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.
Alternative Investment Market (AIM)
The Alternative Investment Market (AIM) is a sub-market of the
London Stock Exchange, allowing smaller companies to float shares with
a more flexible regulatory system than is applicable to the Main Market.
The AIM was launched in 1995 and has raised almost ?24 billion for more
than 2,200 companies. Flexibility is provided by less regulation and
no requirements for capitalization or number of shares issued. Some
companies have since moved on to join the Main Market, although in the
last few years, significantly more companies transferred from the Main
Market to the AIM (The AIM has significant tax advantages for investors,
as well as less regulatory burden for the companies themselves). In
2005, 40 companies moved directly from the Main Market to the AIM, while
only two companies moved from the AIM to the Main Market.
Individuals that provide venture capital to seed or early stage companies.
Business angels can usually add value through their contacts and expertise.
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.
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.
Funds provided to enable an enterprise to acquire another enterprise
or product line or business.
When an investor sells a stock, bond or mutual fund at a higher price
than he or she paid for it.
Capital Under Management
The amount of capital available to a management team for venture
The final event to complete the investment, at which time all the legal
documents are signed and the funds are transferred.
The practice of a large company taking a minority equity position in
a smaller company in a related field.
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.
Distressed Situation Investing
Venture capital providers may provide funds to finance a business in
financial difficulty or rescue it from liquidation, provided a turnaround
The investigation and evaluation of a management team's characteristics,
investment philosophy, and terms and conditions prior to committing
capital to the fund.
Financing is allocated to start commercial manufacturing and expand
marketing efforts. Typically, the company has completed the development
of products, but has yet to generate significant profits. The business
may have secured smaller scale private equity financing at an earlier
stage. This stage of business development attracts a reasonable proportion
of venture capital.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
is a non-GAAP metric that can be used to evaluate a company's profitability.
EBITDA = Operating Revenue - Operating Expenses + Other Revenue
Its name comes from the fact that Operating Expenses do not include
interest, taxes, or amortization. EBITDA is not a defined measure according
to Generally Accepted Accounting Principles (GAAP), and thus can be
calculated however a company wishes. It is also not a measure of cash
EBITDA differs from the operating cash flow in a cash flow statement
primarily by excluding payments for taxes or interest as well as changes
in working capital. EBITDA also differs from free cash flow because
it excludes cash requirements for replacing capital assets (capex).
EBITDA is used when evaluating a company's ability to earn a profit,
and it is often used in stock analysis.
Selling an interest in your business to an outside party to raise money.
Raising funds by offering ownership in a corporation through the issuing
of shares of a corporation's common or preferred stock.
Executive Summary refers to a synopsis of the key points of a business
The sale or exchange of a significant amount of company ownership for
cash, debt, or equity of another company.
The method by which an investor will realize an investment.
Money is allocated to finance the growth and development of an
established company. Also referred to as "growth" or "development"
capital. Funds may be used to increase production, develop new products,
increase marketing or provide greater working capital. This stage is
a major area of focus in the venture capital sector.
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.
Fund Of Funds
An investment vehicle designed to invest in a diversified group of investment
Global Investment Performance Standards (GIPS)
GIPS (Global Investment Performance Standards) is set of standards for
the presentation of investment performance information, established
by the CFA Institute in 1999 with the aim of creating ethical, global
and industry-wide methods of communicating investment results to prospective
A key concept of GIPS is that performance should be presented for composites
that must include all fee-paying discretionary accounts managed by a
firm or money manager for a given investment strategy or objective.
This is to avoid selection bias: only including accounts with good returns.
GIPS standards represent ethical principles that establish a practitioner-driven,
industry-wide approach to follow in calculating and reporting historical
investment results for presentation to prospective clients. The GIPS
standards arose from the absence of meaningful comparison among reported
investment results, even by ethical firms. Several performance measurement
practices made comparability difficult, while other practices cast doubt
on the credibility of performance reporting in the industry:
3.Varying measurement periods
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.
A Greenfield Investment is the investment in a manufacturing, office,
or other physical company-related structure or group of structures in
an area where no previous facilities exist. The name comes from the
idea of building a facility literally on a "green" field,
such as farmland or a forest. Over time the term has become more metaphoric.
Greenfield Investing is usually offered as an alternative to another
form of investment, such as mergers and acquisitions, joint ventures,
or licensing agreements. Greenfield Investing is often mentioned in
the context of Foreign Direct Investment
A related term to Greenfield Investment which is becoming popular is
Brownfield Investment, where a site previously used for a "dirty"
business purpose, such as a steel mill or oil refinery, is cleaned up
and used for a less polluting purpose, such as commercial office space
or a residential area.
The term innovation means a new way of doing something. It may refer
to incremental, radical, and revolutionary changes in thinking, products,
processes, or organizations. A distinction is typically made between
Invention, an idea made manifest, and innovation, ideas applied successfully.
(Mckeown 2008) In many fields, something new must be substantially different
to be innovative, not an insignificant change, e.g., in the arts, economics,
business and government policy. In economics the change must increase
value, customer value, or producer value. The goal of innovation is
positive change, to make someone or something better. Innovation leading
to increased productivity is the fundamental source of increasing wealth
in an economy.
Innovation is an important topic in the study of economics, business,
technology, sociology, and engineering. Colloquially, the word "innovation"
is often used as synonymous with the output of the process. However,
economists tend to focus on the process itself, from the origination
of an idea to its transformation into something useful, to its implementation;
and on the system within which the process of innovation unfolds. Since
innovation is also considered a major driver of the economy, the factors
that lead to innovation are also considered to be critical to policy
Those who are directly responsible for application of the innovation
are often called pioneers in their field, whether they are individuals
The International Organization for Standardization , widely known as
ISO , is an international-standard-setting body composed of representatives
from various national standards organizations. Founded on 23 February
1947, the organization promulgates worldwide proprietary industrial
and commercial standards. It is headquartered in Geneva, Switzerland.
While ISO defines itself as a non-governmental organization, its ability
to set standards that often become law, either through treaties or national
standards, makes it more powerful than most non-governmental organizations.
In practice, ISO acts as a consortium with strong links to governments.
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
IPO (Initial Public Offering)
Issue of shares of a company to the public by the company (directly)
for the first time.
IRR. Compound Internal Rate of Return.
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.
Leveraged Buy-Out (LBO)
Venture capital firms may provide funds in the context on a LBO, where
the acquisition of a business is financed mainly by debt, with a small
proportion of equity. The debt is secured on the business assets and
serviced by the company's cash flows. LBO targets are typically established
companies with low existing financial leverage and substantial, stable
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.
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.
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.
London Stock Exchange (LSE)
The London Stock Exchange or LSE is a stock exchange located in
London, United Kingdom. Founded in 1801, it is one of the largest stock
exchanges in the world, with many overseas listings as well as British
companies. The LSE is part of the London Stock Exchange Group plc.
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.
Management Buy-Out (MBO)
The funds provided enable current management to acquire a businesses
at any stage of business development. The company itself may be private
or public. Although the concept covers all company sizes, the deals
themselves tend to be larger since they involve the acquisition of an
Mergers and acquisitions (M&A)
The phrase mergers and acquisitions refers to the aspect of corporate
strategy, corporate finance and management dealing with the buying,
selling and combining of different companies that can aid, finance,
or help a growing company in a given industry grow rapidly without having
to create another business entity.
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.
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
Private Investment in Public Equities. Investments by a private equity
fund in a publicly traded company, usually at a discount.
The company or entity into which a fund invests directly.
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.
In the United States, a private placement is an offering of securities
that are not registered with the Securities and Exchange Commission
(SEC). Such offerings exploit an exemption offered by the Securities
Act of 1933 that comes with several restrictions, including a prohibition
against general solicitation. This exemption allows companies to avoid
quarterly reporting requirements and many of the legal liabilities associated
with the Sarbanes-Oxley Act. The SEC passed Regulation D (Reg D) in
1982 which clarifies how companies can be sure they are exempt from
registration under the Securities Act. Regulation D does include a notification
requirement in Rule 503. Private placements offer "units",
where a "unit" is (again, typically) comprised of 1 common
share and one-half or one warrant. The warrant is usually good for buying
1 common share at a specified price and has a validity period. An example
would be a unit that includes one-half a warrant, where one whole warrant
is good for purchasing 1 common share at 56 cents in the 24 months following
the private placement closing. Another key is the hold period, Canadian
regulation for example prohibits trading securities purchased through
private placement for a four-month period following the closing.
It refers to obtaining capital from investors or venture capital sources.
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.
Return On Investment (ROI)
The internal rate of return on an investment.
The objective of risk management is to reduce different risks related
to a preselected domain to the level accepted by society. It may refer
to numerous types of threats caused by environment, technology, humans,
organizations and politics. On the other hand it involves all means
available for humans, or in particular, for a risk management entity
(person, staff, organization). The main ISO standards on risk management
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
Purchase of stock in a company from a shareholder, rather than purchasing
stock directly from the company.
Funds are allocated to develop a business concept, conduct research,
produce prototypes and bring the company to the point where it has a
commercially viable product or service offering. Seed capital is very
difficult to obtain through venture capital providers since the level
of risk is so high, the investment amount tends to be small and a high
level of monitoring is required. However, venture capital firms that
specialize in this stage do exist for exceptional business opportunities.
Angel investors may be a better source at this stage.
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.
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.
Special purpose entity (SPE)
Special purpose vehicle (SPV). A special purpose entity (SPE) (sometimes,
especially in Europe, "special purpose vehicle" or simply
SPV) is a legal entity (usually a limited company of some type or, sometimes,
a limited partnership) created to fulfill narrow, specific or temporary
objectives. SPE's are typically used by companies to isolate the firm
from financial risk. A company will transfer assets to the SPE for management
or use the SPE to finance a large project thereby achieving a narrow
set of goals without putting the entire firm at risk.
A special purpose entity may be owned by one or more other entities
and certain jurisdictions may require ownership by certain parties in
specific percentages. Often it is important that the SPE not be owned
by the entity on whose behalf the SPE is being set up (the sponsor).
For example, in the context of a loan securitisation, if the SPE securitisation
vehicle were owned or controlled by the bank whose loans were to be
secured, the SPE would be consolidated with the rest of the bank's group
for regulatory, accounting, and bankruptcy purposes, which would defeat
the point of the securitisation. Therefore many SPEs are set up as 'orphan'
companies with their shares settled on charitable trust and with professional
directors provided by an administration company to ensure there is no
connection with the sponsor.
Funds are used to further develop the company's products and finance
marketing efforts at a relatively early stage. The company may already
have a sales track record. Provided a business meets the venture capital
provider's other criteria, a company exhibiting high growth opportunities
may be able to attract funding at this stage.
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.
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.
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.
In finance, valuation is the process of estimating the potential market
value of a financial asset or liability. Valuations can be done on assets
(for example, investments in marketable securities such as stocks, options,
business enterprises, or intangible assets such as patents and trademarks)
or on liabilities (e.g., Bonds issued by a company). Valuations are
required in many contexts including investment analysis, capital budgeting,
merger and acquisition transactions, financial reporting, taxable events
to determine the proper tax liability, and in litigation.
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.
Venture Capital firms
are differentiated based on the focus of their investments. Typical
criteria include industry and geographic preferences, deal size and
stage of business development. Venture capital firms typically define
stage of business development by the intended use of the funds provided.
The end message is that, while certain stages of business development
are more conducive to attracting venture capital, a company at any stage,
and in any financial situation, may seek financing provided it targets
the right venture capital firm and can present a compelling investment