A Beginner’s Glossary Of Venture Capital

The ratio that is calculated by dividing the amount of the cumulative distributions by the amount of capital that was paid in. DPI is represented by a percentage and gives a private equity investor insight into how much of the fund’s return has actually been “realized”, or paid back to investors. The Distributions to Paid-in Multiple is sometimes known as the realization multiple, since the capital paid out to investors is usually the result of realized gains in the fund. In other words, participating preferred gets the original capital back and the share of ownership. This term is sometimes referred to as investors double dipping as investors are getting the capital and the ownership verses just the percentage of the capital.

private equity glossary

Cash-on-cash yieldThe relationship, expressed as a percentage, between the net cash flow of a property and the average amount of invested capital during an operating year. Appreciation returnThe portion of the total return generated by the change in the value of the real estate assets during the current quarter, as measured by both appraisals and sales of assets. AppraisalAn estimate of a property’s fair market value that is typically based on replacement cost, discounted cash flow analysis and/or comparable sales price. Adjusted funds from operations A measure of REIT performance or ability to pay dividends used by many analysts with concerns about quality of earnings as measured by funds from operations . The most common adjustment to FFO is an estimate of certain recurring capital expenditures needed to keep the property portfolio competitive in its marketplace. An analyst will look at capital structure, management team, and revenue or potential revenue, among other things.

Direct Investment Plans: Buying Stock Directly From The Company

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. Rule 505Rule 505 of Regulation D is an exemption for limited offers and sales of securities not exceeding $5,000,000. Security sales can be made to an unlimited number of accredited investor plus 35 additional investors. Disclosure documents, i.e. a private placement memorandum, must be delivered to all non-accredited investors. If dealing with accredited investors, the number of these is unlimited, but there is no advertising allowed. Rule 504Company can raise up to $1 million in any 12-month period from any number or investors provided that the company does not advertise the sale. There are restrictions on the resale of the securities, but there is no requirement of disclosure.

Net Asset Value NAV is calculated by adding the value of all of the investments in the fund and dividing by the number of shares of the fund that are outstanding. NAV calculations are required for all mutual funds (or open-end funds) and closed-end funds. The price per share of a closed-end fund will trade at either a premium or a discount to the NAV of that fund, based on market demand. The ending of a private equity provider’s involvement in a business venture with a view to realizing an internal return on investment. Lead InvestorThe member of a private equity syndicate that leads other co-investors into successful conclusion of a company financing. Member of a syndicate of private equity investors holding the largest stake, in charge of the financing and most actively involved in the overall project. Labour-sponsored Venture Capital Corporation A professionally managed private equity fund that raises capital on a retail basis from individual Canadians, with the assistance of federal and provincial government tax credits. LSVCCs operate according to some legislative specifications in most Canadian jurisdictions.

Stock Fund

Small-cap – The market capitalization of the stocks of companies with market values less than $3 billion. Sector breakdown – Breakdown of securities in a portfolio by industry categories. Premium – The amount by which a bond or stock sells above its par value. Portfolio manager – The person or entity responsible for making investment decisions of the portfolio to meet the specific investment objective or goal of the portfolio. NASDAQ – National Association of Securities Dealers Automated Quotations system, which is owned and operated by the National Association of Securities Dealers. NASDAQ is a computerized private equity glossary system that provides brokers and dealers with price quotations for securities traded over-the-counter as well as for many New York Stock Exchange listed securities. Mid-cap – The market capitalization of the stocks of companies with market values between $3 to $10 billion. Median Market Cap – The midpoint of market capitalization of the stocks in a portfolio, where half the stocks have higher market capitalization and half have lower. Maturity – The date specified in a note or bond on which the debt is due and payable. Market risk – The possibility that an investment will not achieve its target.

Most private-independent funds utilize Limited Partnerships and related vehicles. Pre-Money ValuationThe valuation of a company prior to a round of investment. Partnership AgreementThe contract that specifies the compensation and conditions governing the relationship between investors (LP’s) and the venture capitalists (GP’s) for the duration of a private equity fund’s life. Participating PreferredA preferred stock in which the holder is entitled to the stated dividend, and also to additional dividends on a specified basis upon payment of dividends to the common stockholders. The preferred stock entitles the owner to receive a predetermined sum of cash if the company is sold or has an IPO. The common stock represents additional continued ownership in the company.

Hedge Funds

Often, if the expected rate of return on an investment is below the hurdle rate, the project is not undertaken. Hockey Stick ProjectionsThe general shape and form of a chart showing revenue, customers, cash, or some other financial or operational measure that increases dramatically at some point in the future. Entrepreneurs often develop business plans with hockey stick charts to impress potential investors. Note that the test is 25% of the interests of all the limited partners, which means 20% (+/-) in the partnership as a whole, taking into account the general partner’s interest. Employee Stock Option Plan A plan established by a company whereby a certain number of shares are reserved for purchase and issuance to key employees. Such shares usually vest over a certain period of time to serve as an incentive for employees to build long term value for the company. Due DiligenceA process undertaken by potential investors — individuals or institutions — to analyze and assess the desirability, value, and potential of an investment opportunity.

To engage in any activity in which money is put at risk for the purpose of making a profit. A bond whose interest rate is adjusted periodically according to a predetermined formula; it is usually linked to an interest rate index such as LIBOR. An unsecured bond backed solely by the general credit of a company. Bonds that can be redeemed or paid off by the issuer prior to the bond’s maturity date. A group of people elected by shareholders to oversee the management of a corporation.

Efficient Portfolio Management

Carried Interest Carry, or carried interest, is what the general partner receives as a share of the profits in the project. Analysis of the past trading prices and patterns of a security, in the belief that they are predictive of future performance. A financial instrument representing ownership in a company’s net worth. For example, an investor who sells a stock short at $10 today, and buys it back for $8 next month, has made a profit of $2 from this short sale. A benchmark that is calculated by including the returns to all of the assets meeting private equity glossary pre-specified criteria. The process of investing in assets that have correlations of less than +1 to each other. An investment contract that derives its value from the price movements of another instrument. For example, a stock option is a derivative that derives its value from the price movement of the reference stock. A financial statement that shows the movement of cash during an accounting period, as opposed to changes in accounting value. For example, depreciation is an accounting concept; it does not involve the movement of cash.

  • It is usually expressed as a percentage comparison to a previous time period, and is a broad measure of a country’s overall economic activity.
  • Party Round – a round of financing where generally a small amount of money is raised from a large number of investors .
  • This is used to measure the engagement and growth of a product or app.
  • Management Buyout FinancingCapital provided to facilitate the takeover of all or part of a business entity by a team of managers.
  • The commitment will be made at the closing and the capital will be called by the fund as needed during the fund term.

Bond with a coupon rate that is reset each period, depending upon a specified market interest rate . Long term and tangible assets of the firm, such as plant, equipment, land and buildings. Risk that affects one or a few firms, and is thus risk that can be diversified away in a portfolio. Cash flows raised outside the firm whether from private sources or from financial markets. Asset created when companies pay more in taxes than the taxes they report in the financial statements.

Mutual Fund Prospectus

Capital gainThe amount by which the net proceeds from the sale of a capital item exceeds the book value of the asset. Average total assetsCalculated by adding the total assets of a company for the five most recent quarters and dividing by five. Average downtimeExpressed in months, the amount of time expected between the expiration of a lease and the commencement of a replacement lease under current market conditions. Asset turnoverCalculated as total revenues for the trailing 12 months divided by the average total assets. AssessmentA fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc. ArbitrageBuying securities in one market and then selling them immediately in another market to make a profit on the price discrepancy.

private equity glossary

When a private equity firm acquires a company to add onto an existing portfolio company. In add-on deals, the existing portfolio company is called the platform and the private equity firm is called the sponsor. 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. Total Value to Paid In The ratio of the current value of remaining investments within a fund, plus the total value of all distributions to date, relative to the total amount of capital paid into the fund to date.

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You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. The total return from the beginning of the year selected to the date selected. The total return from the beginning of the quarter selected to the date selected. The total return from the previous trading day to the selected date. The total return from the beginning of the month selected to the date selected. A calculation of the rate of returns between two or more periods and multiplying those returns together geometrically, then taking a geometric mean of the result. Purchase of shares/stock in a company from an existing shareholder rather than purchasing the stock directly from the company.