Venture Capital, Private Equity And M&a Glossary

They make as shortlist of buyers , produce an IM, run a process and try to maximise value for you. The company being sold is normally at the end of the flat line, just about to shoot up. If your forecasts look like this then don’t worry, just lean in to it. In fact if your IM doesn’t include a hockey stick somewhere they’ll probably be suspicious. Contrast with a Trade acquirer which might be interested in you for strategic reasons. For a typical £10m – £20m investment, the PE firm might spend £300k – £400k on advisor fees so they only do this when they’re serious about completing a deal. A report written by accountants on the financial aspects of your business.

private equity glossary

Follow-on Investment periodThe period defined in the LPA whereby a fund can complete follow-on investments in underlying holdings. First CloseAn early close of part of a round financing upon the agreement of all parties. EquityOwnership interest in a company, usually in the form of stock or stock options. Down RoundIssuance of shares at a later date and a lower price than previous investment rounds. Claim DilutionA reduction in the likelihood that one or more of the firm’s claimants will be fully repaid, including time value of money considerations. Chapter 7The part of the Bankruptcy Code that provides for liquidation of a company’s assets. Chapter 11The part of the Bankruptcy Code that provides for reorganization of a bankrupt company’s assets. Cash PositionThe amount of cash available to a company at a given point in time. Carried Interest PaidThe amount of carried interest paid as of the current period.

Market, As In The Market

PE firms and sellers use LOIs to ensure that there is general alignment on key terms before incurring the expense of in-depth due diligence and negotiating a definitive sale and purchase agreement. Represents an agreement to pay a portion of the purchase price at a later date based on the performance of the business. An agreement in which a lender private equity glossary sets out the terms on which it is prepared to lend money to the borrower. In an LBO, this letter is typically addressed to a buyout fund’s acquisition vehicle by the lead arranger of an LBO’s debt financing. Securing a debt commitment letter is often required before a seller will sign an SPA to provide funding certainty for the seller.

Captive firm – A private equity firm that is tied to a larger organisation, typically a bank, insurance company or corporate. BIMBO ‘buy-in management buy-out’ – A BIMBO enables a company to re-shuffle its allocation of share capital to bring about a change in management. Internally, a group of managers will acquire enough share capital to ‘buy out’ the company from within. An outside team of managers will simultaneously ‘buy in’ to the company management. Both parties may require financial assistance from venture capitalists in order to achieve this end. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. A file containing the performance data of a private equity fund or equivalent. Usually in real estate, the catch-up is where a fund manager will defer net cash flow to investors until a predetermined milestone is hit, at which point a portion of cash flow will go to the manager.

Multiple Of Money Invested Mom

Typically, the borrower will be a company or an individual, and the borrowings will be in the form of bonds, loans or other fixed interest asset classes. An investment strategy usually referring to a fixed income portfolio of half in long-term bonds and half in very short-term bonds. In real estate, “subasset class” may refer to a specific property type (e.g. multifamily or industrial) and/or a specific investing strategy (e.g. value-add). The cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. Turnover is a measure of how frequently assets within a fund are bought and sold by the managers. Turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold – whichever is less – over a particular period, divided by the total net asset value of the fund. developed market high-yield financial bonds are high-yield bonds issued by companies that provide financial services to commercial and retail customers, and that are domiciled in developed countries, excluding the U.S. 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. Conversion Premium is the amount by which the price of a convertible security exceeds the current market value of the common stock into which it may be converted.

private equity glossary

Responsibilities and limitations such as but not limited to promotion, reporting requirements, pricing of securities for sale to the public and allocation of investments within a fund portfolio. This will include analysis of performance, comparison to benchmarks, meeting with fund’s management team, detailed analysis of the funds track record, reference checks, and a report based on the analysis. The weighted average IRR for funds with vintages within a 15 year time span running from 3 to 18 years ago. The cumulative IRR does not include the performance of a fund whose vintage was in the last three years since that fund is likely still investing rather than recouping investment and, therefore, its IRR is not yet relevant.

The fee charged by the firm on the profits generated on a particular investment, typically 20%. This serves to align the interests of limited partners with the general partners managing the fund. These positions are typically “partner track” and open to applicants with graduate degrees or to analysts who’ve been working with the venture firm for a few years. Associates are usually tasked with due diligence research, obtaining progress reports from portfolio companies, and acting as the intermediary between investment prospects and the partners who make final investment decisions. The most junior people at a venture capital firm, usually a recent college graduate.

Dividends can accumulate at a fixed rate (for example 8%) or simply be payable as and when determined by a company’s Board of Directors in such amount as determined by the board. Because venture backed companies typically need to conserve cash, the use of Cumulative Dividends is customary with the result that the Liquidation Preference increases by an amount equal to the Cumulative Dividends. Cumulative Dividends are often waived if the Preferred Stock converts to Common Stock prior to an IPO but may be included in the aggregate value of Preferred Stock applied to the Conversion Ratio for other purposes. Dividends that are not cumulative are generally called “when, as and if declared dividends.” BenchmarkingComparing returns of a portfolio to the returns of its peers; in private equity, fund performance is benchmarked against a sample of funds formed in the same vintage year with the same investment focus. A company acquired and majority owned by a private equity fund or in which a private equity fund has made an investment but is not a majority owner. Financial commitments made, but not yet funded, such as capital commitments to a private equity fund that have not yet been called (i.e., the general partner has not yet asked for the money). Over the very long term, the U.S. stock market has tended toward an average return of about 9% – 10%, with a standard deviation of about 18%.

To balance risk and reward, asset allocation is determined by investment goals, risk tolerance and time. Wash-Out RoundA financing round whereby previous investors, the founders, and management suffer significant dilution. Usually as a result of a washout round, the new investor gains majority ownership and control of the company. Trade SaleThe sale of the equity share of a portfolio company to another company. Time-weighted A most misleading term as it actually means the exact opposite of what it suggests. Subscription AgreementThe application submitted by an investor wishing to join a limited partnership. All prospective investors must be approved by the General Partner prior to admission as a partner. Secondary PurchaseThe sale of private or restricted holdings in a portfolio company by one investor to another. A company licensed by the Small Business Administration to receive government leverage in order to raise capital to use in venture investing.

A PE firm typically wants to triple the size of its investment over a period of four to five years . An “exit” is the name given to the event that leads to some, or occasionally all, investors “exiting” their investment and realising the value of their equity as cash. You start an exclusivity period by signing a short agreement or letter saying that you will now deal with that PE firm exclusively and will not talk to others. You’ll put your other bidders on hold so they know they’ve lost the deal. Quite often all of these diligence projects run concurrently and the PE firm is also still doing their own work as well. Everyone is working quickly trying to complete the deal by a deadline so you and your team will be under a barrage of questions every day. That’s why PE processes are exhausting and hugely distracting to the management team. Due Diligence is the process by which a PE firm tries to assess the viability of a potential investment and the accuracy and completeness of the information you have provided. The Investment Bank or sell-side advisor gets the biggest cheque – normally a percentage of the price paid.

Barbell Strategy

Next biggest cheques go to financial diligence providers, commercial diligence providers and so on down to the smallest players like insurance diligence. This is a look at the magical words, abbreviations and acronyms invented by private equity people to make their world understandable to themselves and incomprehensible to others. A measure of how much of the investors’ invested capital is still tied up in the equity of the fund. Financing provided to a company at a time of operational or financial difficulty with the intention of improving the company’s performance. An index originally developed by Thomson Reuters and Warburg Pincus Counselors that includes all public venture backed companies. The index composition increases as venture back companies go public, and decreases as the companies are dropped out due to merger, acquisition, delisting, etc. Companies remain in the index for 10 years after going public and are then dropped out of the index. A company that is privately owned and is not available for sale to the public on the stock exchanges.

private equity glossary

An entity designed to nurture business concepts or new technologies to the point that they become attractive to venture capitalists. An incubator usually provides both physical space, and some or all of the other services needed for a business concept to be developed. The industry in which a firm has invested at least 60% of its investment portfolio. An Exchange Offer is when a company offers to exchange new securities private equity glossary for its equity securities outstanding or its securities convertible into equity. The debt to equity ratio is total liabilities divided by total shareholders’ equity. The amount of capital available to a management team for investments. A company buys back its equity securities or securities convertible into equity, either on the open market, through privately negotiated transactions, or through a tender offer.


A term defined by federal securities law to denote an investor permitted to invest in certain types of higher-risk investments, such as private equity limited partnerships. Currently this definition includes individual investors holding assets of at least $5 million. An ownership interest in a company the shares of which are not traded on any exchange or otherwise available to the public. The two main kinds of private equity are buyouts and venture capital. An investment that is not included among the traditional asset classes of equities, bonds or cash. Alternative investments include property, hedge funds, commodities, private equity and infrastructure.

  • The value of a company investors determine before they invest capital.
  • A private equity fund that received its capital directly from the investment bank or the merchant bank that raised the fund.
  • Social investingInvestments driven in whole or in part by social or political (non-real estate) objectives.
  • Institutional buy-out – If a private equity firm takes a majority stake in a management buy-out, the deal is an institutional buy-out.

From angels to zombie funds—we explained some of the most common terms used in the private markets to help you learn more about the industry. Take a look at the definitions—then see what you can do with data on the entire venture capital, private equity and M&A landscape. The venture capitalist may provide both funding and varying degrees of managerial and technical expertise. Valuation PolicyThe method or guidelines used by a private equity fund to determine the value of its portfolio assets.

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