Glossary of Professional Investment Terms

 
  • Accelerator
    A program that start-ups can apply to that provides funds and mentorship, most times for a chunk of equity, in an effort to help the company grow. Most accelerators are geared towards helping early-stage companies.
  • Accredited Investor
    A category of investors who are deemed sophisticated and meet certain net worth requirements outlined by the SEC. These investors have less need for the protection provided by registration under securities laws.
  • Add-On/Bolt-On
    A private equity transaction where the acquired company is “added on” to an existing portfolio company. In add-on deals, the acquiring company is called the “platform” and the private equity firm is referred to as the “sponsor.” (Bolt-on is often the preferred term in Europe).
  • AFSL
    An Australian Financial Services Licence (AFSL) is a licence for any Australian businesses involved in the provision of financial services. It is issued by the Australian Securities and Investments Commission (ASIC) as required by the Corporations Act 2001.
  • Alternative Investment
    A broad term for untraditional assets such as private equity, venture capital, hedge funds and real estate.
  • Anchor Partner
    The first limited partner to commit to a fund..
  • Angel
    An individual who makes direct investments into early stage businesses. Due to the nascent characteristics of these companies, angel investing is a high-risk, high-reward endeavour..
  • Asset Allocation
    Describes the general mix of investments in a portfolio determined by investing timeframe, risk tolerance and overall goals.
  • Asset-based Lending
    Any form of lending to a business that is collateralized or secured by a balance sheet asset. Pledged assets may include inventory, equipment and accounts receivable, among others, that will be redeemed in the event of default by the debtor.
  • Benchmarking
    The process of comparing the returns of a portfolio against a group of its peers..
  • Block Trade
    A block trade involves a significantly large number of equities or bonds being traded at an arranged price between two parties, sometimes outside of the open markets, to lessen the impact on the security price.
  • Board of Directors
    The group of individuals selected to represent shareholder with regard to company policies and company decisions. PE or VC investors will often place executives on the Board of a portfolio company as part of an investment.
  • Book Runner
    The main entity responsible for the collation of bids and the issuance of new equity, debt, and other securities.
  • Book Building
    Book Building is a systematic process of generating, capturing, and recording investor demand for new equity, debt, and other securities during a capital raising including an IPO in order to support efficient price discovery.
  • Break-Up Fee
    A fee paid by the seller if it breaches or decides to terminate a definitive acquisition agreement.
  • Bridging Loan
    A temporary, limited amount of financing that serves as a “bridge” until a long-term debt or equity investment can be secured.
  • Brownfield
    An investment in an existing asset, land or structure that typically requires repairs, upgrades and expansion.
  • Burn rate
    A time-based metric reflecting how quickly a company spends its operating capital/shareholder equity. Burn rates are typically calculated over annual or monthly periods, and in extreme cases can be calculated on a weekly or daily basis.
  • Business Development Company (BDC)
    A closed-end investment company created to invest in both the debt and equity of small and medium-sized businesses; investments can be made in both public or private entities. Whilst similar to VC funds, many BDCs are actually publicly traded and allow for smaller, non-accredited investors to back start-ups via purchased shares in the BDCs directly investing in said entities.
  • Buyer Member
    A person who has completed an agreement or agreements with PrimaryMarkets that in doing so, qualified that person as a Buyer Member of PrimaryMarkets, and includes any Related Body Corporate, any Related Person any Related Entity or associate of any of the foregoing persons.
  • Buyout
    A private equity transaction in which a firm acquires all or a significant amount of equity in a business. Buyouts typically involve a mixture of cash and debt, which has led to the term "leveraged buyout".
  • Capital Call
    The act of a private equity fund “calling down” previously pledged capital from its limited partners in order to execute an investment.
  • Capital Overhang
    The current amount of capital available to private equity investors.
  • Capital Raising
    A live Offer of two types of capital that a company can use to fund operations (debt and equity).
  • Carried Interest
    A general partner’s share of the capital gains from a fund, generally 20%. Most limited partnerships include a provision that allows the general partner to receive carry only after the limited partners have achieved a preferential rate of return on their original commitment.
  • Carveout
    A transaction in which a parent company sells all or part of a subsidiary, division or other portion of its operations.
  • Closed Fund
    A private equity fund that has finished taking commitments from limited partners and held its "final close".
  • Co-Investment
    A direct investment from a limited partner into a portfolio company executed in conjunction with the general partner.
  • Convertible Debt
    Debt that can be converted to equity based on certain conditions, typically a pre-defined valuation or date. Convertible debt usually includes compensation, most likely options/warrants or discounts, in addition to the round amount.
  • Convertible Note
    See Convertible Debt.
  • Corporate Acquisition
    The purchase of a portfolio company by a corporation for strategic purposes.
  • Corporate Venture Capital
    Corporations can have a venture capital team that looks to invest in companies that may align with the parent company’s goals. Often times these investments lead to partnerships between the investor and the company raising money.
  • Club Deal
    A private equity transaction involving two or more firms.
  • Crowd Funding
    The process of funding a venture by raising small amounts of capital from a large number of people (the crowd), usually through an online platform.
  • Data Room
    A secure, digital location where potential investors can review confidential information on a target company, including financial statements, compensation agreements, intellectual property and client contracts.
  • Deal Flow:
    A measure of the volume of transactions that have closed in a given period.
  • Debtor
    A company or individual who owes money. If the debt is in the form of a loan from a financial institution, the debtor is referred to as a borrower, and if the debt is in the form of securities, such as bonds, the debtor is referred to as an issuer.
  • Disbursement
    Investments made by private equity funds into their portfolio companies.
  • Distressed Investment
    A debt or equity investment into a company experiencing liquidity and/or underperformance issues.
  • Distributed to Paid-In (DPI)
    Money returned (distributions) to limited partners divided by money paid in to the partnership. Also called cash-on-cash multiple.
  • Distribution
    The act of returning capital back to limited partners following a liquidity event.
  • Dividend Recapitalisation
    A specialised type of recapitalisation in which a portfolio company takes on new debt in order to issue distributions to the securityholders.
  • Dragon
    A single investment that returns the entire value of the fund.
  • Drawdown Rate
    the speed with which a general partner calls down the capital previously committed by its limited partners.
  • Dry Powder
    See Capital Overhang.
  • Due Diligence
    The process of vetting, analysing and assessing companies and investment opportunities prior to engaging in a transaction.
  • Early Stage
    A period of venture capital investment in-between seed and late stage deals that includes Seed, Series A and Series B financings. These companies typically have a proven concept and little revenue.
  • Earnout Provisions
    Part of a contract that details future compensation for the seller if the business attains certain performance goals.
  • EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation)
    A cash flow measurement that takes revenue less expenses without including interest, taxes, depreciation and amortisation.
  • Equity Capital Raise
    Equity Capital Raise is generated by the sale of shares of stock of an enterprise or the sale of an ownership interest to raise funds for business purposes.
  • Enterprise Value (EV)
    A measure of a company’s value calculated as market capitalisation including all debt and equity interests minus excess cash.
  • Evergreen Fund
    A private equity fund that continually fundraises and never holds a final close in order to ensure consistent cash flows.
  • Exit
    The sale of an investment or securities held. Exits can be either full or partial. Common strategies include corporate acquisitions, secondary buyouts and IPOs. Also called a Liquidity Event.
  • Family Office
    A firm that manages assets, investments and trusts for a wealthy family.
  • Final Close
    The end of a general partner’s fundraising efforts for a particular fund.
  • Fund
    An investment vehicle comprising capital commitments from investors or limited partners, which are raised by the fund manager or general partner. Funds typically have specific sectors, regions and deal amounts that they target for their investments.
  • Fund-of-Funds
    A fund that invests in private equity funds, allowing small institutions and individuals to gain private equity exposure. A fund-of-funds devotes all of its time to evaluating general partners, which generally leads to above-average returns. However, there are extra fees and expenses associated with investing in a fund-of-funds.
  • Fundraising
    The process by which a company or enterprise seeks new capital, equity and/or debt commitments from investors.
  • General Partner (GP)
    The entity in a limited partnership that maintains responsibility for all debts and obligations. The GP manages all aspects of the fund, including investment decisions, and earns a management fee and percentage of the carried interest (assuming the fund is successful).
  • Greenfield
    An investment involving an asset or structure that does not yet exist. In a greenfield investment, investors fund all stages of development, including design, construction, infrastructure, and operations.
  • Growth Round/Growth Equity Investment
    A growth equity investment provides relatively mature companies with capital to fund expansion or restructuring in exchange for an equity position, typically a minority stake. As opposed to a buyout, growth equity investors do not take control of the business.
  • Hurdle Rates
    A pre-established minimum rate of return that general partners must achieve before they are allowed to claim carried interest.
  • Incubator
    An institution to host and develop start-up companies. An incubator provides early-stage start-up companies with office space, resources, advice and networking opportunities. In return, the incubator generally receives an equity stake in the company.
  • Initial Public Offering (IPO)
    The initial offering of publicly available stock by a private company. All companies undergoing an IPO must register with the relevant governing body such as ASX, SEC etc. and take the necessary steps to comply with all applicable rules and regulations.
  • Intermediary Member
    A person who has completed an agreement or agreements with PrimaryMarkets that in doing so, qualified that person as an Intermediary Member of PrimaryMarkets, and includes any Related Body Corporate, any Related Person any Related Entity or associate of any of the foregoing persons.
  • Institutional Investor
    Dedicated financial entities that invest on the behalf of companies and individuals.
  • Interim Close
    Funds that are currently raising new capital may have a series of interim closes as investors make commitments. Investing can begin as soon as the company/fund holds its first interim close.
  • Internal Rate of Return (IRR)
    the rate at which the net present value of all the cash flows from an investment will equal zero. IRR is a widely used metric to gauge fund performance over time.
  • Introduction Fee
    An amount to be paid to PrimaryMarkets based on the individual Asset transaction value agreed to be received between the Buyer and the Seller upon or in connection with the sale of or dealing in an Asset (in part or whole) including, without limitation any cash, loan, equity, capital, hybrid and/or debt capital payable to or received by the Seller at corporate or Asset level including investment, joint venture or farm-in agreement.
  • Investment Bank
    A financial institution that serves as an agent or underwriter for security issuances. Additionally, some investment banks act as broker/dealers and provide advisory services for mergers, acquisitions, restructurings and other transactions.
  • J-Curve
    A common trend in the private equity industry where fund performance and cash flows are negative in early stages due to capital expenditures and other expenses, but rise over time as results are produced. The phenomenon causes a “J-curve” when looking at a chart of the company/fund’s performance, with a slight dip at the onset followed by steady growth.
  • Key Performance Indicators (KPIs)
    A set of measures that can be used to gauge the performance and state of a given business or sector. KPIs can include revenue growth measures, monthly active user growth rates for certain technology firms or leverage ratios, among many others. Depending on a given business’s strategic and operational initiatives, KPIs hold different priorities.
  • Late Stage
    The final stage of venture capital investing involving companies that have achieved strong revenue growth and are near exit. As late stage investments are less risky, the rate of return is typically lower. Rounds Series C and later are typically categorized at late stage.
  • Lead Investor
    The entity or individual that makes the largest investment in a given venture capital round. As the primary financier for the round, the lead investor determines the current valuation of the company.
  • Lead Manager
    The financial institution selected to manage key aspects of a new securities issue and ensuring efficient distribution of the offer.
  • Leverage
    The use of debt in an investment including the acquisition and capital expenditures. Through leverage, general partners are able to expedite improvements at portfolio companies and amplify returns.
  • Leveraged Buyout (LBO)
    See Buyout.
  • Limited Partner (LP)
    An investor, usually an institution or Accredited Investor, that contributes capital to a private equity limited partnership.
  • Limited Partnership
    Legal term for the relationship between a general partner and its various limited partners.
  • Liquidation
    The process of selling assets in order to pay creditors (and potentially shareholders).
  • Liquidity Event
    The process of selling equity in an investment in order to realize and investment and return capital to limited partners.
  • Market Capitalisation (Market Cap)
    The total dollar market value of a company's outstanding shares. Commonly referred to as "market cap", it is calculated by multiplying a company's shares outstanding by the current market price of one share.
  • Management Buyout (MBO)
    )A buyout that is led or participated in by the company’s management team.
  • Merger
    A combination of two or more companies, often similar in size. This differs from an acquisition in important ways: Mergers are usually friendly, mutual decisions, whereas acquisitions can often be hostile and unsolicited. Additionally, mergers are often paid for or arranged using stock or other securities, as opposed to cash transactions that characterize most acquisition offers.
  • Mezzanine Investment
    Financing round in-between senior and subordinated loans that typically includes equity-based options in the form of warrants.
  • Middle Market
    Broadly defined as companies with an enterprise value of US$25M to US$1B.
  • Monitoring Fee
    A fee, usually tied to EBITDA performance, charged by private equity firms to their portfolio companies for advisory and management services.
  • Multiple Arbitrage
    Investment gains achieved by increasing the sales multiple relative to the original investment multiple. i.e. buying a company at 4x EBITDA and selling at 7x EBITDA.
  • Operating Partner
    An executive dedicated to working with portfolio companies to increase their value. They often have a specific expertise, for example an industry focus, such as healthcare.
  • Paid-In Capital
    The amount of committed capital that has been transferred from the limited partner to the general partner.
  • Placement Agent
    A third-party firm that identifies potential investors for private equity funds or other securities.
  • Platform Company
    A private equity-backed company that completes an add-on acquisition.
  • Portfolio Company
    A company that has received an equity investment from a private equity firm.
  • Public–Private Partnership (PPP)
    Public–Private Partnership is a cooperative arrangement between one or more public and private sectors, typically of a long-term nature.
  • Pre-/Post-Money Valuation
    Pre-money valuation refers to the value investors place on the company before they add their capital; post-money valuation is how much the company is valued at after the capital infusion. Most references are to a company's post-money valuation, or post val. Pre-Valuations can be determined by subtracting the investment amount from the Post Valuation.
  • Pre-seed
    The stage before the seed stage. As seed-stage investing has become more popular, investors have started to look to invest in these types of companies in hopes of finding them early on. A pre-seed company is often just the founder(s) and an idea.
  • PrimaryMarkets
    An independent, international platform (www.primarymarkets.com) bringing experienced Buyers and Sellers together to execute Transactions for Illiquid Securities and Investments.
  • PrimaryMarkets Advisory
    The equity capital markets and corporate advisory arm of PrimaryMarkets.
  • Private Investment in Public Equity (PIPE)
    An investment in stock of a publicly traded company made by a private investor, typically at a discount to the current market price.
  • Private IPO
    A term coined to define the venture rounds in which private companies have taken-on large amounts of capital at high valuation during the time they would have normally gone through a public offering.
  • Professional Investor
    The requirements for each classification, as required under Section 708 of the Corporations Act 2001 (C’th), are detailed below. Professional Investor. Hold an Australian Financial Services License (AFSL); or. Have or control gross assets of at least AUD$10M or more.
  • Public market equivalent
    A set method of analysis that is used to evaluate private fund performance against a public benchmark or index.
  • Public-to-Private Transaction
    A buyout of all the shares of a publicly traded company, effectively changing the company’s status from public to private.
  • Options
    See Warrants.
  • Qualified Institutional Buyer (QIB)
    Qualified Institutional Buyer is a corporation that is deemed to be an accredited investor as defined in the Securities and Exchange Commission’s (SEC) Rule 501 of Regulation D. A QIB owns and invests a minimum of US$100M in securities on a discretionary basis; the broker-dealer threshold is US$10M.
  • Quartile Ranking
    A system of ranking funds based on performance. The top one-quarter of performers are in the upper quartile, and so on.
  • Recapitalisation
    A restructuring of a company’s debt and equity mixture often used as an investment strategy in private equity.
  • Remaining Value to Paid-In (RVPI)
    The value of a fund’s unrealized investments divided by money paid-in to the partnership
  • Return on Investment (ROI)
    The profit or loss resulting from an investment transaction as a percentage of the original investment, usually expressed on an annualized basis.
  • Reverse Merger/Takeover (RTO)
    A transaction in which a private company acquires a publicly traded company in order to circumvent the IPO process.
  • Reverse Termination Fee
    A fee paid by the buyer if it breaches or decides to terminate a definitive acquisition agreement.
  • Road Show
    The process of presenting financial opportunities to potential investors in numerous cities. The road show is a common aspect of private equity fundraising and the IPO process.
  • SEC
    The Securities and Exchange Commission (SEC) is a government commission created by U.S. Congress with goals of protecting investors, maintaining fair and orderly functioning of securities markets, and facilitating capital formation.
  • Secondary Market
    A market that facilitates the sale of private equity assets from one limited partner to another. Limited partners often sell some or all of the private equity holdings for a variety of reasons, including raising cash and adjusting their asset allocation.
  • Seed Capital
    The earliest stage of venture capital. Typically, smaller amounts are invested in seed rounds for start-ups, but that does not necessarily mean smaller stakes.
  • Seller Member
    A person who has completed an agreement or agreements with PrimaryMarkets that in doing so, qualified that person as a Seller Member of PrimaryMarkets and will include any Related Body Corporate, any Related Person or any Related Entity or associate of any of the foregoing persons, who is an owner (sole or joint), a trustee, a beneficiary, an administrator or an executor (as applicable) of an Asset as listed by any of the foregoing on the Website.
  • Senior Debt
    Debt that takes priority over other securities in the event of liquidation.
  • Separate Account
    A customized private equity fund created for a single entity. Currently rising in popularity, separate accounts are utilized by the largest limited partners to mitigate fees and gain deeper involvement with the investing process.
  • Series A – D+
    Venture rounds that typically occur around certain milestones: a Series A round is raised after a seed investment has taken a company as far as it can go; a Series B may be when the company is reaching close to profitability but needs capital for hiring/development needs; Series C and D+ rounds are commonly known as late-stage rounds, and generally fall into the time when a company has a defined business model that has taken hold, is making significant revenues and is looking to expand at a large scale.
  • Sharing economy
    An economic model in which individuals borrow or rent assets owned by other individuals, rather than businesses. This model is normally employed when assets are underutilized (e.g. cars, apartments, parking spaces).
  • Sophisticated Investor
    A person with net assets of at least AUD$2,500,000.00 AND/OR gross income for each of the last two financial years of at least AUD$250,000.00 per annum.
  • Sponsor
    Sponsor is an influential investor who creates demand for a security because of their positive outlook on it. A sponsor can also be an underwriting company that works closely with the issuing body to determine the offering price of the securities, buys them from the issuer, and sells them to investors via the sponsor’s distribution network.
  • Sovereign Wealth Fund
    A state-owned investment fund designed to protect and/or grow a range of financial assets, such as stocks, bonds and natural resources.
  • Staple financing
    A pre-arranged financing package offered to potential acquirers that includes all the details of a lending package. This name derives from the simple fact that the financing details are stapled to the back of the acquisition term sheet.
  • Start-Up
    A company that is in the first stage of its operations.
  • Step-up multiple
    A term used to define the difference in the post-valuation of a company’s previous VC round and the pre-money valuation of its new round.
  • Strategic Acquisition
    An investment made by a corporation in order to access new technology, products or services, as opposed to a financial transaction.
  • Subordinated Debt
    Loans that have a lower priority than senior debt in the event of liquidation.
  • Tier 1
    The capital adequacy test. It is core capital that includes equity capital and disclosed reserves. Equity capital is inclusive of instruments that cannot be redeemed at the option of the holder. Tier 1 capital is essentially the most perfect form of a bank’s capital — the money the bank has stored to keep it functioning through all the risky transactions it performs, such as trading/investing and lending.
  • Total Value to Paid-In (TVPI)
    Money returned to limited partners plus the fund’s unrealized investments, divided by money paid-in to the partnership — TVPI should equal RVPI plus DPI. Also called "investment multiple" or MOIC.
  • Tranche
    A portion of an investment more commonly seen/used in venture rounds. In many agreements (especially in healthcare), a second portion/tranche of a round is made upon specified milestones, such as regulatory approval. Every tranche of a round will be part of the same round.
  • Transaction Fees
    Sometimes referred to as deal fees, transaction fees are charged by a private equity firm to the companies they acquire
  • Trust economy (social trust economy)
    A confluence of social and technological trends uniting to form the foundation of a new value system.
  • Underwriting
    The issuance of debt and equity securities by investment bankers on the behalf corporations and governments in order to generate investment capital.
  • Unicorn
    In the VC industry, unicorns (a term credited to Aileen Lee of Cowboy Ventures) refer to start-ups that reach valuations of at least US$1B through either private or public investment.
  • Venture Capital
    A type of private equity that focuses on investments in start-up and early stage companies with long-term, high-growth potential.
  • Vintage Year
    Indicates the year that a fund held its final close and/or began making investments.
  • Warrant
    A security that provides the holder with the option to purchase a company’s stock at a predetermined price for a specified period.
  • Wholesale Investor
    See Sophisticated Investor.
  • Zombie Fund
    A fund that has invested all of its committed capital and continues to collect management fees despite little or no hope of achieving higher returns for investors. Many so-called zombie funds hold portfolio investments for several years past their predetermined investing period to continue garnering their management fee.

 

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