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Venture Capital, Private Equity And M&a Glossary

Gross absorption is a measure of the total square feet leased over a specified period with no consideration given to space vacated in the same geographic area during the same time period. Net absorption is equal to the amount occupied at the end of a period minus the amount occupied at the beginning of a period and takes into consideration space vacated during the period. Our glossary of industry terms is one of the most visited sections of our website. The glossary covers commercial real estate terms and financial market terms, as well as terms specific to the institutional real estate world. The seed round is the first official round of financing for a startup. At this point a company is usually raising funds for proof of concept and/or to build out a prototype and is referred to as a «seed stage» company. Startups raise capital from VC firms in individual rounds, depending on the stage of the company. The first round is usually a Seed round followed by Series A, B, and C rounds if necessary. In rare cases rounds can go as far as Series F, as was the case with Box.net.

Deal StructureAn Agreement made between the investor and the company defining the rights and obligations of the parties involved. The process by which one arrives at the final term and conditions of the investment. Cumulative Preferred StockA stock having a provision that if one or more dividend payments are omitted, the omitted dividends must be paid before dividends may be paid on the company’s common stock. Co-Sale Provisions or RightsAllows investors to sell their shares of stock in the same proportions and for the same terms as the founders, managers, or other investors, should any of those parties receive an offer. Carried InterestA bonus entitlement accruing to an investment fund’s management company. Carried interest becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate, if applicable. Angel FinancingCapital raised for a private company from independently wealthy investors. A RoundA financing event whereby venture capitalists invest in a company that was previously financed by founders and/or angels.

Private Equity Glossary

The analysis of esoteric factors such as market liquidity and investor behaviour, and how they influence security prices. This contrasts with fundamental analysis, which looks at factors such as corporate health and the quality of management teams. The risk that the performance of an investment will move more than private equity glossary three standard deviations away from the mean suggested by a normal distribution curve. These are considered events that have a small probability of occurring, but which could have a significant effect on performance were they to arise. A statistic that measures the variation or dispersion of a set of values/data.

In practice, this will be equal to the amount of called capital less amounts which have been used to pay fees, or which are awaiting investment. Tag-Along Rights / Rights of Co-SaleA minority shareholder protection affording the right to include their shares in any sale of control and at the offered price. Rule 144Rule 144 provides for the sale of restricted stock and control stock. Filing with the SEC is required prior to selling restricted and control stock, and the number of shares that may be sold is limited. Reverse Leveraged BuyoutsThe act of offering new, publicaly-traded shares in a firm that was previously taken private through a buyout transaction. Regulation DRegulation D, is the rule (Reg. D is a «regulation» comprising a series of «rules») that allow for the issuance and sale of securities to purchasers if they qualify as accredited investors. Pooled IRRA method of calculating an aggregate IRR by summing cash flows together to create a portfolio cash flow. Poison PillA right issued by a corporation as a preventative antitakeover measure. It allows rightholders to purchase shares in either their company or in the combined target and bidder entity at a substantial discount, usually 50%.

Emerging Manager Spotlight: Mac Conwell Of Rarebreed Ventures

A bridge loan is a short term loan that is used while a person or company gets permanent financing or removes an existing financial obligation. These are short term loans backed by collateral, typically the underlying property in the context of real estate, and have relatively high interest rates while providing immediate cash flow. There are some financial technicalities around carried interest that are a bit beyond the scope of this entry. Markov Processes International published a report with a visualization of the relative share of different asset classes in several top university endowments.

  • Stock distributions are valued as of the date of the distribution by the general partner.
  • A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws.
  • A Put allows one to liquidate an investment in the event an IPO or public merger becomes unlikely.
  • VC and PE investors will often place executives on the boards of their portfolio companies.

A debt obligation issued by a seller of a business to a buyer and used by the buyer to finance a portion of the purchase price. Amortization is usually over five years or, in some cases, a lump sum or bullet payment at maturity. A trust account established during the sale of a business and held by a third-party . Typically represents 10–15% of the purchase price with a term of 12–24 months. Established to protect the buyer of a business from the sellers’ breach of representations and warranties or covenants of a business sale. Reflects all claims on the business by all parties including equity holders and debt holders. A bond issued by a municipality (city, township, etc.) or agency of a municipality. Munis are usually exempt from federal income taxes and state taxes for taxpayers residing in the issuing state . Therefore, municipal bonds may be good investments for investors who pay high marginal income tax rates.

General Partners Gps

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. Like most other alternative investments, private equity compensation structures can be complicated and usually include clauses. Two of the main types of clauses are the preferred return provision and the clawback provision. The preferred return, or hurdle rate, is basically a minimum annual return that the limited partners are entitled to before the general partners may begin receiving carried interest. Limited partners are usually institutional or high-net-worth investors interested in receiving the income and capital gains associated with investing in a private equity fund. They are protected from losses beyond their original investment as well as any legal actions taken against the fund. A type of financing for companies that are already trading on the public market. Rather than having a secondary public offering to auction new shares in a company, an investment banker is hired to raise money from private individuals or investment funds to fund the company in a single transaction. Ratchets –This is a structure that determines the eventual equity allocation between groups of shareholders. A ratchet enables a management team to increase its share of equity in a company if the company is performing well.
private equity glossary
Usually, however, the more desirable outcome is a reorganization, which allows the company to emerge from bankruptcy protection. Mezzanine level financing can take the structure of preferred stock, convertible bonds or subordinated debt. Market CapitalizationThe total dollar value of all of a company’s outstanding shares. It is calculated by multiplying the number of outstanding shares times the current market share price and is often referred to as market cap. Prior to an IPO, market private equity glossary capitalization is arrived at by estimating a company’s future growth and by comparing a company with similar public or private corporations.

Net Asset Value Nav

It represents the tenant’s pro-rata share of the building’s common areas and can determine the square footage upon which the tenant will pay rent. The inverse describes the proportion of space that an occupant can expect to actually use. Renewal probabilityUsed to estimate leasing-related costs and downtime, it is the average percentage of tenants in a building that are expected to renew at market rental rates upon the expiration of their leases. REMIC A product of the Tax Reform Act of 1986, REMICs are designed to hold a pool of mortgages for the exclusive purpose of issuing multiple classes of mortgage-backed securities in a way that avoids a corporate double tax.
private equity glossary
Depending on the fund’s preference, the limited partners will either receive stock or cash at the time of exit. Internal rate of return – This is the most appropriate performance benchmark for private equity investments. In simple terms, it is a time-weighted return expressed as a percentage. IRR uses the present sum of cash drawdowns , the present value of distributions and the current value of unrealised investments and applies a discount. Gatekeeper– Specialist advisers who assist institutional investors in their private equity allocation decisions.

Venture Capital Terms

Convertible debtA mortgage position that gives the lender the option to convert to a partial or full ownership position in a property within a specified time period. Capitalization rateThe rate at which net operating income is discounted to determine the value of a property. It is the net operating income divided by the sales price or value of a property expressed as a percentage. Blind poolA commingled fund accepting investor capital private equity glossary without prior specification of property assets. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points and other credit costs paid to the lender. AdviserA broker, consultant or investment banker who represents an investor in a transaction. Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.

Vendor debt is typically unsecured and subordinated to junior and senior debt, but senior to shareholder loans and equity. Sale and purchase of interests in a PE fund or sale and purchase of equity stakes in PE-backed companies . Non-bank lending from institutional investors (e.g., funds and insurance companies). Investing in an LF provides retail investors with returns through both share price appreciation and dividends. An ESOP sets aside a percentage of shares in a company to non-founder/owner employees in the form of stock options to attract, reward and retain talent. Acquiring stakes in the debt obligations of distressed companies to generate returns through the appreciation of the debt or an eventual restructuring of the target company. Co-investment funds are vehicles set up by the GP to invest alongside the primary and parallel funds for a portion of a single investment.
Previously, the Global Investment Performance Standards required that the following ratios be present when private equity firms present their performance to prospective investors. GIPS has changed the form that PE firms use to report their financial data, however, these multiples are still common terms used by the private equity industry. Independent private equity firm investing capital raised from limited partners. LPs participate in PE funds as passive investors with no involvement in the fund’s day-to-day operations, with an individual LP’s liability limited to the capital committed to the fund. Portfolio– A private equity firm will invest in several companies, each of which is known as a portfolio company. The spread of investments into the various target companies is referred to as the portfolio. A company that has received an investment from a venture capital or private equity firm.