
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
info@ftpusa.com.
A
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.
Add-ons
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.
Allocation
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.
Analyst
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.
Angel
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.
Arm’s-length
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.
Arrearage
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).
A
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B
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F
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G
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top
B
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.
Benchmark
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.
Beta
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.
BIMBO
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.
Bond
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.
Bookbuilding
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.
Bookrunner
The
underwriter
in
charge
of
the
bookbuilding
process.
Bootstrapping
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.
Broker
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.
Buyback
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.
Buyout
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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C
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.
Closing
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.
Collateral
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.
Commitment
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.
Completion
The
moment
when
legal
documents
are
signed.
Normally,
also
the
moment
at
which
funds
are
advanced
by
investors.
Compliance
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.
Co-investment
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).
Consolidation
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.
Conversion
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.
Covenants
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.
Co-investment
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
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.
Consolidation
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.
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
J
|
K
|
L
|
M
|N
|O
|
P
|
Q
|
R
|
S
|
T
|
U
|
V
|
W
|
X
|
Y
|
Z
return
to
top
D
DAX
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.
Debenture
An
instrument
securing
the
indebtedness
of
a
company
over
its
assets.
Debt
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.
Delisting
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
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.
Disbursement
(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.
Distribution
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.
Divestment
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.
Drawdown
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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E
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.
Earn-out
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.
EBIT
Earnings
before
interest
and
taxes
–
a
financial
measurement
often
used
in
valuing
a
company
(price
paid
expressed
as
a
multiple
of
EBIT).
EBITDA
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.
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.
EURONEXT
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.
Exit
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.
Exporting
This
is
the
process
of
sending
a
product
or
service
offshore
(to
foreign
countries).
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F
Factoring
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.
Firm
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.
Floor
Stock
market
term
used
to
describe
the
situation
where
a
buyer
has
a
permanent
order
in
to
buy
shares
at
a
certain
price.
Flotation
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.
Fund
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.
Fundraising
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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G
GAAP
(Generally
Accepted
Accounting
Principles)
Rules
and
procedures
generally
accepted
within
the
accounting
profession.
Gatekeepers
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.
Gatekeeper
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.
Goodwill
The
value
of
a
business
over
and
above
its
tangible
assets.
It
includes
the
business’s
reputation
and
contacts.
Grandstanding
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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H
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.
Hands-off
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.
Hands-on
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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I
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.
Inception
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.
Index
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
www.iasc.org.uk
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.
IPO
"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.
IRR
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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J
J-curve
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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K
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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|
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L
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.
LIBOR
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.
Liquidity
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).
Listing
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.
Lock-up
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.
LPS
See
limited
partner,
limited
partnership.
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M
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.
Memorandum
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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N
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.
Nasdaq-100
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.
NewCo
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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O
Offer
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.
Offeror
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.
Option
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.
Overhang
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
A
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B
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C
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D
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return
to
top
P
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.
Prospectus
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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return
to
top
Q
Quartile
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
Quasi
equity
encompasses
such
instruments
as
convertible
shareholder
loans,
loan
notes,
preference
shares.
These
instruments
are
unsecured
and
convertible
on
exit.
A
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to
top
R
Ratchets
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.
Recapitalization
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.
Redemption
Repurchase
by
a
company
of
its
securities
from
an
investor.
Often
required
for
preferred
stock
in
private
equity
financing.
Refinancing
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.
Repurchase
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.
Ride
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.
Roadshow
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.
Roll-up
See
consolidation.
Rounds
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
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.
SEC
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.
Sequence
The
classification
of
funds
by
order
of
investment.
First
in
a
sequence
is
the
new
fund,
defined
as
the
first
fund
a
management
group
raises
together,
regardless
of
the
experience
level
of
individual
professionals
in
that
group.
Next
are
follow-on
funds,
defined
as
subsequent
funds
(II,
III,
IV,
etc)
raised
by
the
same
management
group.
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.
Shell
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.
Shortfall
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.
Spin-off
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.
Squeeze-out
Statutory
provisions
entitling
an
offeror
who
has
acquired
the
support
of
a
certain
percentage
of
shareholders
to
acquire
the
balance
of
shares
in
the
target
company.
Staging
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.
Star
An
investment
which
is
so
successful
that
it
makes
up
for
other
loss-making
investments
by
a
fund.
Start-up
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.
Syndication
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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T
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.
Tombstone
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.
Tranching
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.
Turkey
An
offering
of
securities
that
performed
poorly.
Turnaround
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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U
UCITS
Undertakings
for
Collective
Investment
in
Transferable
Securities.
Underwriter
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.
Underwriting
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.
Undercapitalization
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.
Uprates
Marketing
term
used
to
describe
upward
revision
in
pricing
schedules.
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V
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.
Vaporware
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.
Vesting
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.
Volatility
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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W
Warrants
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.
Warranty
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).
Write-down
A
reduction
in
the
value
of
an
investment.
Write-off
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.
Write-up
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
Yield
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.
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