Glossary

A private equity firm will often provide financing to enable current operating management to acquire or to buy at least 50 per cent of the business they manage. In return, the private equity firm usually receives a stake in the business. This is one of the least risky types of private equity investment because the company is already established and the managers running it know the business - and the market it operates in - extremely well.

Compensation for the management of a venture fund's activities, paid from the fund to the general partner or investment advisor. This compensation generally includes an annual management fee.

The persons who oversee the activities of a venture capital fund.

is a right of an investor to require the company to repurchase some or all of an investor's shares at a stated price at a given time in the future. The purchase price is usually the Issue Price, increased by Cumulative Dividends, if any. Mandatory Redemption may be automatic or may require a vote of the series of Preferred Stock having the redemption right.

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)

a limited partnership that is publicly traded, combining the tax benefits of a limited partnership with the liquidity of publicly-traded securities.

An activity that includes corporate finance activities, such as advice on complex financings, merger and acquisition advice (international or domestic), and at times direct equity investments in corporations by the banks.

Combination of two or more corporations in which greater efficiency is supposed to be achieved by the elimination of duplicate plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company.

debt that incorporates equity-based options (like warrants) with lower-priority debts (remember, debt usually gets paid off first, before equity, but with lower returns). This kind of debt is actually closer to equity than debt.

Refers to the stage of venture financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine level financing can take the structure of preferred stock, convertible bonds or subordinated debt.

micro-VCs are smaller venture firms that primarily invest in seed stage emerging growth companies, often have a fund size of less than $50M and may invest between $25,000 and $500,000 in a given company.

Firms with growth prospects of more than 20 percent annually and five-year revenue projections between $10 million and $50 million. Less than 10 percent of all start-ups annually, these entrepreneurial firms are the backbone of the U.S. economy and attractive to business angel investors.

to get paid for something. If a company offers a free software as a service trial, then converts those users to paid users, they’re now monetized. Things like sponsored tweets or other content also count as monetization.

The amount of liquidation preference that a given series of preferred stock has is usually equal to the amount paid for the stock. However, in certain financings new investors may require that their liquidation preference amount be equal to more than the amount they originally invested (often referred to as a "multiple" liquidation preference). Multiples tend to be one and one-half to three times the purchase price. A multiple liquidation preference will almost always also be a senior liquidation preference as well. For example, if the Series B was purchased for $30 million, but has a senior liquidation preference equal to two times the purchase price, then the Series B investors will receive the first $60 million on any sale of the company before the Series A or common stockholders receive any amounts.

A mutual fund, or an open-end fund, sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund's outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor usually sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor must buy newly issued shares directly from the fund. (See Closed-end Funds)