Learn The Lingo Of Private Equity Investing

Late stage venture tends to be financing into companies already backed by VCs. Family office An entity that provides services to one or more affluent families, including investment management and other services (accounting, tax, financial and legal advice etc.). A fund that invests all its committed capital, but holds onto investments longer than normal to continue collecting management fees. A security that gives the holder the option to purchase a company’s stock at a predetermined price for a specified period. A state-owned investment fund designed to protect and/or grow a range of financial assets, including stocks, bonds and natural resources. The amount of committed capital that has been transferred from the limited partner to the general partner. There is no universal definition of net debt, which makes its definition in a LOI and SPA paramount.

Specific property-type subindices include apartment, office, retail, industrial and hotel; regional subindices include West, East, South and Midwest. Market valueThe highest price a property would command in a competitive and open market under all conditions requisite to a fair sale. Market studyA forecast of future demand for a certain type of real estate project that includes an estimate of the square footage that can be absorbed and the rents that can be charged. Magic pageIncluded in the offering prospectus, the magic page is a projected growth story, describing how a new REIT will accomplish its future expectations for funds from operations or funds available for distribution. Joint ventureAn investment entity formed by one or more entities to acquire or develop and manage real property and/or other assets. Investment policyA document that formalizes an institution’s guidelines for investment and asset management. IndexA collection of unmanaged securities whose total financial or economic performance is used as a point of reference, such as the S&P 500 or the Consumer Price Index.

Private Equity Glossary Primer 101

Accrued but unpaid dividends are sometimes convertible into shares of Common Stock. Means the number of shares of Common Stock into which each share of Preferred Stock is convertible. First investor in a fund; can be also referred to as the lead investor. The size of the round that is set aside for a specific investor , usually communicated in a dollar amount. This different approach hugely affects risk, ambition, deal structure and outcomes for entrepreneurs.

private equity glossary

In its simplest form, this is a type of loan finance that sits between equity and secured debt. Because the risk with mezzanine financing is higher than with senior debt, the interest charged by the provider will be higher than that charged by traditional lenders, such as banks. However, equity provision- through warrants or options – is sometimes incorporated into the deal. Incubator– An entity designed to nurture business ideas or new technologies to the point that they become attractive to venture capitalists.

Bull Market

General Partner ContributionThe amount of capital that the fund manager contributes to its own fund in the same way that a limited partner does. This is an important way in which limited partners can ensure that their interests are aligned with those of the general partner. Department of Treasury has removed the legal requirement of the general partner to contribute at least 1 percent of fund capital. A 1 percent general partner contribution remains standard practice, particularly among venture capital funds. General Partner ClawbackThis is a common term of the private equity agreement. Gatekeepers usually offer tailored services according to their clients’ needs, including private equity fund sourcing and due diligence through to complete discretionary mandates. AcquisitionThe establishment of control in one business entity by another, often with the assistance of private equity.

When investment banks issue debt and equity securities on behalf of corporations and governments to generate investment capital. The value of all remaining investments in a fund plus the value of all distributions relative to the amount limited partners have contributed to the fund. When one limited partner sells its alternative investments to another limited partner. Limited partners do this for a variety of reasons, including to adjust their asset allocation. The value of all remaining investments in a fund relative to the amount limited partners have contributed the fund. An investment strategy that involves restructuring a company’s debt and equity mixture. As seed-stage investing has become more popular, investors have started to invest in companies at this stage in the hopes of finding them early on.

Alternative Investment Vehicles Aivs

WorkoutThe process by which a borrower attempts to negotiate with a lender to restructure the borrower’s debt rather than go through foreclosure proceedings. Weighted-average rental ratesThe average proportion of unequal rental rates in two or more buildings within a market. Weighted-average couponThe weighted average of the gross interest rates of the mortgages underlying a pool as of the issue date, with the balance of each mortgage used as the weighting factor. Waiting periodThe time between the initial filing of a registration statement and its effective date. Vacancy rateThe total amount of available space compared to the total inventory of space and expressed as a percentage. Triple net leaseA lease that requires the tenant to pay all expenses of the property being leased in addition to rent.

Weighted average life – measures the weighted average of the maturities of the portfolio’s individual holdings. Variable Net Asset Value MMF – a MMF qualifying and authorised as a VNAV MMF in accordance with MMF Regulation in which shares are issued or redeemed at a price that is equal to the Fund’s Net Asset Value per Share. U.S. non-high-yield industrial bonds are non-high-yield bonds issued by companies that manufacture or distribute goods, and that are domiciled in the U.S. U.S. high-yield industrial bonds are high-yield bonds issued by companies that manufacture or distribute goods, and that are domiciled in the U.S.

Annual Strategy Presentation

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. The return on equity amount is calculated by dividing the common stock equity at the beginning of a period into the net income for the period after preferred stock dividends but before common stock dividends. A private equity fund formed by another type of financial institution which raises money from outside investors.

private equity glossary

If reinvestment is done within 60 days, there are no tax consequences. Investment MultipleCalculation performed by adding the reported value and the distributions received and subsequently dividing that amount by the total capital contributed. Intellectual PropertyA venture’s intangible assets, such as patents, copyrights, trademarks, and brand name. Initial Investment DateThe date a fund completed its first contribution of capital to an underlying holding. GAAP is a combination of authoritative standards set by standard-setting bodies as well as accepted ways of doing accounting. Fund AgeThe age of a fund from its first takedown to the time an IRR is calculated. Fully Diluted Earnings Per ShareEarnings per share expressed as if all outstanding convertible securities and warrants have been exercised. Founders’ SharesShares owned by a company’s founders upon its establishment. Form S-1The form can be used to register securities for which no other form is authorized or prescribed, except securities of foreign governments or political sub-divisions thereof. Expansion FinancingCapital provided to a company to facilitate its growth and development objectives.

Hurdle rates can be either a “hard hurdle” or “soft hurdle.” A hard hurdle means that the manager only receives performance compensation that exceeds the hurdle rate. A soft hurdle means that no performance compensation is received if performance falls short of the soft hurdle rate, but once the soft hurdle rate is exceeded, the manager is entitled to the entire performance compensation. A capital account is an account on the company’s books that shows the owner’s net investment in the company. It is calculated by taking the capital contribution of the owner, adding the owner’s share of company profits, and then subtracting the owner’s share of company losses in addition to the distributions or returns of capital.

  • Free cash flow yield ratio is calculated by using the underlying securities of the fund.
  • After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock.
  • IndexA collection of unmanaged securities whose total financial or economic performance is used as a point of reference, such as the S&P 500 or the Consumer Price Index.
  • KPIs depend on a specific company’s strategic and operational goals.
  • A portfolio with a low number of holdings or with high weightings to its largest holdings.

There are multiple exit routes, including Acquisition, Company Buyback, Initial Public Offering, Secondary Purchase and Write-off. Dollar-weighted A misleading term when compared with time-weighted returns. Simply the calculation of the IRR of a series of fund cashflows, i.e., private equity glossary the compound return over time. THis is the classic measure of private equity returns, and is to be comended. Great care should be taken not to confuse this measure with time-weighted returns which, contrary to first impressions, actually means something completely different .

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When the acquisition debt is transferred to the operating company rather than the company that generates the operating cash flow, if such a distinction exists. When a corporation has a venture capital team that invests in early-stage companies that align with the corporation’s goals. A group of individuals selected to represent stockholders with regard to company policies or significant company decisions. VC and PE investors will often place executives on the boards of their portfolio companies. Voting RightThe common stockholders’ right to vote their stock in the affairs of the company.

private equity glossary