Angels

Individuals that provide venture capital, typically at seed or early stage level. Very often "angels" can add value through their contacts and expertise.

Acquisition

The obtainment of control, possession or ownership of a private portfolio company by an operating company or conglomerate.

Acquisition for Expansion Financing

Funds provided to a firm to finance its acquisition of companies. A consolidator of companies in specific industries.

Antidilutive Effect

Result of a transaction that increases earnings per common share (e.g. by decreasing the number of shares outstanding).

Balanced

A venture fund investment strategy which includes investment in portfolio companies at a variety of stages of development (Seed, Early Stage, Later Stage).

Bridge Financing

A limited amount of equity or short-term debt financing typically raised within 6-18 months of an anticipated public offering or private placement meant to "bridge" a company to the next round of financing.

Burn Rate

The rate at which a company expends cash over a certain period, usually a month.

Business Plan

A document that describes the entrepreneur's idea, the market problem, proposed solution, business and revenue models, marketing strategy, technology, company profile, competitive landscape, as well as financial data for coming years. The business plan opens with a brief executive summary, most probably the most important element of the document due to the time constraints of venture capital funds and angels.

Capitalization Table ("Cap table")

A table showing the capitalization of a firm, which typically includes the amount of investment obtained from each source and the securities distributed -- e.g. common and preferred shares, options, warrants, etc. -- and respective capitalization ratios.

Capital Gains

Short or long-term profits from the sale of assets.

Capital Weighted Average IRR

The average IRR weighted by fund size with funds contributing to the average in proportion to their size.

Cash Position

The amount of cash available to a company at a given point in time.

Claim Dilution

A reduction in the likelihood that one or more of the firm's claimants will be fully repaid, including time value of money considerations.

Closing

An investment event occurring after the required legal documents are implemented between the investor and a company and after the capital is transferred in exchange for company ownership or debt obligation.

Commitment

A limited partner's obligation to provide a certain amount of capital to a fund.

Dilution

A reduction in the percentage ownership of a given shareholder in a company caused by the issuance of new shares.

Dilution Protection

Mainly applies to convertible securities. Standard provision whereby the conversion ratio is changed accordingly in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholder's potential equity position. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value. Share Purchase Agreements also typically contain anti-dilution provisions to protect investors in the event that a future round of financing occurs at a valuation that is below the valuation of the current round.

Dilutive Effect

Result of a transaction that decreases percentage ownership in a company.

D (Distribution)

Cash or the value of stock disbursed to the limited partners of a venture fund.

Disbursement

Investments by funds into portfolio companies.

Due Diligence

A process undertaken by potential investors -- individuals or institutions -- to analyze and assess the desirability, value, and potential of an investment opportunity.

Early Stage

A state of a company that typically has completed its seed stage and has a founding or core senior management team, has proven its concept or completed its beta test, has minimal revenues, and no positive earnings or cash flows.

Elevator Pitch

An extremely concise presentation of an entrepreneur's idea, business model, company solution, marketing strategy, and competition delivered to potential investors. Should not last more than a few minutes, or the duration of an elevator ride.

Employee Stock Option Plan (ESOP)

A plan established by a company whereby a certain number of shares is reserved for purchase and issuance to key employees. Such shares usually vest over a certain period of time to serve as an incentive for employees to build long term value for the company.

Employee Stock Ownership Plan

A trust fund established by a company to purchase stock on behalf of employees.

Exit

The sale or exchange of a significant amount of company ownership for cash, debt, or equity of another company.

Exiting Climates

The conditions which influence the viability and attractiveness of various exit strategies.

Founders' Shares

Shares owned by a company's founders upon its establishment.

Fully Diluted Earnings Per Share

Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.

Fully Diluted Outstanding Shares

The number of shares representing total company ownership, including common shares and current conversion or exercised value of the preferred shares, options, warrants, and other convertible securities.

Fund Size

The total amount of capital committed by the limited and general partners of a fund.

Institutional Investors

Organizations that professionally invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds.

IPO (Initial Public Offering)

The sale or distribution of a stock of a portfolio company to the public for the first time. Investment Philosophy The stated investment approach or focus of a management team.

LBO (Leveraged Buyout)

A fund investment strategy involving the acquisition of a product or business, from either a public or private company, utilizing a significant amount of debt and little or no equity (usually a ratio of 90% debt to 10% equity).

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.

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.

Market Capitalization

The total dollar value of all outstanding shares. Computed as shares multiplied by current price per share. Prior to an IPO, market capitalization is arrived at by estimating a company's future growth and by comparing a company with similar public or private corporations. (See also Pre-Money Valuation)

Mezzanine Financing

The stage of financing that precedes an IPO.

Net Financing Cost

Also called the cost of carry or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.

Offering Memorandum (also called Private Placement Memorandum)

A document that outlines the terms of securities to be offered in a private placement. Resembles a business plan in content and structure.

Ordinary Shares

Securities that represent equity ownership in a company. Ownership of ordinary shares allows an investor to vote on such matters as the election of directors. It also grants the holder a share in a company's profits through dividend payments or through the capital appreciation of the security.

Oversubscription

Occurs when demand for shares exceeds the supply or number of shares offered for sale. As a result, the underwriters or investment bankers must allocate the shares among investors. In private placements, this occurs when a deal is in great demand because of the company's growth prospects.

Oversubscription Privilege

In a rights issue, arrangement by which shareholders are given the right to apply for any shares that are not purchased.

Piggyback Registration

A situation when a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.

Post-Money Valuation

The pre-money valuation of a company plus the sum of capital raised during the investment round.

Preemptive Right

A shareholder's right to acquire an amount of shares in a future offering at current prices per share paid by new investors, whereby his/her percentage ownership remains the same as before the offering.

Portfolio company

the company or entity into which a fund invests directly.

Preferred Shares

Shares that provide investors with certain superior rights that shareholders of ordinary stock do not maintain. Typically, this relates to a preference upon a liquidation event, and/or preference in dividend payments. This stock does not usually carry voting rights. The stock shares characteristics of both ordinary stock and debt.

Pre-Money Valuation

The valuation of a company prior to a round of investment. This amount is determined by using various calculation models, such as discounted P/E ratios multiplied by periodic earnings or a multiple times a future cash flow discounted to a present cash value and a comparative analysis to comparable public and private companies.

Private Placement

The sale of a security (or in some cases, a bond) directly to a limited number of investors. Used in the context of general equities. Avoids the need for S.E.C. registration if the securities are purchased for investment as opposed to being resold.

Registration Rights

The right to require that a company register restricted shares. Demand Registered Rights enable the shareholder to request registration at any time, while Piggy Back Registration Rights enable the shareholder to request that the company register his or her shares when the company files a registration statement (for a public offering with the SEC).

Restricted Shares

Shares acquired in a private placement are considered restricted shares and may not be sold in a public offering absent registration, or after an appropriate holding period has expired. Non-affiliates must wait one year after purchasing the shares, after which time they may sell less than 1% of their outstanding shares each quarter. For affiliates, there is a two-year holding period.

Rights Offering

Issuance of "rights" to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed-end funds, which cannot otherwise issue additional ordinary shares.

Seed Stage Financing

An initial state of a company's growth characterized by a founding management team, business plan development, prototype development, and beta testing

Strategic Investors

Corporate or individual investors that add value to investments they make through industry and personal ties that can assist companies in raising additional capital as well as provide assistance in the marketing and sales process.

Tax Clawback Agreement

An agreement to contribute as equity to a project the value of all previously realized project-related tax benefits not already clawed back. Exercised to the extent required to cover any cash deficiency of the project.

Terms and Conditions

The financial and management conditions under which venture capital limited partnerships are structured.

Turnaround

Financing provided to a company at a time of operational or financial difficulty with the intention of improving the company's performance.

Venture Capital Financing

An investment in a startup business that is perceived to have excellent growth prospects but does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

Valuation Method

The policy guidelines a management team uses to value the holdings in the fund's portfolio.

Write-off

The write-down of a portfolio company's holdings to a valuation of zero and the venture capital investors receive no proceeds from their investment.

Write-up

An increase in the value of an investment.