VC Associations

These Terms have been drawn up for general & world-wide application, and are set out here for general guidance only. Please check with your own local or national professionals for advice on them. The spelling & grammar is English (US).
Please feel free to let us know any suggested additions or amendments to these Terms, by emailing us at

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Acting in concert
Persons acting in concert are persons who, pursuant to an agreement or understanding (whether formal or informal), actively cooperate, through the acquisition by any of them of shares in a company, to obtain or consolidate control of that company.

Added value

A private equity management team’s exceptional experience, know-how or valuable business contacts which constitute a vital input for the growth of investee companies.


Marketing term used to describe the extra charges and fees added to the basic price of a product.

Adjustable rate preferred stock
Preferred stock whose dividend rate changes in response to changes in a reference interest rate.

Adjusted Present Value Model
This model is similar to the Enterprise DCF model, with the difference that the Adjusted Present Value model separates the value of the company into two components: the value of the company’s operations at the cost of capital as if the company had no debt, plus an additional element reflecting the impact on this value of the tax savings related to leverage.

Affirmative covenants
Terms contained in a shareholders' agreement where the company or management agree to carry out certain actions. Examples would be to prepare annual budgets and supply monthly accounts.

After-market support
Term used to describe the activities of a broker or underwriter after a listing to ensure the share price remains steady or rises. This can vary from acting as a principal buying shares to demanding immediate payment of the underwriting fees.


The number of securities assigned to an investor, broker, or underwriter in an offering.

Alternative Investment Market (AIM)
The London Stock Exchange’s market for new, fast growing companies. AIM offers the benefit of operating both an electronic quote and order trading facility. It commenced trading in June 1995. See London Stock Exchange (LSE)

American Stock Exchange (AMEX)

A securities market which generally listed securities of smaller or newer companies. In October 1998, NASDAQ and the AMEX combined into one corporate organization: the NASDAQ-AMEX Market Group.


A research analyst usually employed by a bank to ‘follow’ a company and issue reports on the condition and prospects of the company and of its securities. The quality and reputation of an investment bank’s analyst will often be a key component in selecting an underwriter, as analyst coverage of the company before and after the flotation helps to generate and maintain interest in the company’s securities. See underwriter.


A wealthy individual who invests in entrepreneurial firms. Although angels perform many of the same functions as venture capitalists, they invest their own capital rather than that of institutional or other individual investors.

Angel financing

Capital contributed by an independently wealthy private investors. See business angel.
Anti-dilution (full ratchet)
These Anti-dilution provisions stipulate the price at which the anti-dilution instruments are converted is the lowest price at which ordinary shares have been sold. For example: in a prior round of financing which raised capital at $2.00 per share, investors received full ratchet anti-dilution protection. A subsequent round of financing was consummated at $1.00 per share, and the early round investors therefore had the right to convert their anti-dilution instruments at the lowest (i.e. $1.00) price. See anti-dilution provisions, anti-dilution (weighted average), blank check preferred stock, poison pill, shark repellent.

Anti-dilution (weighted average)
These Anti-dilution provisions stipulate the price at which the anti-dilution instruments are converted is calculated by a weighted average formula. For example: in a prior round of financing which raised $1 million of capital at $2.00 per share, investors received weighted average anti-dilution protection. A subsequent round of financing was consummated for another $1 million at €1.00 per share, and the early round investors therefore had the right to convert their anti-dilution instruments at a weighted average adjusted price of $1.50 per share. See anti-dilution provisions, anti-dilution (full ratchet), blank check preferred stock, poison pill, shark repellent.

Anti-dilution provisions
Provisions in a company’s charter and by-laws designed to discourage undesired take-over bids. These take the form of options or institutional equity instruments (eg convertible preference shares), which can be converted to ordinary shares on any issue of new stock in a subsequent round of investment financing or in a take-over bid. The price at which this conversion takes place is determined by the type of anti-dilution provision. See anti-dilution (full ratchet), anti-dilution (weighted average), blank check preferred stock, poison pill, shark repellent.

The relationship between persons (whether companies or not) who deal on a purely commercial terms, without the influence of other factors such as: common ownership; a parent/subsidiary relationship between companies; existing family or business relationships between individuals.

Unpaid dividends due to holders of preferred stock. See Cumulative preferred stock.
Asset allocation
A fund manager’s allocation of his investment portfolio into various asset classes (eg stocks, bonds, private equity).

Asset class
A category of investment, which is defined by the main characteristics of risk, liquidity and return.

Asset consultant
Independent person or company who advises superannuation fund trustees on allocation of funds among various asset classes (listed equities, property, venture capital etc.), and who may provide additional expertise in the selection of fund managers for the various asset classes.

Asset cover
One of the indicators used by banks to calculate debt ceiling. It is the extent to which debt is secured against the company’s assets. Banks apply different weighting factors to various classes of asset, depending on their liquidity and the typical reliability of the valuation.

Asset deal
A sale of assets not essential for the vendor’s core business. Compare Share deal.

Asset intensity
The value of assets required by a business to support $1 in sales. The figure is the reciprocal of asset turn and varies from say $2 for a capital intensive manufacturer to 15¢ for a retailer.

Asset redeployment
Term used by new owners of a company to explain how they intend to improve the return on assets. For example, actions might include selling businesses which are not an intrinsic part of the operation, rationalizing product lines and so forth.

Asset turn
The ratio obtained when the annual sales are divided by the assets of the company. The ratio can vary from one for a miner to say eight for a retailer.

Average IRR
The arithmetic mean of the internal rates of return (IRRs). See Internal rate of return (IRR).

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Bad leaver
An employee who leaves the company within a short time or who is dismissed for cause, or under other circumstances where the employee is not permitted to retain the benefit of profit-sharing arrangements such as increased value of shares or carried interest.

Balanced fund

Venture capital funds focused on both early stage and development with no particular concentration on either.

Basis point
One hundredth of a percent (0.01%). Used to measure changes in or differences between yields or interest rates.

Beauty parade
An accepted mechanism for an investee company to select a provider of financial and professional services. The investee normally draws up a short list of potential providers, who are then invited to pitch for the business.

A previously agreed upon point of reference or milestone at which venture capital investors will determine whether or not to contribute additional funds to an investee company.

Best efforts underwriting
The most common form of underwriting agreement, in which the underwriter agrees to use its best efforts to place the offering with prospective investors, but is not committed to purchase any unsubscribed shares.

A statistical measure of a security’s volatility, compared to the overall market. A beta of less than 1 indicates lower volatility than the general market; a beta of 1 or more indicates higher volatility than the general market. See volatility.

Buy-in-management-buy-out. A combination of a management buy-in (MBI) and a management buy-out (MBO). In a BIMBO, an entrepreneurial manager or group of external managers financed by venture capitalists buys into a company and teams up with members of the target management team to run it as an independent business.

Black-Scholes Formula
A model developed by Fischer Black and Myron Scholes for pricing financial options.

Blank check preferred stock
Authorized preferred stock, the terms of which are left open under the company’s charter, thus allowing the board of directors to fix the terms without stockholder approval. Blank check preferred stock maybe used as an anti-takeover device.
See anti-dilution provisions, poison pill, shark repellent.

Board of directors
Group of individuals elected by the shareholders of a company to promote and safeguard all aspects of the shareholders’ best interests.

A debt obligation, often secured by a mortgage on some property or asset of the issuer.

Book (or Syndicate Book)
A list of investors who have indicated an interest in purchasing shares in a public offering. The book is maintained by the lead managing underwriter during the offering process. See Hard circle.

Book manager
The lead managing underwriter who maintains the Book.

Book value per share
A company’s net worth (assets minus liabilities) divided by the number of shares outstanding. Tangible book value is the company’s net tangible worth (tangible assets minus liabilities) divided by the number of shares outstanding.

Process carried out in the period before a flotation in which the lead underwriter(s) invites institutional and retail investors to commit to subscribing to the floating company’s shares. See Book.

The underwriter in charge of the bookbuilding process.

To slow down the rate of growth of the company and fund the working capital increase from retained earnings.

Break fee
A break fee (also referred to as an inducement fee) is a sum agreed between the offeror and the target company to be paid to the offeror by the target only if specified events
occur which prevent the offer from proceeding or if the offer fails.

Break-even analysis
Financial tool which is used to establish if the gross profit of a business will exceed the fixed costs.

Break-even point
A point reached when a company’s revenue equals its expenses.

Bridge financing
Financing made available to a company in the period of transition from being privately owned to being publicly quoted.

One who acts as an intermediary between a buyer and a seller of securities.

Burn rate
The rate at which an investee company consumes investment capital. Usually measured in monthly expenses less turnover. Example is 'company xyz has a burn rate of $45,000 a month’.

Business angel
A private investor who provides both finance and business expertise to an investee company.

Business plan
A document which describes a company’s management, business concept and goals. It is a vital tool for any company seeking any type of investment funding, but is also of great value in clarifying the underlying position and realities for the management/owners themselves.

Buy-and-build strategy
Active, organic growth of portfolio companies through add-on acquisitions.

A corporation’s repurchase of its own stock or bonds.

Buy-in price
Price at which an investor purchases new shares for transactions where the cash remains with the company.

A transaction in which a business, business unit or company is acquired from the current shareholders (the vendor). See management buyout (MBO), management buy-in (MBI), institutional buyout (IBO), leveraged buyout (LBO).

Buyout Fund
Funds whose strategy is to acquire other businesses; this may also include mezzanine debt funds which provide (generally subordinated) debt to facilitate financing buyouts, frequently alongside a right to some of the equity upside.

Buy-out price
Price at which an investor purchases old shares for transactions where the cash goes with the seller.

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CAC-40 (Compagnie des Agents de Change 40 Index)
An index based on 40 of the largest and most liquid stocks traded on the Paris Stock Exchange. See index.

Call option (or call)
A contract whereby the holder of an option has the right to buy, from the grantor, shares at a specific price (strike price) at some time in the future. Compare put option.

Capital Asset Pricing Model (CAPM)
Capital Asset Pricing Model determines the cost of equity of a quoted company. This cost depends on the risk free interest rate, the return of a market index and the security’s volatility, compared to the overall market. See Beta.

Capital employed
Capital employed is the sum of equity and long-term debt used by a company to purchase long-term assets and for working capital.

Capital gain
The amount realized on exit less the amount invested.

Capital intensity
The amount of capital needed to be employed by a business to support $1 of sales. The reciprocal of capital turn.

Capital structure

The composition of a company's source of funds, especially long-term funds.

Capital turn

The ratio obtained by dividing the annual sales of a company by the capital employed.

Capital under management
This is the total amount of funds available to fund managers for future investments plus the amount of funds already invested (at cost) and not yet divested.

Capital weighted average IRR
The average IRR weighted by fund size.

Captive fund
A fund in which the main shareholder of the management company contributes most of the capital, i.e. where parent organization allocates money to a captive fund from its own internal sources and reinvests realized capital gains into the fund. Compare semi-captive fund, Independent fund.

Carried interest
A bonus entitlement accruing to an investment fund’s management company or individual members of the fund management team. Carried interest (typically around 20% of the profits of the fund) becomes payable once the investors have achieved repayment of their original investment in the fund plus a defined hurdle rate.

Cash alternative
If the offeror offers shareholders of the target company the choice between offeror securities and cash, the cash element is known as the cash alternative.

Cash Flows to Equity Valuation
A variant of the DCF model, where future cash flows to the equity owners of the company are discounted at the cost of the equity, thus directly calculating the equity value.

Cheap stock
Stock (or rights to acquire stock) issued to employees, consultants, promoters, etc, of the issue company at a price lower than the public offering price, particularly if issued within one year prior to the public offering.

Chinese walls
Deliberate information barriers within a large company to prevent conflict of interest between different departments.

Class action suit
A lawsuit brought by one person on behalf of a larger group of individuals who all have the same grievance.

Class of securities
Classes of securities are securities that share the same terms and benefits. Classes of capital stock are generally alphabetically designated (eg, Class C Common Stock, Class A Preferred Stock, etc).

Classified stock
The separation of a company’s capital stock into multiple classes (eg Class A, Class B, etc).

Clawback option
A clawback option requires the general partners in an investment fund to return capital to the limited partners to the extent that the general partner has received more than its agreed profit split. A general partner clawback option ensures that, if an investment fund exits from strong performers early in its life and weaker performers are left at the end, the limited partners get back their capital contributions, expenses and any preferred return promised in the partnership agreement.

Cliff Vesting
A feature of some stock option plans and pension plans. When
used in stock options, all stock options granted by the employer are vested
(become the property of the employee) after a certain specified date, rather
than accruing gradually. When used in pension plans, all matching contributions
provided by the employer become the property of the employee after a certain
specified date, rather than accruing gradually. See Stock option.

Closed-end fund
Fund with a fixed number of shares. These are offered during an initial subscription period. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.

A closing is reached when a certain amount of money has been committed to a private equity fund. Several intermediary closings can occur before the final closing of a fund is reached.

Assets pledged to a lender until a loan is repaid. If the borrower does not pay back the money owed, the lender has the legal right to seize the collateral and sell it to pay off the loan.

Comfort factor
An indication of the extent to which a investor can seek to reduce his risk by checking up on aspects of the business such as the state of relationships with its customers or whether its products are highly rated by reputable authorities. Comfort factors can often by provided by due diligence.

Commercial paper
An unsecured obligation issued by a corporation or bank to finance its short-term credit needs (eg accounts receivable or inventory). Maturities typically range from 2 to 270 days.

Commission Bancaire et Financière/Commissie voor het Bank en Financiewezen (CBF)
The Belgian Commission of Banking and Finance is the competent authority regulating the securities industry in Belgium. See Competent Authority.

Commission des Opérations de Bourse (COB)
The competent authority regulating the securities industry in France. See Competent Authority.

A limited partner’s obligation to provide a certain amount of capital to a private equity fund when the general partner asks for capital. See Drawdown.

Common shares/stock
See Ordinary shares.

Common stock equivalents
Debt and/or quasi-equity type securities capable of subscription, exchange or conversion into the company’s common stock (ordinary shares). In calculating dilution, earnings per share, etc, the number of ordinary shares is often adjusted to reflect conversion of common stock equivalents.

Common stock ratio
A company’s common stock (ordinary shares) divided by its total capitalization, expressed as a percentage.

Company buy-back
A redemption of private or restricted holdings by the portfolio company itself.

Competent Authority
A term used within Directives produced by the European Commission to describe a body identified by a member state of the European Union as being responsible for specified functions related to the securities market within that member state. Areas of competence include: the recognition of firms permitted to offer investment services; the approval of prospectuses for public offerings; the recognition and surveillance of stock markets. A member state may nominate different Competent Authorities for different areas of responsibility. See Investment Services Directive, Prospectus Directive.

Competing offer
Another contemporaneous offer for the target company by a
third party.

The moment when legal documents are signed. Normally, also the moment at which funds are advanced by investors.

The process of ensuring that any other person or entity operating within the financial services industry complies at all times with the regulations currently in force. Many of these regulations are designed to protect the public from misleading claims about returns they could receive from investments, while others outlaw insider trading. Especially in the UK, regulation of the financial services industry has developed beyond recognition in recent years.

Concert parties
Any persons or parties acting in concert (see definition of acting in concert).

Conditions precedent
Certain conditions that a venture capitalist may insist are satisfied before a deal is completed. See also comfort factor.

Confidentiality and proprietary rights agreement (or non-disclosure agreement)
An agreement in which an employee, customer or vendor agrees not to disclose confidential information to any third party or to use it in any context other than that of company business. If the agreement is between a company and an employee, the employee typically grants to the company the rights to all inventions he develops while employed by the company and represents that he is not bound by any restrictive obligations to a former employer.

Conflict of interest
In a public to private transaction, a conflict of interest invariably arises if the directors of the target company are (or will be) directors of the offeror, in which case their support for the offer gives rise to a potential conflict with the interests of the shareholders of the target company.

See syndication.

Committed capital
Pledges of capital to a venture capital fund. This capital is drawn down over the life of the fund.

Common stock
The equity typically held by management and founders. Typically, at the time of an initial public offering, all equity is converted into common stock.

Connected persons
Companies related by ownership or control of each other or common ownership or control by a third person or company, and individuals connected by family relationships or, in some instances, by existing business relationships (such as individuals who are partners).

A private equity investment strategy that involves merging several small firms together and exploiting economies of scale or scope.

Contributed capital
Contributed capital represents the portion of capital that was initially raised (committed by investors) which has been drawn down in a private equity fund.

The act of exchanging one form of security or common stock equivalent for another equivalent security of the same company (eg preferred stock for common stock, debt securities for equity). See common stock equivalent, preferred common stock, debt securities.

Conversion ratio
The number of underlying securities that can be acquired on exchange of a convertible security.

Convertible equity or debt

A security that can be converted under certain conditions into another security (often into ordinary shares). The convertible shares often have special rights that the ordinary shares do not have.

Convertible preferred stock
Preferred stock convertible into common stock (ordinary shares).

Convertible security
A financial security (usually preferred stock or bonds) that is exchangeable for another type of security (usually ordinary shares) at a fixed price. The convertible feature is designed to enhance marketability of preferred stock as an additional incentive to investors.

Convertible/equity related loan
Loan convertible into equity as per pre-agreed terms.

Corporate venture capital
An initiative by a corporation to invest either in young firms outside the corporation or units formerly part of the corporation. These are often organized as corporate subsidiaries, not as limited partnerships.

Corporate venturing
There is no single definition of corporate venturing that seems to satisfy all parties, so we distinguish indirect corporate venturing – in which a corporate invests directly in a fund managed by an independent venture capitalist – from a direct corporate venturing program, in which a corporate invests directly by buying a minority stake in a smaller, unquoted company.

An agreement by a company to perform or to abstain from certain activities during a certain time period. Covenants usually remain in force for the full duration of the time a private equity investor holds a stated amount of securities and may terminate on the occurrence of a certain event such as a public offering. Affirmative covenants define acts which a company must perform and may include payment of taxes, insurance, maintenance of corporate existence, etc. Negative covenants define acts which the company must not perform and can include the prohibition of mergers, sale or purchase of assets, issuing of securities, etc.

Cumulative dividend
A dividend which accumulates if not paid in the period when due and must be paid in full before other dividends are paid on the company’s ordinary shares. See Arrearage.

Cumulative preferred stock
A form of preference shares which provide that, if one or more dividends is omitted, those dividends accumulate and must be paid in full before other dividends may be paid on the company’s ordinary shares. See Arrearage

Closed end funds
Funds with a limited life span, for example ten years for funds to be invested and realized.

See syndication

Cold call presentation
Selling term used to describe the first meeting between a buyer and seller where the initial contact has been at most a telephone call arranging a meeting.

Collateral is a physical asset that a borrower owns and puts forward as security in case they default on their loan.

Committed Capital
Pledges of capital to a venture capital fund. This money is typically no received at once, but drawn down over three to five years, starting in the year the fund is formed.

Common Shares
The equity typically held by management and founders. Typically, at the time of an initial public offering, all equity is converted into common stock.

A private equity investment strategy that involves merging several small firms together and exploding economies of scale or scope.

Contributing shares
Shares on which only part of the capital amount and any premium has been paid. Often useful in tranching structures.

Contribution rate
Accounting term expressed as a percentage calculated by subtracting the variable costs from sales. The contribution rate then describes what percentage of each sales dollar is available to cover fixed costs.

Convertible equity or debt (notes)
A security that can be converted under certain conditions into another security (often into common stock). The convertible shares often have special rights that the common stock does not have.

Convertible preference shares
Preference shares which may be converted to ordinary shares at the option of the holder.

Corporate Venture Capital
An initiative by a corporation to invest either in young firms outside the corporation or units formerly part of the corporation. These are often organized as corporate subsidiaries, not as limited partnerships.

Cost of goods sold
Accounting term defined by the equation: opening stock plus purchases plus expenses related to purchases less closing stock.

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A price-weighted index of the most heavily traded stocks on the Frankfurt Stock Exchange. See index.

Deal flow
Venture capital term used to describe the number of proposals being received by a venture capital fund on some calendar basis such as three deals a week.

An instrument securing the indebtedness of a company over its assets.

Capital supplied for which there is a fixed income, fixed repayment period, and fixed repayment schedule.

Debt financing
Financing by selling bonds, notes or other debt instruments.

Debt ratio
Debt capital divided by total capital.

Debt service
Cash required in a given period to pay interest and matured principal on outstanding debt.

Debt/equity ratio
A measure of a company’s leverage, calculated by dividing long-term debt by ordinary shareholders’ equity.

Defined Benefit Plans
A pension plan that promises a specified monthly benefit to be paid to the employee at retirement. See Defined Contribution Plans.

Defined Contribution Plans
A pension plan that does not promise a specific amount of benefits at retirement. Both employee and employer contribute to a pension plan. The employee then has the right to the balance of the account. This balance may fluctuate over the lifetime of the pension plan. See Defined Benefit Plans.

The removal of a company from listing on an exchange. See public to private, venture purchase of quoted shares.

Derivative or derivative security
A financial instrument or security whose characteristics and value depend upon the characteristics and value of an underlying instrument or asset (typically a commodity, bond, equity or currency). Examples include futures, options and mortgage-backed securities.

Development capital
Capital required by an established company to fund the expansion of the business. See expansion capital.

Development Fund
Venture capital funds focused on investing in later stage companies in need of expansion capital.

Dilution occurs when an investor’s percentage in a company is reduced by the issue of new securities. It may also refer to the effect on earnings per share and book value per share if convertible securities are converted or stock options are exercised. See anti-dilution provisions.

Dilution of equity

Stock market term used to describe the situation whereby the issue of new shares results in the original shareholders owning a smaller share of the company.

Direct public offering

A public offering in which shares are sold directly to investors, rather than through an underwriter.

(US) The flow of investment funds from private equity funds into portfolio companies.

Disclosure letter
A document disclosing matters which might otherwise amount to a breach of warranties. Matters so disclosed limit the effectiveness of the warranties.

Discounted cash flow (DCF)
A method of assessing the value of an investment based on predicted cash flows discounted to take account of the fact that a euro tomorrow is worth less than a euro today.

Distressed debt
A private equity investment strategy that involves purchasing discounted bonds of a financially distressed firm. Distressed debt investors frequently convert their holdings into equity and become actively involved with the management of the distressed firm.

The amount disbursed to the limited partners in a private equity fund.

Distributions to paid-in capital (D/PI)
A measure of the cumulative distributions returned to the limited partners as a proportion of the cumulative paid-in capital. DPI is net of fees and carried interest.
See realization ratio, residual value, RV/PI and TV/PI.

The disposal of a business or business segment. See exit

Dividend cover
A ratio that measures the number of times a dividend could have been paid out of the year’s earnings. The higher the dividend cover, the safer the dividend.

Dividend yield
Stock market term which expresses, as percentage return, the annual dividend per share divided by the latest market price.

Dow Jones Industrial Average (DJIA)
An index based on 30 major stocks listed on the New York Stock Exchange. The companies included in the DJIA are all major factors in their respective industries, and their stocks are widely held by individuals and institutional investors. The DJIA is one of the oldest and most widely recognized stock indexes, and has been published daily for more than 100 years.

DPI - Distribution to Paid-In
The DPI measures the cumulative distributions returned to investors (Limited Partners) as a proportion of the cumulative paid-in capital. DPI is net of fees and carried interest. This is also often called the “cash-on-cash return”. This is a relative measure of the fund’s “realized” return on investment. See realization ratios.

Drag-along rights
If the venture capitalist sells his shareholding, he can require other shareholders to sell their shares to the same purchaser. Compare tag-along rights.

When investors commit themselves to back a private equity fund, all the funding may not be needed at once. Some is used as drawn down later. The amount that is drawn down is defined as contributed capital. See commitment, contributed capital.

Dual listing
The listing of a security on more than one exchange. Increasingly, securities are being listed on both a local exchange and an exchange with more widespread coverage. In addition, issuers may list on both a US exchange and a European or an Asian exchange.

Due diligence
For private equity professionals, due diligence can apply either narrowly to the process of verifying the data presented in a business plan/sales memorandum, or broadly to complete the investigation and analytical process that precedes a commitment to invest. The purpose is to determine the attractiveness, risks and issues regarding a transaction with a potential investee company. Due diligence should enable fund managers to realize an effective decision process and optimize the deal terms.

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Early stage
Seed and start-up stages of a business. See seed, start-up. Compare later stage.

Early stage capital
Finance for companies to initiate commercial manufacturing and sales.

Early Stage Fund
Venture capital funds focused on investing in companies in the early part of their lives.

An arrangement whereby the sellers of a business may receive additional future payments for the business, conditional to the performance of the business following the deal.

EASD (European Association of Securities Dealers)
An association of securities houses, investment banks, private equity firms, professional advisors and others formed to promote the development of securities markets in Europe for growth companies. EASD’s ambition is to be the most effective organization to foster the best conditions for seamless European investment and trading. The creation of the EASDAQ stock market was one of its first initiatives. EASD has over 165 member organizations and is headquartered in Brussels.

Earnings before interest and taxes – a financial measurement often used in valuing a company (price paid expressed as a multiple of EBIT).

Earnings before interest, taxes, depreciation and amortization – a financial measurement often used in valuing a company (price paid expressed as a multiple of EBITDA).

Economies of scale
Economic term used to describe the cost benefits that accrue from increasing size such as volume discounts on purchases or spreading fixed costs over an increasingly larger production base.

Enterprise DCF model
Variant of the DCF model which looks at the company’s operations and calculates the present value of future free cash flows by discounting them with the weighted average cost of capital. See free cash flow, weighted average cost of capital.

Entitlement issue
See non-renounceable rights issue.

Envy ratio
The ratio between the effective price paid by management and that paid by the investing institution for their respective holdings in the NewCo in an MBO or MBI.
Envy ratio = (MC/M%):(IC/I %), where:
- MC = management amount to be invested in NewCo
- M% = management percentage ownership of NewCo (i.e. percentage of ordinary shares owned)
- IC = investors amount to be invested in NewCo
- I% = investors’ ownership in NewCo.
See sweet equity.

Ownership interest in a company, represented by the shares issued to investors. Sometimes also described as shareholders' funds.

Equity hybrid
A security that combines the characteristics of debt and equity such as a convertible note.

Equity kicker
Shares or call options offered to lenders, underwriters, promoters or management as additional consideration for services rendered.

Equity ratio
One of the indicators used by banks to calculate debt ceiling. It consists of net equity divided by the company’s total assets. Banks apply yardstick ratios for different industry sectors to arrive at a minimum level of funding that shareholders are required to contribute.

Equity sweetener

Effectively the same as equity kicker but generally used when referring to free options granted to subscribers to a new issue of shares.

Escrow provisions
Legal term used to describe undertaking given by present shareholders not to sell shares unless certain conditions are met.

The stock market entity resulting from the merger of the Amsterdam, Brussels and Paris stock exchanges, signed in September 2000. See Nouveau Marché.

European-style option
An option which can only be exercised for a short, specified period of time just prior to its expiration, usually a single day. Also called European option.

Exercise price
The price at which shares subject to a stock option or warrant may be purchased or exercised. Also known as the strike price.

Liquidation of holdings by a private equity fund. Among the various methods of exiting an investment are: trade sale; sale by public offering (including IPO); write-offs; repayment of preference shares/loans; sale to another venture capitalist; sale to a financial institution.

Exit mechanism
Venture capital term used to describe the method by which a venture capitalist will eventually sell out of an investment.

Exit strategy
A private equity house or venture capitalist’s plan to end an investment, liquidate holdings and achieve maximum return.

Exiting climates
The conditions which influence the viability and attractiveness of various exit strategies.

Expansion capital
Also called development capital. Financing provided for the growth and expansion of a company, which may or may not break even or trade profitably. Capital may be used to: finance increased production capacity; market or product development; provide additional working capital.

Expansion financing
This is capital provided for growth and expansion of an established company. Funds may be used to finance increased production capacity, market or product development and/or provide additional working capital. Capital provided for turnaround situations is also included in this category, as is the refinancing of bank debt.

This is the process of sending a product or service offshore (to foreign countries).

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Is when a company either purchases your accounts receivable or loans you funds against your accounts receivable. This can improve your company's liquidity.

Financial services authority (FSA)
A UK independent non-governmental body which exercises statutory powers under the Financial Services Act 1986 and the Banking Act 1987 (as well as certain other legislation). The FSA is the Competent Authority which regulates the securities industry in the UK, and was created by the merger of functions previously performed by the Securities Investment Board (SIB), Investment Management Regulatory Organization (IMRO), the Bank of England and other agencies. See Competent Authority.

Financing gap
Venture capital term used in leveraged buy-outs to describe the difference between the purchase price of a company and the debt raised on the assets and cash flow of the company.

Fire sale
Finance term used to describe the situation when a company is formed to sell off assets cheaply because of lack of cash.

The partnership which manages a venture capital fund. One firm might manage more than one fund.

Firm commitment underwriting
An underwriting agreement in which the underwriter agrees to assume some of the flotation risk by purchasing all the shares being offered an agreed price and then reselling them on the open market. Compare best efforts underwriting.

First closing

The initial closing of a fund.

First fund

An initial fund raised by a venture capital organization.

First preferred stock
Preferred stock which takes precedence over other preferred and common stock with regard to dividends and assets.

Fixed costs
Those costs such as rent that do not vary according to changes in sales levels.
Five (5) year Rolling IRR
The 5 year Rolling IRR shows the development of the five year Horizon IRR, measured at the end of each year.

Flat Pricing
In a flat priced deal, the entrepreneur/management team and the venture capitalist pay the same price for their ordinary shares. The balance of the funds contributed by private equity investors is used to purchase other forms of “institutional” equity (e.g. convertible loan stocks, preference shares). See envy ratio.

Float (or free float or public float)
The number of shares not held by corporate insiders that are freely tradable in the public market or markets on which a company’s securities are listed.

Stock market term used to describe the situation where a buyer has a permanent order in to buy shares at a certain price.

To obtain a quotation or IPO on a stock exchange, such as the NASDAQ, NZSE, Australian Stock Exchange, etc.

Follow-on fund
A fund that is subsequent to a venture capital organization’s first fund.

Follow-on investment
An additional investment in a portfolio company which has already received funding from a venture capitalist. Compare initial investment.

Free cash flow
Free cash flow is defined as the after-tax operating earnings of the company, plus non-cash charges (e.g. depreciation), less investment in working capital, property, plant and equipment, and other assets.

FTSE 100
An index based on the stock of the top 100 companies traded on the London Stock Exchange. See index.

Fully diluted earnings per share
Common stock (ordinary share) earnings per share calculated as if all warrants and stock options were exercised and all convertible bonds and preferred stock (and certain convertible debts) were converted. Fully diluted earnings per share are usually a more accurate reflection of the company’s real earning power.

A private equity investment fund is a vehicle for enabling pooled investment by a number of investors in equity and equity-related securities of companies (investee companies). These are generally private companies whose shares are not quoted on any stock exchange. The fund can take the form either of a company or of an unincorporated arrangement such as a limited partnership. See limited partnership.

Fund age
The age of a fund (in years) from its first drawdown to the time an IRR is calculated.

Fund focus (investment stage)
The strategy of specialization by stage of investment, sector of investment, geographical concentration. This is the opposite of a generalist fund, which does not focus on any specific geographical area, sector or stage of business.

Fund of funds
A fund that takes equity positions in other funds i.e. a fund that invests primarily in other venture capital funds rather than portfolio firms, often organized by an investment adviser or investment bank. A fund of fund that primarily invests in new funds is a Primary or Primaries fund of funds. One that focuses on investing in existing funds is referred to as a Secondary fund of funds.

Fund size
The total amount of capital committed by the limited and general partners of a fund.

The process in which venture capitalists themselves raise money to create an investment fund. These funds are raised from private, corporate or institutional investors, who make commitments to the fund which will be invested by the general partner. See general partner, limited partner, commitment.

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GAAP (Generally Accepted Accounting Principles)
Rules and procedures generally accepted within the accounting profession.

Specialist advisers who provide assistance to institutional and corporate investors when making private equity investments. See investment adviser.

Gearing, debt/equity ratio or leverage
The total borrowings of a company expressed as a percentage of shareholders' funds.

An asset consultant to whom a superannuation fund trustee outsources the choice of fund managers.

Gearing, debt/equity or leverage
Is the amount of debt financing compared to equity financing in a company. If the company has low levels of debt compared to equity it has a low gearing ratio. Conversely, a high debt to equity ratio would be a highly geared company. Gearing can also be referred to as financial leverage.

General partner
A partner in a private equity management company who has unlimited personal liability for the debts and obligations of the limited partnership and the right to participate in its management.

General partner’s commitment
Fund managers typically invest their personal capital right alongside their investors’ capital, which often works to instill a higher level of confidence in the fund. The limited partners look for a meaningful general partner investment of 1% to 3% of the fund.

Generalist fund
Funds with either a stated focus of investing in all stages of private equity investment, or funds with a broad area of investment activity.

Golden share
A share whose vote must be included in any motion passed by the shareholders.

The value of a business over and above its tangible assets. It includes the business’s reputation and contacts.

When young, developing companies are rushed to an IPO by an inexperienced private equity organization in order to demonstrate a successful exit record for the management team.

Green Shoe or Shoe
Term for an underwriter ’s over-allotment option. This name derives from the fact that the over-allotment option technique was first used in a public offering of the securities of The Green Shoe Company. This is also an underwriting agreement provision that allows syndicate members to purchase additional shares at the original price. See Over-Allotment Option.

Green field company
A start-up company.

Gross profit
Sales less cost of goods sold.

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Hamster wheel
The situation in a sub-critical mass business with no potential to reach critical mass. So-called because the managing director ends up running around getting nowhere and becoming very frustrated.

A private equity investment in which the venture capitalist contributes only capital – and not business know-how or management involvement – to the investee company. A slight variation to this is that the investor’s relationship involves less frequent contact and only participates in major strategic decisions.

A private equity investment in which the venture capitalist adds value by contributing capital, management advice and involvement. A relationship involving close regular contact and significant influence and participation in management decisions.

Hard circle
Prospective purchasers of securities in a public offering who are listed in the Book maintained by the lead managing underwriter and who are considered very likely to actually buy shares in the offering.

High yield bonds
These play a similar role to mezzanine finance in bridging the gap between senior debt and equity. High yield bonds are senior subordinated notes not secured against the assets of the company, and which therefore attract a higher rate of interest than senior debt.

Hockey stick
A curve describing the evolution of the earnings of a company poised for rapid growth. This can also be described by the IRR of a private equity fund as it rises from negative to positive. See J-curve.

Holding period
The length of time an investment remains in a portfolio. Can also mean the length of time an investment must be held in order to qualify for Capital Gains Tax benefits.

Horizon internal rate of return
An indication of performance trends within an industry sector. Horizon IRR uses the beginning net asset values as an initial cash outflow and net asset values at the period end as the terminal cash flow. Through these values plus/minus any net interim cash flows, it calculates IRRs for the defined time period. See IRR.

Horizon IRR
The Horizon IRR allows for an indication of performance trends in the industry. It uses the fund’s net asset value at the beginning of the period as an initial cash outflow and the Residual Value at the end of the period as the terminal cash flow. The IRR is calculated using those values plus any cash actually received into or paid by the fund from or to investors in the defined time period (i.e. horizon).

Hostile offer (or hostile bid)
An offer which is made for a target company but which is not recommended for acceptance by shareholders by the board of the target company.

Hurdle rate
The IRR that private equity fund managers must return to their investors before they can receive carried interest.

Hurt money
Cash invested or exposure made by an entrepreneur to the business. The greater the proportion that the hurt money represents of the entrepreneur's personal wealth, the more convincing the argument to the investor.

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Identifiable intangibles
Intangible assets for which it is possible to set a valuation, such as future income tax benefit.

Implementation plan

Plan defining the steps and activities required to achieve goals.

The starting point at which IRR calculations for a fund are calculated; the vintage year or date of first capital drawdown. See IRR, horizon IRR.

Independent director
Independent or non-executive directors, although part-timers, still share all the legal responsibilities of their executive colleagues on the board of a company Today, non-executive directors include some of the best operators in the business world. Their status means they can take a strategic, long-term view of a business (whether a listed or unlisted company), whereas the executive team may be too close to the action. The modern view is that independent directors also play a vital role in protecting the interests of shareholders.

Independent fund
One in which the main source of fundraising is from third parties. Compare captive fund, semi-captive fund.

A benchmark against which financial or economic performance is measured, (eg S&P 500, FTSE 100).

Information rights
A contractual right to obtain information about a company, including, for example, attending board meetings. Typically granted to venture capitalists investing in privately held companies.

Initial investment
First venture-backed investment made in an investee company. Compare follow-up investment.

Initial Public Offering (IPO)
The sale or distribution of a company’s shares to the public for the first time. An IPO of the investee company’s shares is one the ways in which a private equity fund can exit from an investment. See exit.

Inside spread, or inside quote
The difference between the highest bid and lowest ask price being quoted by market makers for a security. See mid-market value.

Insider dealing
A range of possible offences centered on the possession of non-public information by a party and the illegal or improper use of that information to deal or encourage others to deal in securities, or to disclose that information to anyone other than in the proper performance of their duties.

Institutional buyout (IBO)
Outside financial investors (eg private equity houses) buy the business from the vendor. The existing management may be involved from the start and purchase a small stake. Alternatively, the investor may install its own management. See buyout.

Institutional investor
An investor, such as an investment company, mutual fund, insurance company, pension fund, or endowment fund, which generally has substantial assets and experience in investments. In many countries, institutional investors are not protected as fully by securities laws because it is assumed that they are more knowledgeable and better able to protect themselves.

Intangible assets

Assets owned or generated by a company that are not easily sold, except with the company as a whole, and that are usually not easily measurable.

Intellectual property
Patents, copyrights, trademarks, trade secrets, designs, licenses and similar rights in ideas, concepts, etc. owned by a company.

Interest cover
One indicator used by banks to calculate debt ceiling. It consists of EBIT divided by net interest expenses. This ratio is a measure of the company’s ability to service its debt – or, pre-interest cash flow divided by interest payments.

Internal Rate of Return (IRR)
The IRR is the interim net return earned by investors (Limited Partners), from the fund from inception to a stated date. The IRR is calculated as an annualized effective compounded rate of return using monthly cash flows to and from investors, together with the Residual Value as a terminal cash flow to investors. The IRR is therefore net, i.e. after deduction of all fees and carried interest. In cases of captive or semi-captive investment vehicles without fees or carried interest, the IRR is adjusted to create a synthetic net return using assumed fees and carried interest. The following is another variation to the definition of IRR. There are three versions of the internal rate of return used - the arithmetic average, the capital weighted average, and the pooled average. The arithmetic average IRR for a sample would be the sum of the IRRs for the individual funds in the sample divided by the number of funds in the sample. The capital weighted average IRR is calculated in a similar manner, except the individual IRRs are weighted by fund size and affect the average in proportion to their size. Therefore, this average for the sample is skewed towards the larger funds. A pooled average IRR isn't actually an average, but one average calculated for the entire sample. In other words, instead of using the cash flows of the funds to calculate IRRs for each fund, the sample (and all of the accompanying cash flows) is treated as one fund and one IRR is calculated for it.

International Accounting Standards (IAS)
A series of accounting standards that are to be implemented by businesses by 2005. More information can be obtained from

In the money
Any option or warrant that would have a positive value if it was immediately exercised.

Investee company
See portfolio company.

Investment adviser
A financial intermediary who assists investors, particularly institutions, with investments in venture capital and other financial assets. Advisers assess potential new venture funds for their clients and monitor the progress of existing investments. In some cases, they pool their investors' capital in funds of funds.

Investment philosophy
The stated investment approach or focus of a management team. See focus.

Investment Services Directive (ISD)
A Directive produced by the European Commission regarding the provision of investment services within the member states of the European Union. It has been described as the passport to Europe for securities houses. The ISD’s key feature is mutual recognition: a) any firm approved to provide investment services within its home state is mutually recognized by all other member states as being allowed to provide the same services within those other member states; b) any stock market or exchange recognized by its Competent Authorities within one member state is mutually recognized in all other member states as being allowed to offer its services (including the installation of trading system computer terminals) within those other member states. The result of ISD will be a borderless single marketplace for securities covering all member states of the European Union. See Competent Authority, Prospectus Directive.

"Initial Public Offering", "flotation", "float", "going public", "listing" are just some of the terms used when a company first obtains a quotation on a stock market. See Initial Public Offering.

See Internal Rate of Return.

Irrevocable undertaking
A binding agreement entered into by the shareholders (including directors/shareholders acting as shareholders) of the target company to accept the proposed offer in relation to shares held by them. A "hard" irrevocable undertaking is an unconditional binding agreement to accept the offer in any circumstances and is usually only given by those shareholders who are also part of the participating
management team. A soft irrevocable undertaking is a conditional commitment to accept the offer subject only to a higher offer not being made and is usually given by institutional shareholders. Irrevocable undertakings are sometimes simply referred to as irrevocables.

Involuntary exit
Where the company goes into receivership or liquidation.

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The curve generated by plotting the returns generated by a private equity fund against time (from inception to termination). The common practice of paying the management fee and start-up costs out of the first drawdowns does not produce an equivalent book value. As a result, a private equity fund will initially show a negative return. When the first realizations are made, the fund returns start to rise quite steeply. After about three to five years the interim IRR will give a reasonable indication of the definitive IRR. This period is generally shorter for buyout funds than for early stage and expansion funds. See hockey stick.

Joint Ventures
This is an agreement involving two or more organizations that arrange to produce a product or service jointly.

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Key man insurance
A life and/or critical illness insurance policy taken out by a company to provide cash sum if a key executive dies or becomes ill, thus covering some or all of the resulting financial loss to the business.

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Later stage
Expansion, replacement capital and buyout stages of investment. Compare early stage.

Lead investor

Investor who has contributed the majority share in a private equity joint venture or syndicated deal. See syndicated deal, syndication.

Lead underwriter (or lead manager)
The underwriter that assumes leadership and financial responsibility for placing the securities offered in a public offering. On the cover of a prospectus, the lead underwriter/manager is normally listed on the bottom of the page on the left-hand side, with the other underwriters listed to the right.

Learning curve
An imaginary curve which describes the reduction in cost that occurs as a factory makes more and more of a particular product. Also used to describe the increase in the skill-level of an employee over time.

Leavers and Joiners
The arrangements covering: what happens to the profit interest (through carried interest or ownership of shares) of executives who leave an investee company or a venture capital fund; the provision for making a profit-sharing interest available to rising stars (new or young executives who previously did not have such a profit-sharing interest) or new joiners.

Lehman Formula
A compensation formula initiated by Lehman Brothers for investment banking activities, originally structured as follows: 5% of the first $ million involved in the transaction; 4% of the second $ million ; 3% of the third $ million ; 2% of the fourth $ million ; and 1% of everything thereafter (i.e. above $4 million).

Letter of intent
Document which is not legally binding but given by one party to another to show good faith and which describes the main agreed points of transaction. It can be a letter from the venture capitalist to the investee company indicating a general willingness or intention to engage in some type of transaction. It often precedes negotiation of a complete agreement, and is typically structured so that it is not legally binding on either party. See Term Sheet.

Leveraged buy-out or LBO
Purchase of a company where the purchaser uses a larger than normal amount of debt to finance the transaction. Much of the debt is normally secured against the company’s assets.

Leveraged buyout fund
A fund, typically organized in a similar manner to a venture capital fund, specializing in leveraged buyout investments. Some of these funds also make venture capital investments.

Leveraged recapitalization
Transaction in which a company borrows a large sum of money and distributes it to its shareholders.

See London Inter-bank Offer Rate.

Limited partner
An investor in a limited partnership (i.e. private equity fund). Compare general partner.

Limited partnership
The legal structure used by most venture and private equity funds. The partnership is usually a fixed-life investment vehicle, and consists of a general partner (the management firm, which has unlimited liability) and limited partners (the investors, who have limited liability and are not involved with the day-to-day operations). The general partner receives a management fee and a percentage of the profits. The limited partners receive income, capital gains, and tax benefits. The general partner (management firm) manages the partnership using policy laid down in a Partnership Agreement. The agreement also covers, terms, fees, structures and other items agreed between the limited partners and the general partner.

Refers to the ability of an organization to meet its liabilities. One liquidity ratio is `net working capital' which is the difference between current assets and current liabilities. This ratio roughly measures a company's potential reservoir of cash.

Listed company
A company whose shares are traded on a stock exchange.

Listed security
A security that has been accepted for trading on an exchange. To become a listed security, the issuer must satisfy the listing requirements of the exchange. Shares that are not listed may be sold over-the-counter (OTC).

The quotation of shares on a recognized stock exchange. See float.

Listing requirements
The standards to be satisfied for a security to be admitted to trading on an exchange. Listing requirements vary among exchanges but commonly include financial standards and levels of market capitalization.

Loan capital

Loan capital ranks ahead of share capital for income and capital. Loans typically are entitled to interest and are usually, though not necessarily, repayable. Loans may be secured on the company's assets or may be unsecured. A secured loan will rank ahead of unsecured loans and certain other creditors of the company. A loan may be convertible into equity shares. Alternatively, it may have a warrant attached which gives the loan holder the option to subscribe for new equity shares on terms fixed in the warrant. They typically carry a higher rate of interest than bank term loans and rank behind the bank for payment of interest and repayment of capital.

A provision in the underwriting agreement between an investment bank and existing shareholders that prohibits corporate insiders and private equity investors from selling at the time of the offering.

Lock-up agreement
Agreement between an underwriter and certain stockholders of a company requiring the stockholders to refrain from selling their shares in the public market for a specified lock-up period after a public offering. In the case of a venture capital deal, this prevents the investee company’s executives and the venture capitalist from selling their shares immediately after an IPO. The reasoning behind this restriction is that such a sale would send worrying signals to the market and thus force down the price of shares. Remaining stockholders would then have shares worth far less than their value at IPO.

Lock-up period
The period of time for which a lock-up agreement is in operation. Underwriters of IPOs generally insist upon a lock-up period for large shareholders of at least 180 days to avoid a disorderly market. The management, company directors and the venture capitalist are the type of shareholders that are usually subject to a lock-up.

London Inter-bank Offer Rate (LIBOR)
The interest rate that the largest international banks charge each other in the London inter-bank market for loans. This is used as a basis for gauging the price of loans outside the inter-bank market.

See limited partner, limited partnership.

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Management buy-in (MBI)
A buy-out in which external managers take over the company. Financing is provided to enable a manager or group of managers from outside the target company to buy into the company with the support of private equity investors.

Management buy-out (MBO)
A buy-out in which the target’s management team acquires an existing product line or business from the vendor with the support of private equity investors.

Management fees
Compensation received by a private equity fund’s management firm. This annual management charge is equal to a certain percentage of investors’ initial commitments to the fund.

Managing underwriters
The underwriters: whose names appear on the cover page of the prospectus; who assist the company in preparation of the prospectus and the roadshow; who organize the syndicate of underwriters to sell the securities.
See lead underwriter.

Market authority
Governing entity of a stock exchange or trading system responsible for: market regulation; approval of members; admission to and cancellation of listing; the operation of the trading system.

Market capitalization (or market cap)
The number of shares outstanding multiplied by the market price of the stock. Market capitalization is a common standard for describing the worth of a public company.

Market maker

Brokerage and securities firms that are required by the rules of a stock market/exchange to both buy and sell securities of a quoted company, for which they act as market marker, at bid and offer prices which they quote. All NASDAQ-traded companies are required to have at least two market makers.

Mature funds
Funds that have been in existence for over two years.

Median IRR
The Value appearing halfway in a table ranking funds by IRR in descending order.

Brochure presented by a general partner in the process of raising funds. This document is dedicated to potential investors (limited partners), and usually contains (amongst other information) a presentation of the management team’s track record, terms and conditions and investment strategies.

Mezzanine / Mezzanine Finance

Either (1) a venture capital financing round shortly before an initial public offering or (2) an investment that employs subordinated debt that has fewer privileges than bank debt but more privileges than equity and often has attached warrants. This is loan finance that is halfway between equity and secured debt, either unsecured or with junior access to security. Typically, some of the return on the instrument is deferred in the form of rolled-up payment-in-kind (PIK) interest and/or an equity kicker. A mezzanine fund is a fund focusing on mezzanine financing. Compare high yield bond.

Mid-market value
The average of bid and offer price.

Monopolistic competition
Industry structure where there are many small suppliers each of which has a monopoly position in the area it serves.

Multiples or Relative Valuation
This estimates the value of an asset by looking at the pricing of “comparable” assets relative to a variable such as earnings, cash flows, book value or sales. See P/E ratio.

Mutual fund
An open-end fund that may sell as many shares as investors demand. As money flows in, the fund grows. If money flows out of the fund, the number of the fund’s outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. Compare closed-end fund.

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NASD (National Association of Securities Dealers) (USA)
The national organization of the USA securities industry. Under USA law, as a self regulatory organization, NASD has substantial responsibility for regulation of broker-dealers, as well as for the operation of the NASDAQ markets

NASDAQ Bulletin Board (or OTC Bulletin Board)
A regulated quotation service that displays real-time quotes, last-sale prices, and volume information in the over-the-counter equity securities. Although operated by NASDAQ Stock Market, it is not part of the NASDAQ Stock Market. See over-the-counter (OTC).

NASDAQ National Market
(formerly NASDAQ NMS) The larger and higher quality of the two markets administered by the NASDAQ Stock Market. The NASDAQ National Market is now one of the largest stock markets in the world in terms of volume of shares traded. The NASDAQ markets are not physical stock exchanges in the traditional sense. In place of an exchange floor, they use computer-based trading and trade support systems. See NASDAQ-Amex Market Group, NASDAQ SmallCap Market, NASDAQ Bulletin Board.

NASDAQ SmallCap Market
A stock market for smaller companies which cannot satisfy the listing requirements of the NASDAQ National Market. See NASDAQ Stock Market.

NASDAQ Stock Market
The NASDAQ Stock Market (based in Washington, D.C.) has two tiers, the NASDAQ National Market and the NASDAQ SmallCap Market. Each tier has its own set of financial requirements that a company must meet to list its securities. NASDAQ also operates the NASDAQ (OTC) Bulletin Board. The NASDAQ markets are not physical stock exchanges in the traditional sense. In place of an exchange floor, they use computer-based trading and trade support systems. In 1998, NASDAQ and the American Stock Exchange combined into one corporate organization, the NASDAQ-AMEX Market Group.

An index based on the Stock of the top 100 companies traded on the NASDAQ National Market.
See index.

NASDAQ-AMEX Market Group
Former In October 1998 as a result of merger between NASDAQ and the American Stock Exchange (AMEX).

Negative pledge

Lending agreement where the borrower covenants are not to exceed certain limits, such as gearing levels.

Net profit
Sales, less all expenses which may or may not include corporate tax.

Net tangible assets
The difference between tangible assets (e.g. stock, debtors, land etc.) and liabilities in the balance sheet.

Net worth
The difference between the assets and liabilities of a company on its balance sheet. Net worth is equal to shareholders' funds.

Neuer Markt
A trading segment of Deutsche Börse AG tailored to the needs of high-growth companies. It is based in Frankfurt, Germany and was established in March 1997.

A generic term for a new company incorporated for the purpose of acquiring the target business, unit or company from the vendor in a buyout transaction.

New issue

A stock or bond offered to the public for the first time. New issues may be IPOs by previously private companies or additional stock/bond issues by companies already public.

Non-disclosure agreement
See confidentiality and proprietary rights agreement.

Non-price competition
Competition among suppliers using such items as warranty periods, credit terms and after sales service.

Non-renounceable rights issue
Rights issue where the shareholders may either take up rights or let them lapse. The shareholders are not allowed to sell the rights to another party. Also known as an entitlement issue.

Nouveau Marché
A market dedicated to innovative companies with high-growth potential based in Paris, France and managed by EURONEXT. It was established in 1996.

NYSE (New York Stock Exchange)
One of the world’s largest stock markets by market capitalization.

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The offer (or bid) made for the target company by the Newco offeror established by the private equity provider and the participating directors of the target company (those directors who are part of the management buyout team).

Offer document
The document by which the offeror makes the formal legal offer to target shareholders.

Offer period
The period from announcement of an offer or potential offer until the closing date for the offer or the date when the offer becomes or is declared unconditional as to acceptances (that is, the acceptance condition, which requires a certain percentage of shareholders to accept, has been satisfied) or the offer lapses.

The Newco entity established to make the offer for the target company.

Oligopolistic structure
Industry structure where a few suppliers dominate the market. Open-ended funds Funds with no set time span imposed.

Open-end fund
A fund which sells as many shares as investors demand. Compare closed-end fund, mutual fund.

Opening price
The price at which a security trades at the beginning of a day or, in the case of an IPO, at the commencement of its first day of trading.

The right, but not the obligation, to buy or sell a security at a set price (or range of prices) in a given period.

Option pool
The number of shares set aside to be issued to employees of a private company.

Ordinary shares (or common stock)
These are equity shares that are entitled to all income and capital after the rights of all other classes of capital and creditors have been satisfied. Ordinary shares have votes. In a venture capital deal these are the shares typically held by the management and family shareholders rather than the venture capital firm. In a public company, the stock is traded between investors on various exchanges. Owners of ordinary shares are typically entitled to vote on the selection of directors and other important issues. They may also receive dividends on their holdings, but ordinary shares do not guarantee a return on the investment. If a company is liquidated, the owners of bonds and preferred stock are paid before the holders of ordinary shares.

OTC Bulletin Board
See NASDAQ Bulletin Board.

Private equity funds still available for investment in the industry.

Over-the-counter (OTC)
A security which is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, broker/dealers negotiate directly with one another over computer networks and by phone.
See NASDAQ Bulletin Board.

Owner's equity
The residual of assets less external liabilities

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P/E ratio
Price/earnings ratio – the market price of a company’s ordinary share divided by earnings per share for the most recent year.

Partly paid shares
See contributing shares.

Payment in kind (PIK)
A feature of a security permitting the issuer to pay dividends or interest in the form of additional securities of the same class. See mezzanine finance.

Permitted transfer
A transfer of shares in which it is not required to first offer them to existing shareholders.

Placement agent
A person or entity acting as an agent for a private equity house in raising investment funds.

Poison pill
The most famous anti-take-over device. It normally takes the form of granting existing stockholders (other than stockholders who acquire more than a certain percentage of the company) the option (which can only be exercised upon certain events) to buy more stock on very favorable terms as a way of diluting the position of the person trying to take control. See anti-dilution provisions, anti-dilution (full ratchet), anti-dilution (weighted average), blank check preferred stock, shark repellent.

Pooled IRR
The IRR obtained by taking cash flows from inception together with the Residual Value for each fund and aggregating them into a pool as if they were a single fund. This is superior to either the average, which can be skewed by large returns on relatively small investments, or the capital weighted IRR which weights each IRR by capital committed. This latter measure would be accurate only if all investments were made at once at the beginning of the funds life.

Portfolio company (or investee company)
The company or entity into which a private equity fund invests directly.

Portfolio diversification
Investment strategy where the portfolio manager spreads investments across many industries and thus tries to diminish the risk of a single industry depression reducing the portfolio return.

Positioning strategy
Marketing term used to define a strategy where a company tries to distinguish itself from its competitors by focusing on some market segment.

Post-money valuation
The valuation made of a company immediately after the most recent round of financing.
See pre-money valuation.

Pre-emption rights
Rights of existing shareholders to have the first opportunity to purchase shares from a departing shareholder (pre-emption on transfer), or to subscribe for new shares issued by the company (pre-emption on issue).

Pre-funding valuation
The valuation of the company prior to funding calculated by subtracting the cash that remains within the company from the post-funding valuation.

Preference shares (or preferred stock)
Shares which have preference over ordinary shares, including priority in receipt of dividends and upon liquidation. In some cases these shares also have redemption rights, preferential voting rights, and rights of conversion into ordinary shares. Their income rights are defined and they are usually entitled to a fixed dividend (e.g. 10 per cent fixed). Venture capitalists generally make investments in the form of convertible preference shares.
See cumulative preferred stock.

Preferred ordinary shares
These may also be known as 'A' ordinary shares, cumulative convertible participating preferred ordinary shares or cumulative preferred ordinary shares. These are equity shares with preferred rights. Typically they will rank ahead of the ordinary shares for income and capital. Once the preferred ordinary share capital has been repaid, the two classes would then rank pari passu in sharing any surplus capital. Their income rights may be defined; they may be entitled to a fixed dividend (a percentage linked to the subscription price, e.g. 8 per cent fixed) and/or they may have a right to a defined share of the company's profits - known as a participating dividend (e.g. 5 per cent of profits before tax). Preferred ordinary shares have votes.

Preferred stock

Stock that has preference over common stock with respect to any dividends or payments in association with the liquidation of the firm. Preferred stockholders may also have additional rights, such as the ability to block mergers or displace management.

Preference shares
These are non-equity shares. They rank ahead of all classes of ordinary shares for income and capital. Their income rights are defined and they are usually entitled to a fixed dividend (eg 10% fixed). The shares may be redeemable on fixed dates or they may be irredeemable. Sometimes they may be redeemable at a fixed premium (eg at 120% of cost). They may be convertible into a class of ordinary shares.

Pre-money valuation
The valuation made of a company prior to a new round of financing. Compare post-money valuation.

Present Value
Present value is found by dividing the future payoff by a discount factor which incorporates the interest forgone for not receiving this payoff at the present time.

Price-sensitive information
Confidential information about a company, which, if made public, is likely to have a significant effect on the price of the securities of the company.

Price taker
Marketing term used to describe a supplier of goods whose price is set independently by the market.

Price-to-book value ratio

The ratio of the share price to the net worth per share.

Price-to-revenue ratio
The ratio of the share price to the company revenues per share.

Primary distribution
A distribution of shares by the issuer itself, as opposed to a secondary distribution by an existing stockholder.

Private company
A firm whose ordinary shares are owned by relatively few individuals and are generally unavailable to outsiders.

Private equity
Private equity provides equity capital to enterprises not quoted on a stock market. Private equity can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to strengthen a company’s balance sheet. It can also resolve ownership and management issues. A succession in family-owned companies, or the buy-out and buy-in of a business by experienced managers may be achieved using private equity funding. Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made for the launch, early development, or expansion of a business. Private equity includes organizations devoted to venture capital, leveraged buyouts, consolidations, mezzanine and distressed debt investments, and a variety of hybrids such as venture leasing and venture factoring. See venture capital, venture capitalist.

Product differentiation
Marketing term used to describe strategy of defining new or current product features or benefits that distinguish it from the competition.

Pro-forma accounts
Balance sheets and profit and loss statements for future years prepared in the same format as the current accounts.

A document which must be delivered to recipients of offers to sell securities and to purchasers of securities in a public offering and which contains a detailed description of the issuer’s business. In the USA, it is included as part of the registration statement filed with the SEC and with documents required by stock markets, stock exchanges and national competent authorities.

Prospectus Directive
A Directive of the European Commission requiring the implementation of a set of common standards for securities prospectuses into the national law of all member states of the European Union. A key feature of this Directive is that of mutual recognition (a prospectus that has been approved by the appropriate competent authority of one member state is mutually recognized by the competent authorities of all other member states).
See Investment Services Directive (ISD).

Public float
See float.

Public offering
An offering of stock to the general investing public. The definition of a public offering varies from country to country, but typically implies that the offering is being made to more than a very restricted number of private investors; that road shows promoting the offering will be open to more than a very restricted audience; or that the offering is being publicized. For a public offering, registration of prospectus material with a national competent authority is generally compulsory.
See IPO.

Public to private
A transaction involving an offer for the entire share capital of a listed target company by a new company - Newco - and the subsequent re-registration of that listed target company as a private company. The shareholders of Newco usually comprise members of the target company’s management and private equity providers. Additional financing for the offer is normally provided by other debt providers.

Put option
The right of an investor to demand repurchase by the company or by another investor of a certain number of its shares at a fixed price within a specified time period or at a specified point in time. See call option.

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The IRR which lies a quarter from the bottom (lower quartile point) or top (upper quartile point) of the table ranking the individual fund IRRs.

Quasi equity encompasses such instruments as convertible shareholder loans, loan notes, preference shares. These instruments are unsecured and convertible on exit.

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A structure whereby the eventual equity allocations between the groups of shareholders depend on either the future performance of the company or the rate of return achieved by the venture capital firm. This allows management shareholders to increase their stake if the company performs particularly well.

Ratchet/sliding scale
A bonus where capital can be reclaimed by managers of investee companies, depending on the achievement of corporate goals.

Realization ratios: DPI, RVPI, TVPI

DPI: Distribution to Paid-In ratio (a realization ratio). The DPI measures the ratio of distributions to the limited partners compared to the amount of capital contributed by the limited partners. RVPI: Residual Value to Paid-In ratio (a realization ratio). The RVPI measures the net asset value of the funds (unrealized gains), compared to the amount of capital contributed by the limited partners. TVPI: Total Value to Paid-In ratio (a realization ratio). The TVPI is simply the DPI and RVPI added together. A drawback of these ratios is that they do not take into account the time value of money, but are simply based on actual capital figures. They are recommended to be used in conjunction with the IRRs.

Real Options Valuation
This model places a present value on the “real options” available to a company.

Change in a company’s capital structure. For example, a company may want to issue bonds to replace its preferred stock in order to save on taxes. Re-capitalization can be an alternative exit strategy for venture capitalists and leveraged buyout sponsors.

Redeemable cumulative preference share
A form of preference shares which provide that, if one or more dividends are omitted, these dividends accumulate and must be paid in full before other dividends can be paid on the company’s ordinary shares. Redeemable cumulative preference shares can be refinanced by mezzanine providers, banks and other institutional equity providers, thus allowing the initial investors to recover their investment.

Redeemable preference shares
Preference shares which, at a stated maturity date, will be redeemed by the issuing company.

Repurchase by a company of its securities from an investor. Often required for preferred stock in private equity financing.

The purchase of the venture capital investors' or others' shareholdings by another investment institution.

Refinancing bank debt
Financing to reduce a company’s level of gearing.

Replacement capital (secondary purchase)
Purchase of existing shares in a company from another private equity investment organization or from another shareholder or shareholders.

The repurchase of the venture capital investors' shares by the company and/or its management.

Repurchase agreement
An agreement in which a holder of shares agrees that the person from whom it purchased the securities may repurchase them in certain events. In private equity financing rounds, founders may be required to enter into repurchase agreements in which they agree to resell their shares to the company at a fixed price in the event that they leave the company before a given date.

Revalued asset

Asset assigned some value other than the book value (cost price less any depreciation). Revaluations may be either downwards (investments devalued to market price) or upwards (e.g. real estate or directors' revaluation of license agreements).

Rescue (or turnaround)
Financing made available to an existing business which has experienced trading difficulties, with a view to re-establishing prosperity.

Residual Value
The estimated value of the assets of the fund, net of fees and carried interest.

Residual value to paid-in capital (RV/PI)
A realization ratio which is a measure of how much of a limited partner’s capital is still tied up in the equity of the fund, relative to the cumulative paid-in capital. RV/PI is net of fees and carried interest.

Restrictive covenant
In the context of venture capital, an agreement in which the executive management of an investee company or a private equity fund undertakes not to carry on competing activities.

Retail investor
A non-institutional investor who purchases securities for his own account.

Venture capital term used to describe the potential percentage of profits or equity ownership available if a deal works out as planned.

Rights issue
An issue of new shares on a proportional basis to existing shareholders usually at a discount to market price to raise additional shareholders' funds. The shareholder may allow the offer to lapse or if the issue is renounceable sell or transfer the rights to another party.


The process during a public offering or fundraising in which the management of the issuing company and the underwriters meet with groups of prospective investors to stimulate interest in the stock to be offered. Roadshows may be arranged in several cities/countries, and are conducted during the waiting period shortly before the registration statement becomes effective.

Road show presentation
Series of presentations made to institutional and large private investors to sell a new issue.


See consolidation.

Stages of financing of a company. A first round of financing is the initial raising of outside capital. Successive rounds may attract different types of investors as companies mature.

Running yield
The return on an investment expressed as cash earned over cash invested. No account is taken of potential capital gain or redemption.

RVPI - Residual Value to Paid-In
The RVPI measures the value of the investors’ (Limited Partner’s) interest held within the fund, relative to the cumulative paid-in capital. RVPI is net of fees and carried interest. This is a measure of the fund’s “unrealized” return on investment. See realization ratios

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S&P (Standard & Poor) 500
A market-value weighted index of the 500 largest stocks in the US markets maintained by Standard & Poor Corporation. Generally considered to be a benchmark of the overall US stock market. See index.

See Securities and Exchange Commission.

Seasoned equity offering
An offering by a firm that has already competed an initial public offering and whose shares are already publicly traded.

Second preferred stock
Preferred stock which has rights subordinate to those of other preferred stock on dividend and assets.

Secondary distribution (or secondary offering)
A public offering of a security by a selling holder of securities, rather than by the issuer. The term secondary offering is also sometimes used more generally in reference to any public offering other than an IPO. Compare primary distribution.

Secondary fund of funds
See fund of 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.

Secured debt
Loans secured against a company’s assets.

Secured obligation
A debt obligation which is secured by the pledge of assets.

Securities Act of 1933 (also 1933 Act or 33 Act)
(US) 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)
(US) An independent, non-partisan, quasi-judicial regulatory agency responsible for administering the federal securities laws. These laws protect investors in securities markets and ensure that investors have access to all material information concerning publicly traded securities. Additionally, the SEC regulates firms that trade securities, people who provide investment advice, and investment companies.

Seed stage
Financing provided to research, assess and develop an initial concept before a business has reached the start-up phase. See early stage.

Semi-captive Fund
A fund in which, although the main shareholder contributes a large part of the capital, a significant share of the capital is raised from third parties. Compare captive fund, independent fund.

Senior debt
A debt instrument which specifically 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. Compare subordinated debt.

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.

Secondary offering
An offering of shares that are not being issued by the firm, but rather are sold by existing shareholders. The firm consequently does not receive the proceeds from the sales of these shares.

Second-line stock

Shares of listed companies that do not rank a blue chip or first-line companies.

Secured debt
Loan, where the lender, in the event of a failure to meet either an interest or principal payment, gains title to an asset.

Secured lending

Making loans only to parties who can provide an asset as security in the event of non-payment of interest or principal.

Seed capital
Financing allowing the development of a business concept.

Seller's note
Sometimes known as vendor finance where the seller of the asset accepts some part of the payment on deferred terms.

Sensitivity analysis
Financial analysis where variables such as selling price are adjusted upwards and downwards by some factor (say twenty per cent) to establish the effect on profits.

Share capital
The structure of share capital that will be developed involves the establishment of certain rights. The venture capital firm will try to balance the risks it is taking with the rewards it is seeking. It will also be aiming to put together a package that best suits your company for future growth. These structures require the assistance of an experienced qualified legal adviser.

Shares outstanding
The number of shares that the company has issued.

Share deal
Making an acquisition by purchasing the company’s shares. Compare asset deal.

Shark repellent
Defense mechanisms or tactics designed to discourage undesired take-over bids. See anti-dilution provisions, anti-dilution (full ratchet), anti-dilution (weighted average), blank check preferred stock, poison pill.

Shelf company
A company which has been created but never traded.

The term shell typically refers to a company that has been duly organized and is currently in existence, but that has no history of operations.


The difference in a fundraising between the expected amount and amount actually raised which in turn must be provided by the underwriters.

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 rules limit the circumstances in which investors can sell short.

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.

Selling off a department, or a division, of a company to make it independent company.

Split (or stock split)
An increase in the number of outstanding shares of a company’s stock, such that proportionate equity of each shareholder remains the same. In theory, the market price per share should drop in proportion. 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.

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.


The provision of capital to entrepreneurs in multiple installments, with each financing conditional on meeting particular business targets. This helps ensure that the money is not squandered on unprofitable projects.

Stag profits

Profits made by someone who subscribes to a new issue and sells on the first day of trading.

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

An investment which is so successful that it makes up for other loss-making investments by a fund.

Financing provided to companies for product development and initial marketing. Companies may be in the process of being set up or may have been in business for a short time, but have not sold their product commercially. See early stage.

Start-up capital
Financing allowing product development and initial marketing.

Stock option
An individual’s right to purchase shares at a fixed price. Stock options are a widely used form of employee incentive and compensation. The employee is given an option to purchase its shares at a certain price (at or below the market price at the time the option is granted) for a specified period of years. Stock option is an essential tool for attracting talent to young companies.

Strike price
The price of the underlying share at which a call or put option is exercisable. See exercise price.

Subordinated debt
Debt that ranks lower than other loans and will be paid last in case of liquidation. Subordinated loans, if provided by a venture capitalist, would either command a higher interest rate or have call options attached. Compare senior debt.

Suppliers' credit
Often overlooked form of financing provided by creditors when they offer extended payment terms.

Syndicate book
See Book.


The joint purchase of shares by two or more venture capital organizations or the joint underwriting of an offering by two or more investment banks. This decreases risks for those involved.

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Tag-along Rights
If another shareholder sells his shareholding, the venture capitalist can insist that his shares are sold on the same terms to the same purchaser. Compare bring-along rights.

Takedown schedule
The plan stated in a private equity fund’s memorandum to provide for the actual transfer of funds from the limited partners to the general partner’s control.

Taking a bath
Slang term used by an investor who has seen a significant reduction in value of an investment or an underwriter with a significant shortfall.

Target company
The company that the offeror is considering investing in. In the context of a public-to-private deal this company will be the listed company that an offeror is considering investing in with the objective of bringing the company back into private ownership.

Technology parks
Industrial estates located next to universities or other research establishments and designed to attract advanced technology companies.

Term Sheet
A short document summarizing the principal financial and other terms of a proposed investment. It is usually non-binding, but may impose some legal obligations on the investor and the company. Compare Letter of Intent.

Terms and Conditions
The financial and management conditions under which private equity limited partnerships are structured.

An advertisement, typically in a major business publication, by an underwriter to publicize an offering that it has underwritten.

Top Quarter
Comprises funds with an IRR equal to or above the upper quartile point.

Total value to paid-in (TV/PI)
A realization ratio which is the sum of distributions to paid-in capital (D/PI) and residual value to paid-in capital (RV/PI). TV/PI is net of fees and carried interest.

Track record
A private equity management house’s experience, history and past performance.

Trade sale
The sale of company shares to industrial investors, perhaps in the same industry.

Trade secret
Information, such as a formula, pattern, device, or process, that is not known to the public and which gives the person possessing the information a competitive advantage. May sometimes include customer lists, marketing and/or business plans, and suppliers.

Investment made in stages; each stage being dependent on achievement of targets.

Trial close
Selling term used to describe when a salesperson asks for the order not expecting success but hoping to unearth further objections from the prospect.

An offering of securities that performed poorly.

Company converted from making losses to profits. A turnaround situation is a company which is still making losses but which an investor believes has sufficient turnover to make potential profits. See rescue.

TVPI - Total Value to Paid-In
TVPI is the sum of the DPI and the RVPI.TVPI is net of fees and carried interest

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Undertakings for Collective Investment in Transferable Securities.

An investment bank which presents a share offering to potential investors.
See firm commitment underwriting, best efforts underwriting.

Underwriter’s warrants
Warrants sometimes granted to underwriters as a form of additional compensation in a public offering, typically in a smaller, higher risk offering.

The purchase of a securities issue from a company by an investment bank and its (typically almost immediate) resale to investors.

Underwriting Agreement
The document in which the underwriters of a public offering commit, in a best efforts offering, to use their best efforts to sell the securities, or, in a firm commitment offering, to purchase from the issuer the securities that are the subject of the public offering.

Underwriting discount (or commission or spread)
The difference between the price at which underwriters buy securities from the issuer in a firm commitment public offering and the public offering price.

Situation for a company where insufficient equity has been supplied by the shareholders or retained in the company to support the activities of the business.

Unsecured debt

Loans not secured against a company’s assets.

Unsecured lending
Lending where the borrower has not provided any assets in the event of non-payment of interest or principal.

Upper half
Comprises funds with an IRR equal to or above median point.

Marketing term used to describe upward revision in pricing schedules.

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Valuation and Reporting Guidelines
Guidelines set by EVCA concerning valuation methodology and reporting practices to investors. Their aim is improve transparency, so that investors are better able to monitor and evaluate the performance of their investments and to make the asset class more accessible and comprehensible to new and existing investors.

Valuation methods
The policy guidelines a management team uses to value the holdings in the fund’s portfolio. More generally, valuation is an estimate of the price of an item at a given time, based on a model and comparison with the value of similar items.

Computer industry term used to describe non-existent products compared to actual hardware and software.

Variable cost
Costs such as materials and manufacturing labor that vary with the level of sales.

Venture capital

Risk investment in unlisted companies with high growth potential. Venture capital can be broadly subdivided into seed or start-up capital, second round finance for young companies (used to expand the range of products) and development finance for established companies (used to develop an alternative product or expand through acquisition). Offsetting the high risk the investor takes is the expectation of higher than average return on the investment. Many venture capital funds, however, occasionally make other types of private equity investments. Outside the United Sates, this phrase is often used as a synonym for private equity. See private equity, venture capitalist.

Venture capitalist
The manager of private equity fund who has responsibility for the management of the fund’s investment in a particular portfolio company. In the hands-on approach (the general model for private equity investment), the venture capitalist brings in not only moneys as equity capital (i.e. without security/charge on assets), but also extremely valuable domain knowledge, business contacts, brand-equity, strategic advice, etc.

Venture purchase of quoted shares

Purchase of quoted shares with the purpose of delisting the company
See delisting, public to private.

The process by which an employee is granted full ownership of conferred rights such as stock options and warrants (which then become vested rights). Rights which have not yet been vested (unvested rights) may not be sold or traded and can be forfeited.

Vintage year
The year of fund formation and first drawdown of capital.

The volatility of a stock describes the extent of its variance over time. See standard deviation.

Vulture capitalist
Negative term for an investor who smells fast money and who is not serious about investing in companies with long-term potential. Compare venture capitalist.

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Type of security usually issued together with a loan, a bond or preferred stock. Warrants are also known as stock-purchase warrants or subscription warrants, and allows an investor to buy ordinary shares at a pre-determined price.

Statements, usually contained in a share subscription or purchase agreement, as to the existing condition of the company which, if not true, support a legal action for compensation by way of money damages. By these statements and terms, the vendor guarantees the past and present operating condition of a company. Examples include operating in a legal fashion; no bad debts or stock etc. Breach of warranty gives the investor the right to claim damages but does not destroy the contract.

Weighted average cost of capital
Weighted average cost of capital is a discount rate used in valuation model reflecting the opportunity cost of all capital providers, weighted by their relative contribution to the company’s total capital.

Working capital
Capital employed by the company to fund the excess of current assets (stock, debtors etc) over current liabilities (creditors, leave provisions, bank overdraft etc).

A reduction in the value of an investment.

The write-down of a portfolio company’s value to zero. The value of the investment is eliminated and the return to investors is zero or negative.

An increase in the value of an investment. An upward adjustment of an asset’s value for accounting and reporting purposes.

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Y and Z

Calculated by dividing the gross dividend by the share price and expressed as percentage. It shows the annual return on an investment from interest and dividends, excluding any capital gain element.