and may also include post-closing covenants (such as further investment obligations or restrictions on the transfer of the instruments that will be acquired).

Sweat Equity

Ownership of shares in a company resulting from work rather than investment capital -- usually founders receive ‘sweat equity.’

SWIFT

Society for Worldwide Interbank Financial Telecommunications. International body that sets protocols and standards for international payment systems, such as electronic money transfers.

Syndicate

The group of underwriters that will become legally obligated to purchase securities in a firm commitment public offering. Also the department within the lead underwriter’s firm that compiles the Book. See ‘Book or Syndicate Book.’

Syndicate Book

See ‘Book or Syndicate Book.’

Syndication

A number of investors offering funds together as a group on a particular deal. A lead investor often coordinates such deals and represents the group’s members. Within the last few years, syndication among angel investors (an angel alliance) has become more common, enabling them to fund larger deals closer to those typifying a small venture capital fund.