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"A" ROUND  look up translate image
A financing event whereby venture capitalists invest in a company that was previously financed by founders and/or angels. The "A" is from Series "A" Preferred stock. See "B" round.
"B" ROUND  look up translate image
A financing event whereby professional investors such as venture capitalists are sufficiently interested in a company to provide additional funds after the "A" round of financing. Subsequent rounds are called "C", "D", and so on.
401(K) PLAN  look up translate image
A type of qualified retirement plan in which employees make salary reduced, pre-tax contributions to an employee trust. In many cases, the employer will match employee contributions up to a specified level.
ACCREDITED INVESTOR  look up translate image
Defined by Rule 501 of Regulation D, an individual (i.e. non-corporate) "accredited investor" is a either a natural person who has individual net worth, or joint net worth with the persons spouse, that exceeds $1 million at the time of the purchase OR a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
ACCRUED INTEREST  look up translate image
The interest due on preferred stock or a bond since the last interest payment was made.
ACQUISITION  look up translate image
The process of taking over a controlling interest in another company. Acquisition also describes any deal where the bidder ends up with 50 per cent or more of the company taken over.
ACQUISITION FINANCE  look up translate image
Companies often need to use external finance to fund an acquisition. This can be in the form of bank debt and/or equity, such as a share issue.
ACRS  look up translate image
Accelerated Cost Recovery System. The IRS approved method of calculating depreciation expense for tax purposes. Also known as Accelerated Depreciation.
ADD-ON SERVICE  look up translate image
Add-on Services are the services provided by a venture capitalist that are not monetary in nature, such as helping to assemble a management team and helping to prepare the company for an IPO.
ADR  look up translate image
American Depositary Receipt (ADR's). A security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.
ADVENTURE CAPITALIST  look up translate image
Adventure capitalist is an entrepreneur who helps other entrepreneurs financially and often plays an active role in the company's operations such as by occupying a seat on the board of directors, etc.
ADVISORY BOARD  look up translate image
An advisory board is common among smaller companies. It is less formal than the board of directors. It usually consists of people, chosen by the company founders, whose experience, knowledge and influence can benefit the growth and direction of the business. The board will meet periodically but does not have any legal responsibilities in regard to the company.
ALLOCATION  look up translate image
The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process depending on market demand for the securities.
ALTERNATIVE ASSETS  look up translate image
This term describes non-traditional asset classes. They include private equity, venture capital, hedge funds and real estate. Alternative assets are generally more risky than traditional assets, but they should, in theory, generate higher returns for investors.
AMORTIZATION  look up translate image
An Accounting procedure that gradually reduces the book value of an intangible asset through periodic charges to income.
AMT  look up translate image
Alternative Minimum Tax. A tax designed to prevent wealthy investors from using tax shelters to avoid income tax. The calculation of the AMT takes into account tax preference items.
ANGEL FINANCING  look up translate image
Capital raised for a private company from independently wealthy investors. This capital is generally used as seed financing.
ANGEL INVESTOR  look up translate image
See business angels
ANTI-DILUTION PROVISIONS  look up translate image
Contractual measures that allow investors to keep a constant share of a firm's equity in light of subsequent equity issues. These may give investors preemptive rights to purchase new stock at the offering price. [See Full Ratchet and weighted Average]
ARCHANGEL  look up translate image
Usually an outsider hired by a syndicate of angel investors to perform due diligence on investment opportunities and coordinate allotment of investment duties among members. Archangels typically have no financial commitment to the syndicate.
ASSET  look up translate image
Anything owned by an individual, a business or financial institution that has a present or future value i.e. can be turned into cash. In accounting terms, an asset is something of future economic benefit obtained as a result of previous transactions. Tangible assets can be land and buildings, fixtures and fittings; examples of intangible assets are goodwill, patents and copyrights.
ASSET ALLOCATION  look up translate image
The percentage breakdown of an investment portfolio. This shows how the investment is divided among different asset classes. These classes include shares, bonds, property, cash and overseas investments. Institutions structure their allocation to balance risk and ensure they have a diversified portfolio. The asset classes produce a range of returns:for example, bonds provide a low but steady return, equities a higher but riskier return. Cash has a guaranteed return. Effective asset allocation maximises returns while covering liabilities.
ASSET-BACKED LOAN  look up translate image
Loan, typically from a commercial bank, that is backed by asset collateral, often belonging to the entrepreneurial firm or the entrepreneur.
AUTOMATIC CONVERSION  look up translate image
Immediate conversion of an investor's priority shares to ordinary shares at the time of a company's underwriting before an offering of its stock on an exchange.
AVERAGE IRR  look up translate image
The arithmetic mean of the internal rate of return.
BALANCE SHEET  look up translate image
A condensed financial statement showing the nature and amount of a company's assets, liabilities, and capital on a given date.
BALANCED FUND  look up translate image
A fund that spreads its investments between various types of assets such as stocks and bonds. Investors can avoid excessive risk by balancing their investments in this manner, but should expect only moderate returns.
BANKRUPTCY  look up translate image
An inability to pay debts. Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt.
A no-agreement alternative reflecting the course of action a party to a negotiation will take if the proposed deal is not possible.
BEAR HUG  look up translate image
An offer made directly to the Board of Directors of a target company. Usually made to increase the pressure on the target with the threat that a tender offer may follow.
BENCHMARK  look up translate image
This is a standard measure used to assess the performance of a company. Investors need to know whether or not a company is hitting certain benchmarks as this will determine the structure of the investment package. For example, a company that is slow to reach certain benchmarks may compensate investors by increasing their stock allocation.
BENCHMARKS  look up translate image
Benchmarks are performance goals against which a company's success is measured. Benchmarks are often used by investors to help determine whether a company should receive additional funding or whether management should receive extra stock.
BEST EFFORTS  look up translate image
An offering in which the investment banker agrees to distribute as much of the offering as possible, and return any unsold shares to the issuer.
BIMBO 'BUY-IN MANAGEMENT BUY-OUT'  look up translate image
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.
BIMBO (BUY-IN MANAGEMENT BUY-OUT)  look up translate image
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.
BLIND POOL  look up translate image
Blind pool is a form of limited partnership which doesn't specify what investment opportunities the general partner plans to pursue.
BLUE SKY LAWS  look up translate image
A common term that refers to laws passed by various states to protect the public against securities fraud. The term originated when a judge ruled that a stock had as much value as a patch of blue sky.
BOARD RIGHTS  look up translate image
Allowing an investor to take a seat on a firm's board of directors.
BOND  look up translate image
a type of IOU issued by companies or institutions. They generally have a fixed interest rate and maturity value, so they're very low risk:much less risky than buying equity:but their returns are accordingly low.
BOOK VALUE  look up translate image
Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.
BOOTSTRAPPING  look up translate image
Means of financing a small firm by employing highly creative ways of using and acquiring resources without raising equity from traditional sources or borrowing money from the bank.
BRIDGE FINANCING  look up translate image
A limited amount of equity or short-term debt financing typically raised within 6-18 months of an anticipated public offering or private placement meant to "bridge" a company to the next round of financing.
BRIDGE LOAN  look up translate image
a kind of short-term financing that allows a company to continue running until it can arrange longer-term financing. Companies sometimes seek this because they run out of cash before they receive long-term funding; sometimes they do so to strengthen their balance sheet in the run up to flotation.
BRIDGE LOANS  look up translate image
bridge loan is a short-term loan that is used until a person or company can arrange a more comprehensive longer-term financing. The need for a bridge loan arises when a company runs out of cash before it can obtain more capital investment through long-term debt or equity.
A type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A's preferred stock is re-priced to a weighed average of investor A's price and investor B's price. A broad-based ratchet uses all common stock outstanding on a fully diluted basis (including all convertible securities, warrants...(more)
BURN OUT / CRAM DOWN  look up translate image
Extraordinary dilution, by reason of a round of financing, of a non-participating investor's percentage ownership in the issuer.
BURN RATE  look up translate image
the rate at which a start-up uses its venture capital funding before it begins earning any revenue.
BUSINESS ANGELS  look up translate image
individuals who provide seed or start-up finance to entrepreneurs in return for equity. Angels usually contribute a lot more than pure cash:they often have industry knowledge and contacts that they can pass on to entrepreneurs. Angels sometimes have non-executive directorships in the companies they invest in.
BUSINESS DEVELOPMENT COMPANY (BDC)  look up translate image
A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.
BUSINESS JUDGMENT RULE  look up translate image
The legal principle that assumes the board of directors is acting in the best interests of the shareholders unless it can be clearly established that it is not. If the board was found to violate the business judgment rule, it would be in violation of its fiduciary duties to the shareholders.
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Glossary of Private Equity and Venture Capital terms
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Created by admin
Created on 2012-11-07 04:18:36
Number of terms 415
Last added vulture capitalist by admin
2012-11-07 04:33:25
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