Cash flows raised outside the firm whether from private sources or from financial markets. Difference between the actual returns on an investment and the expected return, given market returns and investment’s risk. Short-term assets of the firm, including inventory of both raw material and finished goods, receivables and cash.
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.
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.
The hurdle rate, frequently set at 8%, will be negotiated during fundraising. Proportion of shares of a listed company that is traded in the stock market. An agreement addressed by a PE fund in an LBO to its acquisition vehicle, which provides a limited guarantee for the equity financing detailed in an SPA. Securing these letters is often required for the PE fund to enter into an SPA and to satisfy buyer financing reps and warranties. In some instances, the PE firm may directly provide a limited guarantee on the equity component of the transaction.
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.
The price at which the company’s shares are offered at the initial public offering . A private equity fund sponsored by the national government whose funds are used to fund programs beneficial to the government. A combination of businesses takes place or 100% of the stock of a public or private company is acquired. The acquiror must have held less than 50%, and be seeking to acquire 100% of the company’s stock. An Endowment, Foundation or Pension Fund that make private equity investments. A private equity fund that received its capital directly from the service provider that raised the fund.
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.
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.
Investors need to know whether or not a company is hitting certain benchmarks as this will determine the structure of the investment package. For example, a company that is slow to reach certain benchmarks may compensate investors by increasing their stock allocation. Asset– Anything owned by an individual, a business or financial institution that has a present or future value i.e. can be turned into cash. In accounting terms, an asset is something of future economic benefit obtained as a result of previous transactions. Tangible assets can be land and buildings, fixtures and fittings; examples of intangible assets are goodwill, patents and copyrights. Fund of funds A private equity fund that primarily takes equity positions in other funds.
Co-investment funds are vehicles set up by the GP to invest alongside the primary and parallel funds for a portion of a single investment. The co-investment is typically provided by one or more of a fund’s LPs at lower fee and carried interest terms; at times the funds may be drawn from an external party. Drawdowns of limited partner commitments over the investment period of a fund. “Capital calls” fund investments and pay for a fund’s fees and expenses. A fund formed by the private equity arm of a service provider (i.e. consulting firm, accounting firm, etc.). A fund raised by the private equity arm of an investment bank or a merchant bank. A fund raised by the private equity arm of a financial corporation.