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Private Equity And Venture Capital Glossary

Angel investors are typically entrepreneurs who have become wealthy, often in technology-related industries. A high net worth individual active in venture financing, typically participating at an early stage of growth. Sometimes, private equity is grouped into a broader category, known as Private Capital, which is usually used to describe capital that supports any long-term illiquid investment strategy. Private equity refers to the injection of funds by certain types of investors into private firms – the aim is to achieve a high rate of return. In other words, it is money that people, companies and other entities have invested in private companies; ones that are not listed on a stock exchange. An individual or group of individuals seeking to identify an acquisition candidate that the individual or group can acquire and subsequently manage. Typically, search funds do not have dedicated capital to acquire a business but, rather, have informal pledges from potential investors. An investment vehicle, typically a Limited Partnership, formed to make investments in private companies via a pool of committed equity capital. The acquisition of a business utilizing equity or investment capital and third-party debt financing. An investment made in an operating company by an outside investor to support existing or anticipated expansion of the business.

Lock-up PeriodThe period of time that certain stockholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups of at least 180 days from large shareholders (1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners and such large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings.

These Old Programming Languages Are Still Critical To Big Companies But Nobody Wants To Learn Them

It’s a way to account for losses when reporting expenses and revenues. A method of profit distribution where profits are distributed to one class of equity before another until a certain level of return on the investment is reached. Stands for paid-in capital multiple, which is a calculation that shows the ratio of committed capital that has actually been drawn upon. Vertical direct investment – when the investor adds foreign activities to an existing business. Blind pools are direct participation investment programs that don’t have a stated investment goal, usually based around name or firm recognition. An add-on purchase is a specific type of acquisition where the acquired company becomes a part or subsidiary of another purchasing company. Perform an easy TAM analysis as the market evolves to keep up with opportunities. SourceScrub employs best-in-class search and filtering functionality so that investment professionals can rapidly and accurately identify potential add-on acquisitions and uncover investment opportunities. Value-Add Services (or add-on services) – so a VC isn’t just about infusing a company with cash. They also like to help out startups with advice, technology, connections, and more.
Private equity, as a rule of thumb, refers to investments made in existing commercial enterprises that are not profitable, and turning them into money-making companies. The cash generated by a business on a pre-tax, pre-interest basis after making positive adjustments for non-cash expenses such as depreciation and amortization as well as owner-related benefits. A formal, written document indicating the terms a buyer is offering a seller in a proposed acquisition or investment. Although not a contract, it is a document stating a serious intent, by both parties, to carry out the proposed acquisition. Borrowing money from an outside source, typically a bank, with the promise to return the principal, in addition to an agreed-upon level of interest. The proceeds of a sale of business that are paid only if certain pre-determined criteria are achieved in the months or years after the close of the sale. The amounts owed to a business for services or products delivered to a customer. The amounts owed by a business for services or products delivered from a vendor. Analysis of the past trading prices and patterns of a security, in the belief that they are predictive of future performance. A financial instrument representing ownership in a company’s net worth.

The process performed by prospective investors to assess the viability of an investment and confirm that the information provided by the company is accurate. The right of an investor to sell shares, if a founder or other key employee sells shares. This right is designed to protect the investors against being trapped in an investment after the founders have cashed out. You will use the same advisors to do the DD as your PE firm would – they’ll take money from anyone. This is hugely preferable to buyer-DD where you might never see the report and your potential buyer could make a decision based on flawed information or analysis.
For example, a portfolio with an active share of 60% indicates that 60% of its holdings differ from its benchmark, while the remaining 40% mirror the benchmark. We try to make our marketing materials clear, but some financial jargon is inevitable. Words in italics within the definitions indicate that they are explained elsewhere in the glossary. Made up of the leading business brokerage companies and agents throughout the state of Florida. Neither the SEC nor any state securities commission or regulatory authority approved, passed upon or endorsed the merits of any offering on the EQUITYMULTIPLE Platform. Refinancing is the practice of replacing an older loan with a new loan that offers better terms, such as a lower interest rate. A basis point is equal to 1/100th of 1% or .01% and is a common unit of measure for interest rate changes.

Transferable Securities

Unlike Form S-1, it permits incorporation by reference from the company’s annual report to stockholders (or annual report on Form 10-K) and periodic reports. Delivery of these incorporated documents as well as the prospectus to investors may be required. DepreciationAn expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing the amount of a company’s reported earnings.
private equity glossary
This refers to the milestone year in which the first amount of venture capital was granted to a company. Capital that is provided by certain investment firms to startups, early-stage companies, and emergent companies. Usually this funding is granted to companies that look to have growth potential. Discounted cash flow is how you determine the value of an investment based on the cash flow it might generate in the future. It can create performance drag, because in proper investment strategies, cash should always be working. Most people are probably familiar with this concept from their childhood.

Warrants issued to reward bridge loan lenders, guarantors or other lenders for incurring the risk of lending. The number of shares issuable upon exercise of the warrants is based on a percentage of the debt. The direct sale of a security to a limited number of qualified buyers, which may include accredited investors or institutional investors. Proper controls and structuring may exempt the placement from standard disclosure and registration policies mandated by the SEC.

The customers, suppliers, inventories and other assets and liabilities required for day-to-day operations of a target company. The difference between the post-valuation of a company’s previous VC round and the pre-money valuation of its new round. A fee paid by the buyer if it breaches or decides to terminate a definitive acquisition agreement. An analysis that compares a private fund’s performance to a public benchmark or index. An executive dedicated to working with portfolio companies to increase their value. A non-binding indication of one party’s intention to purchase a target company.

Venture Capital Terms

The start-ups are usually based on an innovative technology or business model and they are usually from the high technology industries, such as Information technology , social media or biotechnology. The typical venture capital investment occurs after an initial “seed funding” round. The first round of institutional venture capital to fund growth is called the Series A round. Captive fundsA venture capital firm owned by a larger financial institution, such as a bank. When a private equity firm acquires all the shares of a public company, changing the company’s status from public to private. Private Placement Memorandum A document explaining a new private offering of securities.
private equity glossary
Piggyback – Company is registering stock either for itself or other stockholders and one can “piggyback” a portion of shares for registration onto the company’s registration. Usually have these rights for up to five years after the company becomes public, but cannot exercise them for mergers or employee offerings. ProspectusA formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Narrow-Based Weighted Average RatchetA type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A’s preferred stock is repriced to a weighed average of investor A’s price and investor B’s price.

Venture-backed firms typically receive further Follow-on Financing as they grow and develop in portfolios. NDA (Non-disclosure agreement)An agreement issued by entrepreneurs to potential investors to protect the privacy of their ideas when disclosing those ideas to third parties. Management Fees OffsetsThe extent to which monitoring, transaction, and other portfolio company related expenses, paid to the General Partner are offset against management fees. Invested CapitalThe total amount of drawndown capital which has actually been invested in companies. In practice, this will be equal to the amount of drawndown capital private equity glossary less amounts which have been used to pay fees, or which are awaiting investment. HurdleUse in its commonly accepted sense of a hurdle return, i.e., the lowest possible return which a particular investor will accept. However, also used specifically to describe a return which a GP has to at least equal before any carry is calculated or payable. This mechanism is commonly found in buyout and development capital funds, but rarely in venture funds. HarvestReaping the benefits of investment in a privately held company by selling the company for cash or stock in a publicly held company, also known as an “exit strategy”.

This calculation takes into account both the sized and the date of any investment and therefore makes it more accurate than a simple averaging of IRRs or the weighted average IRR . The rate of return that the fund must achieve before the fund manager can get paid the carried interest. The period from when a fund is announced to the time when the final closing occurs. During this period, the general partner will present an investor pitch (“Road Show”) as well as negotiate closing document with prospective investors.
An index based on the quarterly statistics from Thomson Reuters’ Private Equity Performance Database analyzing the cash flows and returns for private equity funds. A private equity fund formed by a non-financial corporation which raises money from outside investors. An investment management firm that also makes private equity investments. A private equity fund formed by an endowment or a foundation which raises money from outside investors. This stage describes funds that make investments into portfolio companies after the Seed Stage/Startup for product development, initial marketing, manufacturing and sales activities. A private equity fund formed by a commercial bank which raises money from outside investors. Venture capital is a type of private equity, a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth . Venture capital firms or funds invest in these early-stage companies in exchange for equity–an ownership stake–in the companies they invest in. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful.

  • Bonds where the coupon and principal payments are adjusted in line with the rate of inflation.
  • A private equity fund formed by an endowment or a foundation which raises money from outside investors.
  • The majority shareholder controls the board of directors and hence can dictate strategic and operational decision-making.
  • Gross potential income is the income that will be realized if a property is fully occupied and all rents are collected.

Negotiations were made, agreements are executed, and funds are transferred. Vesting – the lag period between when someone is awarded a stock option and when they can actually exercise it. ROI – Return on Investment – the gain or loss generated on an investment versus how much was invested. Pivot – when a business plan doesn’t work, the company changes things up. The startup team will put together a comprehensive presentation (a “deck”) and reports to show the VC that they are a good investment. They’ll physically go to the VC’s offices, present the deck, and take questions. If a company offers a free software as a service trial, then converts those users to paid users, they’re now monetized. Things like sponsored tweets or other content also count as monetization. Mezzanine Financing – usually the last stage of funding before a company has their IPO, usually structured to be repaid after said IPO.
Members of a company’s management team acquire large part/all of the company from existing owners. Allows an injection of new equity capital to cure a financial covenant default by counting newly contributed capital as EBITDA, reducing debt. Debt is obtained to provide cash pmt to equity holders in a business. Form of financing for companies in financial distress during a restructuring event. Volatility measures how widely individual performance returns, within a performance series, are dispersed from the average or mean value.
It may include renegotiating existing leases with tenants or doing refurbishments. Securities that represent fractional ownership of a company and typically pay a fixed dividend but do not offer voting rights. It is called passive because it simply seeks to replicate the private equity glossary index. To hold a higher weighting of an individual security, asset class, sector, or geographical region than a portfolio’s benchmark. Assets or liabilities that do not appear on a company’s balance sheet but may be important to assess the financial health of a company.