Acquisition 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.
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Angel Investors Individuals that provide venture capital to seed or early stage companies.. Business angels can usually add value
through their contacts and expertise.
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Benchmarks Benchmarks 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 its benchmarks, thus compensating
the investor for the delay of his return.
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Bridge Loans Bridge Loans are short-term financing agreements that fund a company's operations until it 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.
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Buyout Funds
provided to enable an enterprise to acquire another enterprise or product line or business.
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Capital Gain When an investor sells a stock, bond or mutual fund at a higher price than he or she paid for it.
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Capital Under Management The amount of capital available to a management team for venture investments.
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Closing The
final event to complete the investment, at which time all the legal documents are signed and the funds are transferred.
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Corporate Venturing The practice of a large company taking a minority equity position in a smaller company in a related field.
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Debt Financing Money that business owners must pay back with interest. There are myriad types of debt financing, 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.
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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.
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Equity Financing Selling an interest in your business to an outside party to raise money.
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Equity Offerings Raising funds by offering ownership in a corporation through the issuing of shares of a corporation's common
or preferred stock.
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Executive Summary Executive Summary refers to a synopsis of the key points of a business plan.
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Exit The
sale or exchange of a significant amount of company ownership for cash, debt, or equity of another company.
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Exit Route The method by which an investor will realize an investment.
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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 investment.
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Fund Of Funds An investment vehicle designed to invest in a diversified group of investment funds.
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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. endowment funds, foundations etc.).
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IPO (Initial Public Offering) Issue of shares of a company to the public by the company (directly) for the first time.
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IRR Compound
Internal Rate of Return.
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Lead Investor The investor who leads a group of investors into an investment. Usually one venture capitalist will be the lead
investor when a group of venture capitalists invest in a single business
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Leveraged 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.
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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.
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Liquidation The sale of the assets of a portfolio company to one or more acquirors when venture capital investors receive
some of the proceeds of the sale.
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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 the lock-up period is determined by the underwriters.
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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.
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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.
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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.
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Minority Enterprise Small Business Investment Companies (MESBICS)
MESBICs (Minority Enterprise Small Business Investment Companies)
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 persons recognized by the rules that govern MESBICs to be "economically disadvantaged."
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PIPE Private
Investment in Public Equity.
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Portfolio company The company or entity into which a fund invests directly.
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Private Equity Private equities 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.
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Raising Capital It refers to obtaining capital from investors or venture capital sources.
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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.
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Return On Investment (ROI) The internal rate of return on an investment.
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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.
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Secondary Purchase Purchase of stock in a company from a shareholder, rather than purchasing stock directly from the company.
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Seed Capital Money used to purchase equity-based interest in a new or existing company. A venture capitalist's return usually
comes from preferred stock, a share of profits, royalties or capital appreciation of common stock. Most venture capitalists
look for companies with high growth potential.
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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.
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Small Business Investment Companies (SBIC) SBICs (Small Business Investment Companies) 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 businesses or invest only in
specific industries. The majority, however, are organized to make venture capital investments in a wide variety of businesses.
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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.
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Term Sheet A non-binding agreement setting forth the basic terms and conditions under which an investment will be made.
The Term Sheet is a template that is used to develop more detailed legal documents.
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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.
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Venture Capital Money used to purchase equity-based interest in a new or existing company. A venture capitalist's return usually
comes from preferred stock, a share of profits, royalties or capital appreciation of common stock. Most venture capitalists
look for companies with high growth potential. |