Venture capital, private equity and M&A glossary

In the investment stage of the fund, the fee is usually based on the capital commitment. As the fund matures, the fee is then based on the assets under management. The ratio that is calculated by dividing the amount of the cumulative distributions by the amount of capital that was paid in. DPI is represented by a percentage and gives a private equity investor insight into how much of the fund’s return has actually been “realized”, or paid back to investors. The Distributions to Paid-in Multiple is sometimes known as the realization multiple, since the capital paid out to investors is usually the result of realized gains in the fund. A DPI of greater than one means that a fund has returned its cost. So if the PE firm is paying £10m for a 55% share in your business and the deal fees are £2m, then the total cost of the business to them is actually £12m, This is the total deal cost. This eventually gets paid back either from cash you generate during the investment period or by being deducted from the sale price when you sell at the end of the investment window. The fund concentrates investments in fewer companies, commonly no more than 20-30, selected for their future growth potential.

  • Redemption Rights – Rights to force the company to purchase shares (a “put”) and more infrequently the company’s right to force investor to sell their shares (a “call”).
  • Leverage may increase the potential scope of both risk and return.
  • Note that there are variations of market cap, such as fully-diluted market cap, which includes the impact of outstanding options and warrants.
  • We define our success by the long-term growth and development of our companies and their people.

Deficiency judgmentImposition of personal liability on a borrower for the unpaid balance of mortgage debt after a foreclosure has failed to yield the full amount of the debt. Deferred maintenance accountAn account a borrower is required to fund that provides for maintenance of a property. Debt serviceThe outlay necessary to meet all interest and principal payments during a given period. CUSIP The committee that supplies a unique nine-character identification, called a CUSIP number, for each class of security approved for trading in the U.S. Cumulative discount rateExpressed as a percentage of base rent, it is the interest rate used in finding present values that takes into account all landlord lease concessions. ConduitAn alliance between mortgage originators and an unaffiliated organization that acts as a funding source by regularly purchasing loans, usually with a goal of pooling and securitizing them. ConcessionsCash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses or other monies expended to influence or persuade a tenant to sign a lease. CollateralAsset pledged to a lender to secure repayment of a loan in case of default.

Distribution Fees

A SAFE or safe stands for a “simple agreement for future equity”. This document was authored by Y Combinator lawyer Carolynn Levy and open sourced. It was created and published as a simple replacement for convertible notes. In practice a SAFE enables a startup company and an investor to accomplish the same general goal as a convertible note, though a SAFE is not a debt instrument. A legal “safe harbor” that allows issuers of non-public stock to sell interests to accredited investors without having to register with the SEC.

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Investors buying a bond are effectively loaning money to the issuer. Most bonds promise to pay a fixed rate of interest for a given period of time, at the end of which the holders are, in most cases, repaid the capital sum. It is important to remember that these securities can be traded in the market, so their value can go down as well as up. In the case of a share, the yield is the annual dividend payment expressed as a percentage of the market price of the share. For property, it is the rental income as a percentage of the capital value. For bonds, the yield is the annual interest as a percentage of the current market price. The Unrelated Business Taxable Income tax applies to income generated by a tax-exempt organization by means of taxable activities. This type of income is generated outside of normal business operations.

Venture capital, private equity and M&A glossary

A sub category of asset class that more specifically defines what types of investing that fund does within that asset class. The strategy can focus on specific industries, size of investment, size of target companies, etc. The IRR obtained by taking the cash flows from inception together with the residual value for each fund and aggregating them in a pool of cash flows. This calculation takes into account both the sized and the date of any investment and therefore makes it more accurate than a simple averaging of IRRs or the weighted average IRR . The acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. Often structured in such a way that the target’s cash flows or assets are used as the collateral (or “leverage”). Leveraged buyouts allow companies to make large acquisitions without having to commit a lot of capital. The amount of cash or other liquid assets available for a fund to deploy, based on capital committed to the fund by investors.

What does DPI mean in private equity?

RVPI = NAV / LP Capital called – Distribution to paid-in (DPI) represents the amount of capital returned to investors divided by a fund's capital calls at the valuation date. DPI reflects the realized, cash-on- cash returns generated by its investments at the valuation date.

In exchange for providing this capital, the catastrophe reinsurance company receives an insurance premium, which is the return that the investor receives. The returns are largely uncorrelated with factors that affect financial markets, making them a useful diversifier in an investment portfolio and holds particular appeal in uncertain market conditions. An investment trust is a closed ended collective investment scheme with a limited number of shares that pools together assets of a number of different investors with the aim of increasing flexibility and lowering costs. They are companies that trade in their own right which means that the price of the shares are subject to supply and demand. Unlike an open ended fund, the manager does not have to deal with fund flows and therefore never a forced seller/buyer. A management fee is assessed annually, typically ranging from 1% to 2% of the aggregate assets under management of a fund, regardless of the performance of the fund.

Total Expense Ratio

After about three to five years, the interim IRR will give a reasonable indication of the definitive IRR. This period is generally shorter for buyout funds than for early-stage and expansion funds. Fund of FundsA fund set up to distribute investments among a selection of private equity fund managers, who in turn invest the capital directly. Fund of funds are specialist private equity investors and have existing relationships with firms.
A method for valuing a company by estimating a company’s future free cash flows and discounting these cash flows, using a discount rate, to present value. Sliding fee scale – Growing in popularity, a sliding fee scale adjusts promote according to total deal performance. These vary widely, but serve to even more closely align parties, incentivizing Sponsors to really knock it out of the park. A tiered structure we see often is ‘10 over 10, 20 over 20, and 30 over 30’ — meaning 10% promote over a 10% overall return and so on. Without Catch-up – The Sponsor only participates in the pool of profits after the hurdle is paid, lowering their overall profit share. Read more about xmr to btc converter here. Investors would get $1.44M in preferred return, then the Sponsor would earn $1.71M (20% of $8.56M remaining profits) and investors would get another $6.85M. Gross returns- The total profits from an investment, before fees. Operating partners – Sometimes the Sponsor will have strategic operators picked to join a company upon closing, often individuals with deep operational expertise in the industry.

Market Capitalization

The strategy of distressed debt firms involves first becoming a major creditor of the target company by snapping up the company’s bonds at pennies on the dollar. This gives them the leverage they need to call most of the shots during either the reorganization, or the liquidation, of the company. In the event of a liquidation, distressed debt firms, by standing ahead of the equity holders in the line to be repaid, often recover all of their money, if not a healthy return on their investment. Usually, however, the more desirable outcome is a reorganization, which allows the company to emerge from bankruptcy protection. As part of these reorganizations, distressed debt firms often forgive the debt obligations of the company, in return for enough equity in the company to compensate them. Convertible SecurityA bond, debenture or preferred stock that is exchangeable for another type of security at a pre-stated price.

What is the full form of PME?

Periodic Medical Examination (PME)

A J-curve in PE represents an LP’s cumulative net cash position in a fund over time. The curve starts with an increasingly negative net cash position as capital is drawn down during the investment periods before reversing direction as LPs start receiving distributions from a maturing portfolio. Represents an agreement to pay a portion of the purchase price at a later date based on the performance of the business. An agreement in which a lender sets out the terms on which it is prepared to lend money to the borrower.

BVI’s regulatory filing fees are considerably lower than those of the Cayman Islands. VolatilityThe degree to which the price of a given security, fund, or index changes. It is calculated as the degree of deviation from the norm for that type of investment over a given time period. The higher the volatility, the riskier the security tends to be. Share class hedgingActivities undertaken in respect of hedged shares to mitigate the impact on performance of exchange rate movements between the fund’s currency exposure and the investor’s chosen currency. SectorA group of funds with similar investment objectives and/or types of investment, as classified by bodies such as the Investment Association or Morningstar™. Sector definitions are mostly based on the main assets a fund should invest in, and may also have a geographic focus.

However, all tranches of a fund/subfund are always invested in the same portfolio. Potential for high absolute returns and significant draw downs . The long-term benchmark asset allocation, designed to meet the fund’s risk and return objectives. Solvency can be determined by using the ‘current ratio’, which divides total current liabilities by total current assets. Funds which invest in shares of companies with relatively small market capitalisation. The Sharpe ratio expresses how much higher a return an investor can expect compared to the risk-free rate of interest (e.g. interest rates on savings accounts) per unit of risk . The risk-free rate of interest varies from currency to currency. Currency in which an investor normally thinks, calculates and fulfils his or her liabilities. It is also the currency in which the performance of an investment is measured. The measure of the creditworthiness of a borrower by special rating agencies such as Standard & Poor?

When a third party guarantees a loan, it promises to pay in the event of default by the borrower. Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. Valuation of a company excluding the capital from the current round of financing. The right of an investor or group of investors to veto certain transactions by the company. This is usually achieved by prohibiting certain transactions, unless they are approved by a class vote of the Preferred Stock. The right of investors to exercise the First Refusal Rights and Come Along Rights of other investors who don’t exercise their own rights. An agreement issued by entrepreneurs to protect the privacy of their ideas when disclosing those ideas to third parties such as investors. Insurance on the life of key employees which investors require the company to obtain. An obligation to refrain from doing something is called a Negative Covenant. For example, the obligation to obtain life insurance on key employees is a covenant and the obligation to not deviate from the budget approved by investors is a negative covenant.
private equity glossary
Debt instruments outline the detailed conditions of the loan, such as the amount and schedule of payments of interest, the length of time before the principal is paid back, or any guarantees that the borrower offers. Any type of debt can be a debt instrument – from bonds and loans to credit cards. Collective Investment Scheme Sometimes referred to as a ‘pooled investment’, it is a scheme where a fund manager will invest the pooled money in one or more types of asset, such as stocks, bonds or property. BondA loan in the form of a security, usually issued by a government or company. It normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. Active managementAn approach to investing whereby capital is allocated according to the judgment of the investor or fund manager. The active investor aims to beat the returns from the stockmarket or specified benchmark index/sector, rather than to match them. A performance fee, or carried interest, is a share of the profits generated by the investment manager as a result of a successful investment strategy.

The narrow definition of money supply includes notes and coins in circulation and money equivalents that can be converted into cash easily. The broader definition includes various kinds of longer-term, less liquid bank deposits. Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes. Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies. A measure that examines the price change of a basket of consumer goods and services over time. Headline CPI or inflation is a calculation of total inflation in an economy, and includes items such as food and energy, in which prices tend to be more prone to change .

A non-diluted FPO uses existing shares and does not affect the EPS. All cash, shares, or securities returned to limited partners by the fund. When one or limited partners make a direct investment into a company alongside a VC/PE fund. This allows LP to invest without incurring the fees charged by the fund. A provision in which limited partners commit to paying back distributions to pay for any legal judgment imposed on the fund if the fund lacks the assets to make the payment.

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