Venture Capital

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Venture Capital

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secondary public offering: This refers to a public offering subsequent to an initial public offering. A secondary public offering can be either an issuer offering or an offering by a group that has purchased the issuer's securities in the public markets.
management buy-in (MBI): Purchase of a business by an outside team of managers who have found financial backers and plan to manage the business actively themselves.
capital gain: When an investor sells a stock, bond or mutual fund at a higher price than he or she paid for it.
benchmarks: These are performance goals against which a company's success is measured. Often, they are used by investors to help determine whether a company will receive additional funding or whether management will receive extra stock. Sometimes management will agree to issue more stock to its investors if the company does not meet these, thus compensating the investor for the delay of his return.
fund of funds: An investment vehicle designed to invest in a diversified group of investment funds.
capital under management: The amount of this available to a management team for venture investments.
exit: The sale or exchange of a significant amount of company ownership for cash, debt, or equity of another company.
buyout: Funds provided to enable an enterprise to acquire another enterprise or product line or business.
institutional investors: It refers mainly to insurance companies, pension funds and investment companies collecting savings and supplying funds to markets, but also to other types of institutional wealth (e.g. endowments funds, foundations etc.).
recapitalization: The reorganization of a company's capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility.
private equity: These are equity securities of companies that have not "gone public" (in other words, companies that have not listed their stock on a public exchange). Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. In addition, there are many transfer restrictions on private securities. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a recapitalization.
small business investment companies (SBIC): These are lending and investment firms that are licensed by the federal government. The licensing enables them to borrow from the federal government to supplement the private funds of their investors. Some of these funds engage only in making loans to small business or invest only in specific industries. The majority, however, are organized to make venture capital investment in a wide variety of businesses.
bridge loans: These are short-term financing agreements that fund a company's operation until it can arrange a more comprehensive longer-term financing. The need for these arises when a company runs out of cash before it can obtain more capital investment though long-term debt or equity.
liquidation: the sale of the assets of a portfolio company to one or more acquirers when venture capital investors receive some of the proceeds of the sale.
equity financing: Selling an interest in your business to an outside party to raise money.
lock-up period: the period an investor must wait before selling or trading company shares subsequent to an exit. Usually in an initial public offering this period is determined by the underwriters.
equity offerings: Raising funds by offering ownership in a corporation through the issuing of shares of a corporation's common or preferred stock.
syndication: The process whereby a group of venture capitalists will each put in a portion of the amount of money needed to finance a small business.
executive summary: This refers to a synopsis of the key points of a business plan.
return on investment (ROI): the internal rate of return on an investment.
debt financing: Money that business owners must pay back with interest. There are myriad types of these, from simple commercial loans to bridge/swing loans in which a lender makes a short-term loan in anticipation of equity financing at a later stage in the development of a business.
IPO(initial public offerings): Issue of shares of a company to the public by the company (directly) for the first time.
minority enterprise small business investment companies (MESBICS): These are government-chartered venture firms that can invest only in companies that are at least 51 percent owned by members of a minority group or person recognized by the rules that govern this to be economically disadvantaged.
follow-on: A subsequent investment made by an investor who has made a previous investment in the company, generally a later stage investment in comparison to the initial investments.
closing: the final event to complete the investment, at which time all the legal documents are signed and the funds are transferred.
IRR: Compound internal rate of return.
secondary purchase: Purchase of stock in a company from a share holder, rather than purchasing stock directly from the company.
angel investors: Individuals that provide venture capital to seed or early stage companies. They can usually add value through their contracts and expertise.
lead investor: The investor who leads a group of investors into an investment. Usually one venture capitalist will be this when a group of venture capitalists invest in a single business.
due diligence: The investigation and evaluation of a management team's characteristics, investment philosophy, and terms and conditions prior to committing capital to the fund.
exit route: the method by which an investor will realize an investment.
private investment in public equities (PIPE): Investments by a private equity fund in a publicly traded company, usually at a discount.
term sheet: A non-binding agreement setting forth the basic terms and conditions under which an investment will be made. This is a template that is used to develop more detailed legal documents.
corporate venturing: the practice of a large company taking a minority equity position in a smaller company in a related field.
portfolio compnay: The company or entity into which a fund invests directly.
leverage buy-out(LBO): An acquisition of a business using mostly debt and a small amount of equity. The debt is secured by the assets of the business.
turnaround: This word is used to describe businesses that are in trouble and whose management will cause the business to become profitable so they are no longer in trouble.
series a preferred stock: The first round of stock offered during the seed or early stage round by a portfolio company to the venture investor or fund. This stock is convertible into common stock in certain cases such as an IPO or the sale of the company. Later rounds of preferred stock in a private company are called Series B, Series C and so on.
raising capital: this refers to obtaining capital from investors or venture capital sources.
going private: The repurchasing of all of a company's outstanding stock by employees or a private investor. As a result of such an initiative, the company stops being publicly traded. Sometimes, the company might have to take on significant debt to finance the change in ownership structure.
limited partnerships: the legal structure used by most venture and private equity funds. Usually fixed life investment vehicles. The general partner or management firm manages the partnership using policy laid down in a partnership agreement. The agreement also covers, terms, fees, structures and other items agreed between the limited partners and the general partner.
mezzanine financing: Financing for a company expecting to go public usually within 6-12 months; usually so structured to be repaid from proceeds of a public offerings, or to establish floor price for public offer.
management buy-out (MBO): Funds provided to enable operating management to acquire a product line or business, which may be at any stage of development, from either a public or private company.
acquisition: The act of one company taking over controlling interest in another company. Investors often look for companies that are likely candidates for this, because the acquiring firms are often willing to pay a premium to the market price for the shares.

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