Startup, Business, And Venture Capital Glossary

Acquisition of a corporate division, business unit or subsidiary and conversion into a standalone company. A single, lump sum repayment of the entire principal of a loan and accrued interest at the end of its term. Legal status in which an insolvent company is declared bankrupt, typically by court order. AIVs are structured to accommodate one or more special investments made outside of the primary fund (and/or a parallel fund). Rescue / Turnaround Financing made available to an existing business, which has experienced financial distress, with a view to re-establishing prosperity. When a corporation acquirers a company for its technology, products or services. The debt that takes priority over other securities in the event of liquidation. The investment gains achieved by increasing the sales multiple relative to the original investment multiple.

The Investment Advisers Act is a federal statute regulating individuals and entities that, for compensation, provide investment advice, analysis or recommendations regardingsecuritiesor securities markets. With the exception of Wyoming, each state has its own version of the investment advisers act. Hedge fund managers that invest in securities must comply with federal and state investment advisers act statutes. Investment Advisors are firms or individuals that receive compensation for providing advice on investing in securities. Investment funds that invest insecuritiesmust either register with the appropriate jurisdiction as an investment advisor or satisfy an exemption. Automatic Conversionis a clause found in certain convertiblesecuritiesthat, upon the occurrence of certain events, automatically changes the type ofsecuritiesowned by an investor.

Private

The right of investors to have shares included in a public offering the company plans to conduct for itself or another shareholder. Usually, this applies to an unlimited number of offerings until the registration rights terminate. With Nonparticipating Preferred Stock, the holders of Preferred Stock must choose either to receive their Liquidation Preference or to receive the same distribution holders of Common Stock receive. A holder of Participating Preferred Stock doesn’t have to choose and receives both. The clause in a term sheet that states to the founder they are not to share the term sheet with other investors in order to receive a competing offer. The etiquette in venture is to give founders about a week or less for a decision on a term sheet to limit the time founders have to unofficially ‘shop around’ the deal. The ability of an asset to be freely transferred with minimal interference from the issuer.

  • Future proposed spaceSpace in a proposed commercial development that is not yet under construction or where no construction start date has been set.
  • This calculation involves treating all funds as a single “fund” by summing their monthly cash flows together.
  • First CloseAn early close of part of a round financing upon the agreement of all parties.
  • Corporate FundA private equity fund that is a division or subsidiary of a financial or industrial corporation.
  • A score of 100% means you are completely different from the benchmark.

Yet, the balanced investor knows how to assess risks vs returns and chooses the right equity investment that is best suited for their needs. An investment fund may be just what you are looking for to add to your portfolio wealth, either as a preferred or unlimited partner. An investment vehicle that invests in real estate, through direct ownership of property assets, property shares or mortgages. As they are listed on a stock exchange, REITs are usually highly liquid private equity glossary and trade like a normal share. A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bonds. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership. A debt security issued by a company or a government, used as a way of raising money. The investor buying the bond is effectively lending money to the issuer of the bond.

Preferred Return, Carried Interest

The group of venture investors who participate in the investment round. The right of investors to require the company to file a short form registration statement on Form S-3. S-3 Registration Rights are similar to Demand Registration Rights, but usually one or two registrations each year are permitted, because the short Form S-3 is less burdensome to the company. The Stock Plan is an assimilation of all the rights and economic interests that are attached to company stock, including the company’s bylaws, grant documents, shareholder agreements, etc. A legal “safe harbor” that allows issuers of non-public stock to sell interests to accredited investors without having to register with the SEC. Under this provision, issuers cannot engage in “general solicitation”, such as advertising.
private equity glossary
SubordinationThe process of sharing the risk of credit losses disproportionately among two or more classes of securities. Straight lease A lease specifying a fixed amount of rent that is to be paid periodically, typically monthly, during the entire term of the lease. Soft costThe portion of an equity investment other than the actual cost of the improvements themselves that may be tax-deductible in the first year. Securities and Exchange Commission The federal agency that supervises and oversees the issuance and exchange of public securities. Secondary financingA loan on real property secured by a lien junior to an existing first mortgage loan. Road showA tour made by executives of a company that plans to go public, where they travel to various cities to meet with underwriters and analysts and make presentations regarding their company and IPO.

Emerging Manager Spotlight: Mac Conwell Of Rarebreed Ventures

Bonds offer a return to investors in the form of fixed periodic payments, and the eventual return at maturity of the original money invested – the par value. Because of their fixed periodic interest payments, they are also often called fixed income instruments. Free cash flow yield is a financial ratio that measures a company’s operating free cash flow minus its capital expenditures per share and dividing by its price per share. Free cash flow yield ratio is calculated by using the underlying securities of the fund. Corporate Bond – A corporate bond is a debt security issued by a corporation backed by the payment ability of the company, which is typically money to be earned from future operations.
private equity glossary
In the world of alternative investments, compliance refers to the process of ensuring that trade processes remain within a firm’s guidelines throughout the trade life cycle. AltAssets has been serving the global private equity industry for over a decade and has become established as a trusted source of independent news and views on the industry by thousands of professionals worldwide. Calculated as the discount rate at which the Net Present Value of all cash flows equals zero. Horizontal direct investment – The most common form of direct investment, when a business already existing in one country establishes the same business operations in a foreign country. Also known as carry, the share of profits in an investment that is paid to the investment manager. Assets under management, or AUM, is the total sum that a financial institution or broker manages on behalf of their clients and themselves. Management fees and expenses are often calculated as a percentage of AUM.

You need leverage in private equity as most deals are structured as a leveraged buy out. If you’ve been running a tight business without spending hundreds of thousands of pounds on consultants, these fees will be eye-watering. Fortunately they get added to the purchase price of your business so you don’t need to pay for them out of your own cash flow. Private equity firms make capital investments in companies that are not publicly traded. A fund formed by the private equity arm of a service provider (i.e. consulting firm, accounting firm, etc.). A fund raised by the private equity arm of an investment bank or a merchant bank. The total private equity backed financing received for the selected criteria. A fund investment strategy involving financing for the expansion of a company which is producing, shipping and increasing its sales volume.
private equity glossary
Secondary buyouts are distinguished when the initial firm investor is different from the second investing firm. The equity value of a portfolio company including the round of financing. The price/earnings ratio is the price of a stock divided by its earnings per share. The purchase of publicly traded shares of a company in the open market. A combination of businesses takes place or 100% of the stock of a public or private company is acquired. The acquiror must have held less than 50%, and be seeking to acquire 100% of the company’s stock. The earnings per share is the portion of the company’s profit allocated to each outstanding share of common stock. The obtainment of control, possession or ownership of a private portfolio company by an operating company or conglomerate. Debt provided by a target’s sellers, essentially rolling a portion of seller proceeds back into the target company.

Tightening Labour Market

The sum of capital commitments is equal to the size of the fund.Limited partnersand thegeneral partnermust make a capital commitment to participate in the fund. Series A Preferred StockThe first round of stock offered during the seed or early stage round by a portfolio company to the venture investor or fund. Placement AgentA company that specializes in finding institutional investors that are willing and able to invest in a private equity fund or company issuing securities. Sometimes the “issuer” will hire a placement agent so the fund partners can focus on management issues rather than on raising capital. Co-investmentThe syndication of a private equity financing round or an investment by individuals alongside a private equity fund in a financing round. The average rate of co-investment is the total number of investments made in the total number of deals in a given period. This form of legal entity is commonly used by hedge funds and private equity funds. A measure of valuation in real estate transactions, calculated by dividing the purchase price of an asset by its annual net income or net cash flows. The higher the cap rate, the more expensive the price of the real estate.

A decrease in the price of goods and services across the economy, usually indicating that the economy is weakening. The difference in the yield of corporate bonds over equivalent government bonds. A measure of the funds a bank has in reserve against the riskier assets it holds that could be vulnerable in the event of a crisis. Spending on fixed assets such as buildings, machinery, equipment and vehicles in order to increase the capacity or efficiency of a company. This measures how much a portfolio’s holdings differ from its benchmark holdings.
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Return on assets is a measure of a company’s profitability, equal to a fiscal year’s earnings divided by its total assets, expressed as a percentage. R squared measures how well an investment’s returns correlate to an index. An R squared of 1.00 means the portfolio performance is 100% correlated to the index’s, whereas a low r-squared means that the portfolio performance is less correlated to the index’s. Other Tri-Party Repo– A repurchase agreement in which a third party agent, such as a clearing bank, acts as an intermediary to facilitate the exchange of cash and collateral between the two counterparties. Number of holdings provided are a typical range, not a maximum number. The portfolio may exceed this from time to time due to market conditions and outstanding trades. NAV is the Net Asset Value per share of the Fund , which represents the value of the assets of a fund less its liabilities.

Exit plan by a private equity firm to prepare the portfolio company for sale. Tombstone –When a private equity firm has raised a fund, or it wishes to announce a significantclosing, it may choose to advertise the event in the financial press – the ad is known as a tombstone. It normally provides details of how much has been raised, the date of closing and thelead investors. Public to private –This is when a quoted company is taken into private ownership – more recently by private equity firms. Historically, this has involved a large company selling one of its divisions. A new trend has been for whole companies to be bought out and subsequently delisted. An MBI can be slightly riskier than aMBObecause the new management will not be as familiar with the way the company works. Follow-on funding– Companies often require several rounds of funding.

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