Private Capital Markets

private equity glossary

Asset Class Capabilities

These companies are also referred to as investee companies or, pre-investment, as target companies. Investment vehicles through which investors make “soft commitments” to the fund prior to its investments being identified. Investors are given the right to “opt in” to (or “opt out” of) each investment opportunity that the manager of the fund presents. Net debt is arrived at by subtracting the value of a company’s liabilities from the value of its liquid assets. The main components of net debt are interest-bearing bank borrowings and cash. Which additional elements of debtlike liabilities and cash equivalents will be included in net debt is often the subject of intense negotiation. The preferred return to investors before a carried interest is permitted.

private equity glossary

The preferred return often provides the preferred partner with an 8% annual return on their investment before the and common partners and general partners can receive any of their interest. In contrast to a common partner, preferred shares are paid out first, but with private equity glossary less potential profit. Mezzanine Loan Mezzanine loans rank above equity loans in the capital stack and below the bank or senior debt. Limited partner LP Multiple investors in a limited partnership, as distinct from the general partner, who manages the investment.

A group of investors that agree to participate in an investment round of funding for a company. The right of investors to have the company provide financial information annually, quarterly or monthly and other information as requested by investors. Under Delaware law, a stockholder has the right to inspect and make copies of the corporation’s information, including their stock ledger, a list of stockholders, and its books and records. However, such a demand must be for a “proper purpose”, which means a purpose private equity glossary reasonably related to the person’s interest as a stockholder. The act of publicly soliciting investors, usually through advertising or any other non-controlled method of a public offering. If a company or issuer engages in public solicitation, it may eliminate certain safe harbors that were previously afforded to them under current securities regulation. The right of the investor to convert shares of Preferred Stock into shares of Common Stock at the Conversion Rate stated in the corporate charter.

Unit Investment Trusts (uits)

An agreement in which a lender sets out the terms on which it is prepared to lend money to the borrower. In an LBO, this letter is typically addressed to a buyout fund’s acquisition vehicle private equity glossary by the lead arranger of an LBO’s debt financing. Securing a debt commitment letter is often required before a seller will sign an SPA to provide funding certainty for the seller.

The investment multiple is also known as the total value to paid-in multiple. It is calculated by dividing the fund’s cumulative distributions and residual value by the paid-in capital. It provides insight into the fund’s performance by showing the fund’s total value as a multiple of its cost basis. Debt provided by a target’s sellers, essentially rolling a portion of seller proceeds back into the target company.

Vendor debt is typically unsecured and subordinated to junior and senior debt, but senior to shareholder loans private equity glossary and equity. A PE fund will invest in a limited number of companies that represent its portfolio of companies.

private equity glossary

In contrast to a preferred partner, common shares are paid out last, but with more potential profit. Bridge Financing Short term capital provided by investors until the next round of capital raise. Commonly structured as convertible debt or as Simple Agreements for Future Equity -SAFE. Well, now that you know the actors in this play and the processes they carry out, it is time for you to private equity glossary learn the documents and organization that you will need to have in order to raise investments and manage your business. Bonds with the lowest claim on the cash flows and assets of the firm. Guarantee of a fixed price offered by an investment banker in a public offering of securities. The owner is entitled to the earnings and cash flows of the division, and the stock trades on that basis.

Committee On Uniform Securities Identification Procedures (cusip)

Management fees tend to run in the 1.5 per cent to 2.5 per cent range, and often scale down in the later years of a partnership to reflect the GP’s reduced workload. The management fee is not intended to incentivise the investment team –carried interestrewards managers for performance.

Funds provided for the major growth expansion of a company whose sales volume is increasing and which is breaking even or profitable. These funds are utilized for further expansion, marketing and working capital or development of an improved product. A private equity fund sponsored by a state government which is set up to finance promising companies located within the respective state. A measure of how much of the investors’ invested capital is still tied up in the equity of the fund. The date on which the Limited Partner made its first investment in private equity or other asset class. Advisory firms specializing in private equity investment deals, or a firm that manages Fund of Funds. A company that has not yet received any private equity financing.

Computed as the change in income divided by the change in equity or capital invested. The investor or investors most likely to be involved in the next trade on the securities issued by a firm. Securities that share some characteristics with debt and some with equity. Investments yet to be made by the firm; often markets will incorporate their expectation of the value of these assets into the market value. A cash flow that occurs at regular interval and grows at a constant rate for a specified period of time. The difference between the market value of an acquired firm and the book value of its assets; arises only when purchase accounting is used in an acquisition.

Rights of an investor or shareholder relating to control over the company’s affairs. Common stock is most frequently issued to founders, management, and employees. In a liquidation event, preferred shares generally take priority over common shares. When a private equity glossary fund makes an investment and messages the LPs to put capital into the fund account to invest in the portfolio companies. A venture capitalist is an investor who provides capital to firms that exhibit high growth potential in exchange for an equity stake.

Multiple Of Money Invested (mom)

When investment banks issue debt and equity securities on behalf of corporations and governments to generate investment capital. The amount private equity firms charge the companies they acquire (typically between 1% and 2%). When a general partner sells equity in an asset and returns capital to its limited partners.

  • You should consider that you may not have immediate access to the money you invest for an indefinite period of time.
  • Even if any such market were to develop, closed-end fund shares trade frequently at a discount from net asset value, which creates a risk of loss for investors purchasing shares in the initial public offering.
  • An investment in the Fund represents an indirect investment in the securities owned by the Fund.
  • An investment in the Fund is generally subject to market risk, including the possible loss of the entire principal amount invested.
  • It’s a type of investor that typically invests in private, early-stage companies.
  • An investment in our shares is not suitable for you if you need immediate access to the money you invest.

Option Pool shares are usually considered to be outstanding shares when calculating the company’s valuation. The clause in a term sheet that states to the founder they are not to share the term sheet with other investors in order to receive a competing offer. The etiquette in venture is to give founders about a week or less for a decision on a term sheet to limit the time founders have to unofficially ‘shop around’ the deal. The memorandum of understanding is a common agreement between startups who are pre-product and potential customers to define commitment, interest, terms, and pricing in writing prior to delivering the good or service. LOI and MOU agreements are used interchangeably and usually non-binding. At times the MOU is used in partnerships to define working relationships where no financial exchange is yet made. This document is usually also used to clarify understanding of both the customer and founder and often used to show investors.

Information About Some Companies Not Available From The Sec

Leveraged buy-out – The acquisition of a company using debt and equity finance. As the word leverage implies, more debt than equity is used to finance the purchase, eg 90 per cent debt to ten per cent equity.

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