Venture Capital Glossary

Reverse Stock Splits

private equity glossary

State Securities Regulators

Cash flows are representative of the capital invested, fees paid, and other expenses incurred by the limited partners to the fund. The first year that the private equity fund draws down or calls committed capital is known as the fund’s vintage year. Paid-in capital is the cumulative amount of capital that has been drawn down. The amount of paid-in private equity glossary capital that has actually been invested in the fund’s portfolio companies is simply referred to as invested capital. In addition, the general partners earn a percentage of the fund’s profits, which is called carried interest. Carried interest is the general partner’s share of the profits of the investments made within a private equity fund.

Syndicategroup Of Financiers Who Participate Together In Taking Portions Of The Same Investment

private equity glossary

Private investment in public equity – a transaction where a PE/VC investor subscribes for shares in a publicly listed company without taking control. In the US often the investor subscribes for a convertible preferred share.

Bid Price

An IPO with $20 million in gross proceeds to the company and a price per share three times the price the investor paid for its stock is fairly typical for a Qualified IPO, but this varies from one deal to another. The theoretical value of the company before the investment agreed upon by the company and the investors. Pre- Money Valuation is calculated by multiplying the number of Fully Diluted shares of the company before the investment transaction by the private equity glossary purchase price per share in the investment transaction. Aclass of stock with a Liquidation Preference; that is, the right to receive distributions of money or assets prior to one or more other classes of stock if the company is sold, merged or liquidated. This protects investors by ensuring the investors get their money back before holders of Common Stock receive any money or assets. A fund created to invest in private equity or venture capital funds.

Sometimes management will agree to issue more stock to its investors if the company does not meet its benchmarks, thus compensating the investor for the delay of his return. The act of one company taking over controlling interest in another company. Investors often look for companies that are likely acquisition candidates, because the acquiring firms are often willing to pay a premium to the market price for the shares. This could also be classed as sweet equity but it is the extra percentage of a company’s equity which is allocated to the managers over and above the shareholding which their own financial investment would qualify them for.

The aim is to keep a continuous supply of capital available for further investments. Due Diligence– Investing successfully in private equity at a fund or company level, involves thorough investigation. As a long-term investment, it is essential to review and analyse all aspects of the deal before signing. Capabilities of the management team, performance record, deal flow, investment strategy private equity glossary and legals, are examples of areas that are fully examined during the due diligence process. Distressed debt – This is a form of finance used to purchase the corporate bonds of companies that have either filed for bankruptcy or appear likely to do so. Private equity firms and other corporate financiers who buy distressed debt don’t asset-strip and liquidate the companies they purchase.

In the UK these transactions were common in the late 80’s/early 90’s and may now revive but have been uncommon over the last 10 years. private equity glossary Only those investors who participate in the subsequent dilutive financing are entitled to the benefit of the anti-dilution formula.

Umbrella term for transactions involving the purchase of existing businesses by vehicles funded as to 50% or more by debt. The term includes management buy-ins, management buyouts and BIMBO’s . Member of a syndicate of private equity investors holding the largest stake, in charge of arranging the financing and leading negotiations on the terms of the investment. The Horizon IRR allows for an indication of performance trends in the industry.

private equity glossary

This entity is often referred to as a Limited Partner to the venture capital funds. The private equity industry has grabbed the attention of savvy investors. As the industry’s private equity glossary influence on our financial market grows, it will become increasingly important for investors to be familiar with the lingo used in the private equity industry.

The extra shares are seen as an additional motivation and reflect the fact that it is the managers’ hard work which will ultimately make the venture succeed. Creating a structure in which subordinated debt is issued by a legal entity which is not part of the group which has borrowed the senior debt and is not a trading entity.

Asset Sales Dealtake

Familiarity with and an understanding of the terms and ratios used in private equity will help investors make smarter financial decisions. The technical definition of RVPI is the current market value of unrealized private equity glossary investments as a percentage of called capital. The RVPI multiple is calculated by taking the net asset value, or residual value, of the fund’s holdings and dividing it by thecash flowspaid into the fund.

  • At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund.
  • Private equity funds are typically limited partnerships with a fixed term of 10 years .
  • From the investors’ point of view, funds can be traditional or asymmetric .
  • Private equity investing that typically targets companies with existing businesses, often those with a need for turnaround management services.
  • Such businesses have often been publicly traded, or been units within a publicly-traded company, before being purchased by a private equity investor.
  • A private-equity fund is a collective investment scheme used for making investments in various equity securities according to one of the investment strategies associated with private equity.

So if the PE firm is paying £10m for a 55% share in your business and the deal fees are £2m, then the total cost of the business to them is actually £12m, This is the total deal cost. This eventually gets paid back either from cash you generate during the investment period or by being deducted from the sale price when you sell at the end of the investment window. A right to purchase or sell a share of stock at a specific price within a specified period of time. Stock options are often used as long term incentive compensation for management and employees at high-growth companies. Means an initial public offering by the company of a size and price specified in the corporate charter.

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