Glossaire des termes

Chez PE Cube, nous voulons offrir plus qu'un logiciel de Private Equity à nos clients : nous souhaitons vous soutenir dans tous les aspects de vos activités quotidiennes. En ce sens, nous partageons avec vous un Glossaire regroupant divers termes du Private Equity. Vous trouverez ci-dessous tous les termes pertinents pour l'industrie du Private Equity, ainsi que leurs définitions, telles que fournies par des sources fiables (Sources : Gips®, le Parlement européen, l'ESMA, l'ILPAInvest EuropeInvestopedia, et l'IPEV).

Termes par lettre

PE CUBE Terms

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401(K) Plan
Type of qualified retirement plan in which employees make salary reduced, pre-tax contributions to an employee trust. In many cases, the employer will match employee contributions up to a specified level.

Source: ILPA
A
A Round
A financing event where by venture capitalists invest in a company that was previously financed by founders and/or angels. The "A" is from Series "A" Preferred stock. See "B" round.

Source: ILPA
Accredited Investor
Defined by Rule 501 of Regulation D, an individual (i.e. non-corporate) "accredited investor" is either a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase OR a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. For the complete definition of accredited investor, see the SEC website.

Source: ILPA
Accrual accounting
The recording of transactions as income is earned or expenses are incurred, rather than when income is received or expenses are paid (i.e., cash basis).

Source: GIPS
Accrued Interest
The interest due on preferred stock or a bond since the last interest payment was made.

Source: ILPA
Acquisition
The establishment of control in one business entity by another, often with the assistance of private equity. Third party acquisition is a common exit mechanism for private equity funds. The process of gaining control, possession or ownership of a private portfolio company by an operating company or conglomerate.

Source: ILPA
Acquisition for Expansion Financing
Capital provided to a company to finance its controlling interest in another entity for growth purposes.

Source: ILPA
ACRS: Accelerated Cost Recovery System
The IRS approved method of calculating depreciation expense for tax purposes. Also known as Accelerated Depreciation.

Source: ILPA
Active Market
A market in which transactions for an asset take place with sufficient frequency and volume to provide pricing information on an on-going basis.

Source: IPEV
Actively Traded Investment
A financial instrument traded in an Active Market. The necessary level of trading required to meet these criteria is a matter of judgment.

Source: IPEV
Additional risk measures
Risk measures included in a gips composite report or gips pooled fund report beyond those required to be presented.

Source: GIPS
Adjusted Enterprise Value
The Adjusted Enterprise Value is the Enterprise Value adjusted for factors that a Market Participant would take into account, including but not limited to surplus assets, excess liabilities, contingencies and other relevant factors.

Source: IPEV
Adjustment Condition
An adjustment condition occurs if the company does not close on an equity investment in the company for a minimum of $xxx, net of brokerage fees, on or before a series of other predetermined events, i.e. delivery of term sheet to preferred stockholders.

Source: ILPA
Administrative fee
All fees other than transaction costs and the investment management fee. Administrative fees may include custody fees, accounting fees, auditing fees, consulting fees, legal fees, performance measurement fees, and other related fees.

Source: IPEV
ADR: American Depositary Receipt (ADR's)
A security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.

Source: ILPA
Advisory Board
A committee of LPs within an individual fund delegated by the GP to give clearance and guidance on any situations involving a possible conflict of interest.

Source: ILPA
Advisory-only assets
Assets for which the firm provides investment recommendations but has no control over implementation of investment decisions and no trading authority.

Source: GIPS
Agent
A market intermediary that assists in the structuring of a private equity transaction.

Source: ILPA
AIF
Under the AIFMD, an AIF (Alternative Investment Fund) is a ‘collective investment undertaking’ that is not otherwise subject to the UCITS (Undertakings for Collective Investment in Transferable Securities) regime, which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors. Both open-ended and closed-ended vehicles and listed and unlisted vehicles can be AIFs for the purposes of the AIFMD. The definition captures a large breadth of vehicles that would be regarded as “funds”, including all non-UCITS investment funds, wherever established and regardless of their legal structure (including limited partnerships, limited liability partnerships and limited liability corporations). AIFs include hedge funds, private equity funds, retail investment funds, investment companies and real estate funds. Single investor vehicles are generally not viewed as AIFs as they would not be seen as collective investment undertakings. For the purpose of this Handbook, the term “AIFs” is used to refer to “private equity AIFs”.

Source: Invest EUROPE
AIFM
Under the AIFMD, an AIFM is defined as an entity that provides, at a minimum, portfolio management and risk management services to one or more AIFs as its regular business irrespective of where the AIFs are located or what legal form the AIFM takes. The AIFM can either be an external manager appointed by or on behalf of the AIF, or the AIF itself (any delegate managing assets should not therefore be an AIFM). The Directive applies to:

  • EU AIFMs managing one or more EU AIFs/non-EU AIFs (irrespective of whether or not they are marketed in the EU);

  • Non-EU AIFMs managing one or more EU AIFs (irrespective of whether or not they are marketed in the EU);

  • Non-EU AIFMs marketing EU AIFs/non-EU AIFs in the EU.


Source: Invest EUROPE
AIFMD
Invest EUROPE: The Alternative Investment Fund Managers Directive (AIFMD) is an EU Directive that took effect on 22 July 2013, subject to a one-year transitional period that expired on 22 July 2014. The AIFMD obliges managers falling within its scope to be authorised by their national competent authorities.

Esma: Alternative Investment Fund Managers Directive

Source: Invest EUROPE, Esma
AII
Alternative Instrument Identifier

Source: esma
AIV
Alternative Investment Vehicle

Source: ILPA
All-in fee
A type of bundled fee that can include any combination of investment management fees, transaction costs, custody fees, et administrative fees. All-in fees are typically offered in certain jurisdictions where asset management, brokerage, and custody services are offered by the same company.

Source: GIPS
Allocation
The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process depending on market demand for the securities.

Source: ILPA
Alternative Assets
This term describes non-traditional asset classes. They include private equity, venture capital, hedge funds and real estate. Alternative assets are generally more risky than traditional assets, but they should, in theory, generate higher returns for investors.

Source: ILPA
American Institute of Certified Public Accountants (AICPA)
The institute governs the practice of public accountancy except for standards related to the audit of public companies, which are defined by the Public Company Accounting Oversight Board (PCAOB) http://www.aicpa.org

Source: ILPA
AMLTF
Anti-Money Laundering Task Force

Source: esma
Amortization
An Accounting procedure that gradually reduces the book value of a tangible or a definite intangible asset through periodic charges to income.

Source: ILPA
AMT: Alternative Minimum Tax
A tax designed to prevent wealthy investors from using tax shelters to avoid income tax. The calculation of the AMT takes into account tax preference items.

Source: ILPA
Angel Financing
Capital raised for a private company from independently wealthy investors. This capital is generally used as seed financing.

Source: ILPA
Angel Groups
Organizations, funds and networks formed for the specific purpose of facilitating angel investments in start-up companies.

Source: ILPA
Angel Investor
A person who provides backing to very early-stage businesses or business concepts. Angel investors are typically entrepreneurs who have become wealthy, often in technology-related industries. A high net worth individual active in venture financing, typically participating at an early stage of growth. Also known as an informal investor.

Source: ILPA
Annexe fund
A separate fund formed by the LPs of a fund to provide a pool of top-up capital when the reserves of the fund have proved inadequate, with the aim of avoiding the issues raised by cross-fund investing.

Source: ILPA
Anti-dilution provisions
Contractual measures that allow investors to keep a constant share of a firm's equity in light of subsequent equity issues. These may give investors preemptive rights to purchase new stock at the offering price. [See Full Ratchet and weighted Average]

Source: ILPA
ARC
Accounting Regulatory Committee

Source: esma
Archangel
Usually an outsider hired by a syndicate of angel investors to perform due diligence on investment opportunities and coordinate allotment of investment duties among members. Archangels typically have no financial commitment to the syndicate.

Source: ILPA
Asset-backed loan
Loan, typically from a commercial bank, that is backed by asset collateral, often belonging to the entrepreneurial firm or the entrepreneur.

Source: ILPA
Asset-stripping
A company perceived to have poor management or poor economic performance is sometimes taken over by investors with the intent of breaking it up and selling all or part of its assets. Asset strippers look for companies whose composite parts are worth more than the current value of the company as a whole. Asset stripping goes much further than the process of restructuring which new owners can sometimes impose, as restructuring has the long-term goal of creating a healthy business. While uncontroversial when a company is seen as failing beyond rescue, when an apparently healthy company is the target, the process is much criticised, with investors accused of destroying a viable business for a fast profit. The term has acquired such negative connotations that few investors would use it to describe their own activities.

Source: europarl
Attributable Enterprise Value
The Attributable Enterprise Value is the Adjusted Enterprise Value attributable to the financial instruments held by the Fonds and other financial instruments in the entity that rank alongside or beneath the highest-ranking instrument of the Fonds.

Source: IPEV
AUM
Assets Under Management

Source: esma
AuRC
Auditing Regulatory Committee

Source: esma
Automatic conversion
Immediate conversion of an investor's priority shares to ordinary shares at the time of a company's underwriting before an offering of its stock on an exchange.

Source: ILPA
Average Company Financing
The dollar value of total capital invested divided by the total number of investee firms in a given period.

Source: ILPA
Average IRR
The arithmetic mean of the internal rate of return.

Source: ILPA
B
B Round
A financing event whereby professional investors such as venture capitalists are sufficiently interested in a company to provide additional funds after the "A" round of financing. Subsequent rounds are called "C", "D", and so on.

Source: ILPA
Backtesting
The process of using the observed value of an Investment as implied by a sale, liquidity event (e.g. an IPO) or other material change in facts with respect to the Investment, related Investments, or the Enterprise, to assess the Fair Value estimated at an earlier Measurement Date (or Measurement Dates).

Source: IPEV
Balance Sheet
A condensed financial statement showing the nature and amount of a company's assets, liabilities, and capital on a given date.

Source: ILPA
Balanced Fund
A private equity fund strategy whereby a wide range of investment targets is pursued, as distinct from a Specialized Fund.

Source: ILPA
Bankruptcy
An inability to pay debts. Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt.

Source: ILPA
Barbell Strategy
Investment strategy by limited partners that primarily make commitments to buyout firms on (1) the micro/small and (2) the large/mega ends of the market; while mostly eschewing the vast array of middle-market opportunities.

Source: ILPA
BATNA (best alternative to a negotiated agreement
A no-agreement alternative reflecting the course of action a party to a negotiation will take if the proposed deal is not possible.

Source: ILPA
Bear Hug
An offer made directly to the Board of Directors of a target company. Usually made to increase the pressure on the target with the threat that a tender offer may follow.

Source: ILPA
Benchmark
A point of reference against which the composite’s or pooled fund’s returns or risk are compared.

Source: GIPS
Benchmark description
General information regarding the investments, structure, and characteristics of the benchmark. The description must include the key features of the benchmark or the name of the benchmark for a readily recognized index or other point of reference.

Source: GIPS
Benchmarking
Comparing returns of a portfolio to the returns of its peers; in private equity, fund performance is benchmarked against a sample of funds formed in the same vintage year with the same investment focus.

Source: ILPA
Best Efforts
An offering in which the investment banker agrees to distribute as much of the offering as possible, and return any unsold shares to the issuer.

Source: ILPA
Blockage Factor
An adjustment that adds a discount or premia to the quoted price of a security because the normal daily trading volume, on the exchange where the security trades, is not sufficient to absorb the quantity held by the Fonds. Blockage Factors are not permitted under US GAAP or IFRS.

Source: IPEV
Blue Sky Laws
A common term that refers to laws passed by various states to protect the public against securities fraud. The term originated when a judge ruled that a stock had as much value as a patch of blue sky.

Source: ILPA
Book Value
Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share.

Source: ILPA
Bootstrapping
Means of financing a small firm by employing highly creative ways of using and acquiring resources without raising equity from traditional sources or borrowing money from the bank.

Source: ILPA
Break Up Fee
Requires the party responsible for a break-up in an acquisition to pay the other party a negotiated amount of liquidated damages.

Source: ILPA
Bridge Financing
Capital provided on a short-term basis to a company prior to its going public or its next major private equity transaction. 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.

Source: ILPA
Broad distribution pooled fund
A pooled fund that is regulated under a framework that would permit the general public to purchase or hold the pooled fund’s shares and is not exclusively offered in one-on-one presentations.

Source: GIPS
Broad-Based Weighted Average Ratchet
A type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A's preferred stock is repriced to a weighed average of investor A's price and investor B's price. A broad-based ratchet uses all common stock outstanding on a fully diluted basis (including all convertible securities, warrants and options) in the denominator of the formula for determining the new weighed average price. Compare Narrow-Based Weighted Average ratchet and Chapter 2.9.4.d.ii of the Encyclopedia.

Source: ILPA
Brokers
Private individuals or firms retained by early-stage companies to raise funds for a finder's fee. (compare, broker-dealer)

Source: ILPA
Bundled fee
A type of bundled fee that can include any combination of investment management fees, transaction costs, custody fees, et administrative fees. All-in fees are typically offered in certain jurisdictions where asset management, brokerage, and custody services are offered by the same company.

Source: GIPS
Burn Out / Cram Down
Extraordinary dilution, by reason of a round of financing, of a non-participating investor's percentage ownership in the issuer.

Source: ILPA
Burn Rate
The rate at which a company expends net cash over a certain period, usually a month.

Source: ILPA
Business Development Company (BDC)
A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.

Source: ILPA
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.

Source: ILPA
Buyout
Financing provided to acquire a company. It may use a significant amount of borrowed capital to meet the cost of acquisition. Typically by purchasing majority or controlling stakes.

Source: Invest Europe
Buyout Capital
A specialized form of private equity, characterized chiefly by risk investment in established private or publicly listed firms that are undergoing a fundamental change in operations or strategy (see: Event Transaction, Middle Market). Buyout funds are often called such, even if their mandates are not exclusively buyout-related.

Source: ILPA
Buyout fund
Fonds acquiring companies by purchasing majority or controlling stakes, financing the transaction through a mix of equity and debt.

Source: Invest Europe
C
CAGR
Compound Annual Growth Rate. The year over year growth rate applied to an investment or other aspect of a firm using a base amount.

Source: ILPA
Call Option
The right to buy a security at a given price (or range) within a specific time period.

Source: ILPA
Capital (or Assets) Under Management
The amount of capital available to a fund management team for venture investments. The total dollar value of capital resources, both invested and un-invested, in a private equity fund or market as a whole.

Source: ILPA
Capital Available for Investment
The total dollar value of Capital Under Management less those resources that have already been invested by a private equity fund. Also known as liquidity. In the case of Labour-sponsored Venture Capital Corporations, reserves required by statutes are not included in liquidity calculations.

Source: ILPA
Capital Call
Also known as a draw down - When a venture capital firm has decided where it would like to invest, it will approach its investors in order to "draw down" the money. The money will already have been pledged to the fund but this is the actual act of transferring the money so that it reaches the investment target.

Source: ILPA
Capital Commitment
Resources flowing from individual, institutional and other external sources to private equity funds.

Source: ILPA
Capital employed
The denominator of the component return calculation, defined as the “weighted-average equity” (weighted-average capital) during the measurement period. Capital employed does not include any income return or capital return earned during the measurement period. Beginning capital is adjusted by weighting the external cash flows that occurred during the period.

Source: GIPS
Capital Gains
The difference between an asset's purchase price and selling price, when the selling price is greater. Long-term capital gains (on assets held for a year or longer) are taxed at a lower rate than ordinary income. The proceeds obtained on the sale of assets.

Source: ILPA
Capital return
The change in value of the real estate investments and cash and/ or cash equivalent assets held throughout the measurement period, adjusted for all capital expenditures (subtracted) and net proceeds from sales (added). The capital return is computed as a percentage of the capital employed. Also known as “capital appreciation return” or “appreciation return.”

Source: GIPS
Capitalization Table
Also called a "Cap Table", this is a table showing the total amount of the various securities issued by a firm. This 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.

Source: ILPA
Capitalize
To record an outlay as an asset (as opposed to an Expense), which is subject to depreciation or amortization.

Source: ILPA
Captive funds
A venture capital firm owned by a larger financial institution, such as a bank.

Source: ILPA
Carried Interest
ILPA: A bonus entitlement accruing to an investment fund's management company. Carried interest becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate, if applicable. (Varies according to each unique Limited Partnership Agreement)

Invest EUROPE: A share of the gains of the fund which accrue to the GP/Manager. The calculation of carried interest is set out in the fund formation documents. The GP is required to invest in the fund in order to be entitled to receive carried interest. Carried interest is generally regarded as the main incentive to the GP and is a key mechanism for aligning the GP and LP interests in a fund. Carried interest is typically a fixed percentage of the fund’s net gains. Fund documents typically specify the “waterfall” of fund distributions between the GP and LPs, setting out when the carried interest is payable to the GP. Generally, carried interest is payable to the GP after LPs have been repaid an amount equal to their drawn down commitments plus a “preferred return.” Thereafter, the GPs typically have the right to “catch-up” their percentage share of distributions made to LPs that represent the preferred return, before distributions are shared in the intended ratio between the LPs and GP. Carried interest is sometimes referred to as “carry”.

GIPS: The profits that the general partner is allocated from the profits on the investments made by the investment vehicle. Also known as “carry” or “promote".

Source: ILPA, Invest EUROPE, GIPS
Carried Interest Accrued
The amount of carried interest payable accrued for payment to the General Partner.

Source: ILPA
Carried interest description
Information about the features of the carried interest calculation, such as the hurdle rate, crystallization schedule, et high watermark.

Source: GIPS
Carried Interest Earned
The amount of carried interest earned by the General Partner, regardless of payment.

Source: ILPA
Carried Interest in Escrow
The amount of carried interest in escrow as of the current period.

Source: ILPA
Carried Interest Paid
The amount of carried interest paid as of the current period.

Source: ILPA
Carve-out
A portion of a portfolio that is by itself representative of a distinct investment strategy. It may be used to create a track record for a narrower mandate from a multiple-strategy portfolio managed to a broader mandate.

Source: GIPS
Cash Position
The amount of cash available to a company at a given point in time.

Source: ILPA
Catch-up
This is a common term of the private equity partnership agreement. Once the general partner provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried interest, is reached.

Source: ILPA
CCP
Central Counterparty Clearing

Source: esma
CDO
Collateralized Debt Obligations

Source: esma
CDS
Credit Default Swaps

Source: esma
CEMA
Standing Committee for Market and Economic Analysis

Source: esma
CEREP
Central Ratings Repository

Source: esma
CFTC
Commodity Futures Trading Commission

Source: esma
Change of Control Provision
A clause in a business contract which stipulates that if ownership of a majority of the equity of a company changes hands, then the other party to the contract has a right to cancel, usually without liability for paying any compensation.

Source: ILPA
Chapter 11
The part of the Bankruptcy Code that provides for reorganization of a bankrupt company's assets.

Source: ILPA
Chapter 7
The part of the Bankruptcy Code that provides for liquidation of a company's assets.

Source: ILPA
Chinese wall
A barrier against information flows between different divisions or operating groups within banks and securities firms. Examples include a policy barrier between the trust department from making investment decisions based on any substantive inside information that may come into the possession of other bank departments. The term also refers to barriers against information flows between corporate finance and equity research and trading operations.

Source: ILPA
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.

Source: ILPA
Clawback
ILPA: A clawback obligation represents the general partner's promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund's limited partners an amount equal to what is determined to be "excess" distributions.

Invest EUROPE: GP clawback is the repayment of any excess carried interest received. It is designed to protect LPs and requires those who receive carried interest to return amounts received, in excess of the amount they should have received. The mechanisms used to achieve such repayment include the use of escrow arrangements (where a certain portion of the carried interest is put into an escrow account to safeguard the clawback obligation), periodic or annual true-up mechanisms or personal guarantees by the ultimate recipients of the carried interest. Note that a “true-up” is a calculation to determine how much carried interest is due to the GP based on all cash flows to the date of calculation. An “interim true-up”, generally only seen in deal-by-deal distribution models, is one which is calculated during the life of the fund and takes into account the value of unrealised investments. A “final true-up” takes place either at the end of the life of the fund, when all proceeds have been distributed, or at such later time as investors are required to return distributions to the fund pursuant to an LP clawback. If the amount of carried interest due to the GP, based on the true-up calculation, is less than the amount the GP has actually received, then the excess amount is required to be returned to LPs. An LP clawback is a mechanism which requires LPs to return distributions to cover potential fund liabilities, including indemnification obligations, and can be payable after the end of the life of the fund.

GIPS: The repayment of previously earned performance-based fees resulting from subsequent underperformance.

Source: ILPA, Invest EUROPE, GIPS
Clawback Provision
Guarantees that the stated profit allocation defined in the LPA is met at the end of a partnership's term with respect to the Limited Partners.

Source: ILPA
Closed-end Fund
IPLA : A type of fund that has a fixed number of shares outstanding, which are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock. The market price of a closed-end fund fluctuates in response to investor demand as well as changes in the values of its holdings or its Net Asset Value. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.

Europarl : Like a company, this type of fund issues a set number of shares in an initial public offering and they trade on an exchange. Its share price is determined not by the total value of the assets it holds, but by investor demand for the fund. Because an investor pulling out of a closed-end fund must sell its share of the fund on the market to another buyer, the fund's manager is not faced with the prospect of repaying large sums to his investors himself. In difficult times the fund manager can therefore continue taking more long-term decisions than an open-ended fund manager. Being quoted on stock markets, closed-ended funds have more reporting requirements than open-ended funds.

GIPS : A pooled fund that is not open for subscriptions and/or redemptions.

Source: ILPA
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.

Source: ILPA
Co-investment
ILPA : The syndication of a private equity financing round or an investment by individuals (usually general partners) alongside a private equity fund in a financing round. Two or more investors in a given transaction. Also known as syndication. The average rate of co-investment is the total number of investments made in the total number of deals in a given period.

Invest EUROPE : In relation to an LP co-investment, this is a co-investment by an LP in a portfolio company alongside a fund, where the LP is an investor in such fund. The term co-investment may also be used to refer to an external syndication of a private equity financing round. In contrast, the terms “consortium deal” or “club deal” are typically used to describe a situation where two or more funds with different GPs work together to acquire a stake in a portfolio company.

Source: ILPA
Co-Sale Provisions or Rights
Allows investors to sell their shares of stock in the same proportions and for the same terms as the founders, managers, or other investors, should any of those parties receive an offer.

Source: ILPA
Code
The Invest Europe Code of Conduct, which is as follows:
1. Act with integrity
2. Keep your promises
3. Disclose conflicts of interest
4. Act in fairness
5. Maintain confidentiality
6. Do no harm to the industry Compliance with the Code is mandatory for all Invest Europe members and it is expected that the member procures that its affiliates working with it will also adhere to the Code.

Source: Invest EUROPE
Collar Agreement
Agreed upon adjustments in the number of shares offered in a stock-for-stock exchange to account for price fluctuations before the completion of the deal.

Source: ILPA
Commission
European Commission

Source: esma
Commitment Period
The period of time within which the fund can make investments as established in the LPA for the fund.

Source: ILPA
Committed Capital / Capital commitment(s)
ILPA: The total dollar amount of capital pledged to a private equity fund.

GIPS: Pledges of capital to an investment vehicle by investors (limited partners and the general partner) or the firm. Committed capital is typically drawn down over a period of time. Also known as “commitments".

Source: ILPA, GIPS
Committed Funds or Raised Funds
Capital committed by investors. Cash to the maximum of these commitments may be requested or drawn down by the private equity managers usually on a deal-by-deal basis. This amount is different from invested funds for three reasons. First, most partnerships will initially invest only between 80% and 95% of committed funds (possibly even less). Second, it may be necessary in early years to deduct the annual management fee that is used to cover the cost of operation of a fund. Third, payback to investors usually begins before the final draw down of commitments has taken place. To the extent that capital invested does not equal capital committed, limited partners will have their private equity returns diluted by the much lower cash returns earned on the uninvested portion. Avoiding this situation is the main reason for the Partners Group over-commitment model, which aims to keep Partners Group products as close 100% invested as possible.

Source: ILPA
Common Stock
A unit of ownership of a corporation. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings. Investors who purchase common stock hope that the stock price will increase so the value of their investment will appreciate. Common stock offers no performance guarantees. Additionally, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Source: ILPA
Company Buyback
The redemption of private stock by the management of a Portfolio Company. This is a common Exit Mechanism for private equity funds. The redemption of private of restricted holdings by the portfolio company itself. In essence the company is buying out the VC's interest.

Source: ILPA
Composite
An aggregation of one or more portfolios that are managed according to a similar investment mandate, objective, or strategy.

Source: GIPS
Composite creation date
The date when the firm first groups one or more portfolios to create a composite. The composite creation date is not necessarily the same as the composite inception date.

Source: GIPS
Composite definition
Detailed criteria that determine the assignment of portfolios to composites. Criteria may include, but are not limited to, investment mandate, style or strategy, asset class, the use of derivatives, leverage and/or hedging, targeted risk metrics, investment constraints or restrictions, and/or portfolio type (e.g., segregated account or pooled fund; taxable versus tax exempt).

Source: GIPS
Composite description
General information regarding the investment mandate, objective, or strategy of the composite. The composite description may be more abbreviated than the composite definition but must include all key features of the composite and must include enough information to allow a prospective client to understand the key characteristics of the composite’s investment mandate, objective, or strategy, including:

• The material risks of the composite’s strategy.

• How leverage, derivatives, and short positions may be used, if they are a material part of the strategy.

• If illiquid investments are a material part of the strategy.

Source: GIPS
Composite inception date
The initial date of the composite’s track record.

Source: GIPS
Composite termination date
The date that the last portfolio exits a composite, or the date that the firm no longer manages the strategy for segregated accounts or offers the strategy to prospective clients.

Source: GIPS
Consolidation
Also called a leveraged rollup, this is an investment strategy in which a leveraged buyout (LBO) firm acquires a series of companies in the same or complementary fields, with the goal of becoming a dominant regional or nationwide player in that industry. In some cases, a holding company will be created to acquire the new companies. In other cases, an initial acquisition may serve as the platform through which the other acquisitions will be made.

Source: ILPA
Contributions
The total capital that a Limited Partner paid into the fund.

Source: ILPA
Conversion Ratio
The number of shares of stock into which a convertible security may be converted. The conversion ration equals the par value of the convertible security divided by the conversion price.

Source: ILPA
Conversion Rights
Rights by which preferred stock "converts" into common stock. Usually, one has this right at any time after making an investment. Company may want rights to force a conversion upon an IPO; upon hitting of certain sales or earnings' targets, or upon a majority or supermajority vote of the preferred stock. Conversion rights may carry with them anti-dilution protections.

Source: ILPA
Convertible Security
A bond, debenture or preferred stock that is exchangeable for another type of security (usually common stock) at a pre-stated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together with greater appreciation potential than regular bonds offer.(See Common Stock, Dilution, et Preferred Stock).

Source: ILPA
Corporate Charter
The document prepared when a corporation is formed. The Charter sets forth the objectives and goals of the corporation, as well as a complete statement of what the corporation can and cannot do while pursuing these goals.

Source: ILPA
Corporate Fund
A private equity fund that is a division or subsidiary of a financial or industrial corporation.

Source: ILPA
Corporate investor
Corporations manufacturing products or delivering non-financial services.

Source: Invest Europe
Corporate Venturing
Venture capital provided by [in-house investment funds of] large corporations to further their own strategic interests.

Source: ILPA
Corporation
A legal, taxable entity chartered by a state or the federal government. Ownership of a corporation is held by the stockholders. Two forms: "C Corp." and "S Corp." - the latter of which provides flow-through taxation.

Source: ILPA
Covenant
A protective clause in an agreement.

Source: ILPA
CPC
The Capital Pool Company program is a corporate finance tool for emerging companies offered through the TSX Venture Exchange. The CPC Program pairs an eligible private company with a public Capital Pool Company which serves as the vehicle for taking the private company public.

Source: ILPA
CPSS
Committee on Payment and Settlement Systems

Source: esma
CRAs
Credit Rating Agencies

Source: esma
CRD
Capital Requirements Directive

Source: esma
Credit Fund
A Private Capital fund that invests in fixed income Investments. A Credit Fund may invest in short-term or long-term bonds, securitised products, instruments or debt.

Source: IPEV
Cross-fund Investing
Where a firm invests in the same company at different times from different funds, i.e., uses their current fund towards a financing round in a company which forms part of the portfolio of one of their earlier funds.

Source: ILPA
Crystallization schedule
The point in time when the firm is entitled to receive the performance-based fee and the fee is effectively earned.

Source: GIPS
CSD
Central Securities Depositories

Source: esma
Cumulative Dividends
Dividends that accrue at a fixed rate until paid are "Cumulative Dividends" which are payments to shareholders made with respect to an investor's Preferred Stock. Generally, holders of Preferred Shares are contractually entitled to receive dividends prior to holders of Common Stock. Dividends can accumulate at a fixed rate (for example 8%) or simply be payable as and when determined by a company's Board of Directors in such amount as determined by the board. Because venture backed companies typically need to conserve cash, the use of Cumulative Dividends is customary with the result that the Liquidation Preference increases by an amount equal to the Cumulative Dividends. Cumulative Dividends are often waived if the Preferred Stock converts to Common Stock prior to an IPO but may be included in the aggregate value of Preferred Stock applied to the Conversion Ratio for other purposes. Dividends that are not cumulative are generally called "when, as and if declared dividends."

Source: ILPA
Cumulative Preferred Stock
A stock having a provision that if one or more dividend payments are omitted, the omitted dividends (arrearage) must be paid before dividends may be paid on the company's common stock.

Source: ILPA
Cumulative Voting Rights
When shareholders have the right to pool their votes to concentrate them on an election of one or more directors rather than apply their votes to the election of all directors. For example, if the company has 12 openings to the Board of Directors, in statutory voting, a shareholder with 10 shares casts 10 votes for each opening (10x12= 120 votes). Under the cumulative voting method however, the shareholder may opt to cast all 120 votes for one nominee (or any other distribution he might choose). Compare Statutory Voting.

Source: ILPA
Current Period
The current three month quarterly period.

Source: ILPA
Custody fee
The fee payable to the custodian for the safekeeping of portfolio assets. Custody fees are considered to be administrative fees and typically contain an asset-based portion and a transaction-based portion. The custody fee may also include charges for additional services, including accounting, securities lending, and/or performance measurement. Custodial fees that are charged per transaction should be included in the custody fee and not included as part of transaction costs.

Source: GIPS
D
Deal Flow
The measure of the number of potential investments that a fund reviews in any given period.

Source: ILPA
Deal Structure
An Agreement made between the investor and the company defining the rights and obligations of the parties involved. The process by which one arrives at the final term and conditions of the investment.

Source: ILPA
Debt
Interest-bearing securities that include senior debt, mezzanine loans, shareholder loans, etc. Debt Investments may include a cash pay coupon, payment in kind interest, and/or equity enhancements such as warrants.

Source: IPEV
Deemed Management Fee
The amount of the management fee waived.

Source: ILPA
Deficiency Letter
A letter sent by the SEC to the issuer of a new issue regarding omissions of material fact in the registration statement.

Source: ILPA
Demand Rights
Contemplate that the company must initiate and pursue the registration of a public offering including, although not necessarily limited to, the shares proffered by the requesting shareholder(s).

Source: ILPA
Depositary
This is a legally separate organisation where the formal documents showing who owns shares, bonds, etc. can be kept safely. A depositary generally has three core functions: the safe-keeping of the assets of the fund (the depositary holds the title of the assets when they are transferable instruments such as shares, or operates as a book-keeper complementing a broker’s job when it comes to derivatives); the day-to-day administration of the assets of the fund (the depositary receives the income generated by the assets); the control of the fund's operation (compliance with investment policies, notably proper creation/redemption/cancellation of the units/shares issued to the investors)

Source: europarl
Depreciation
An expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing the amount of a company's reported earnings.

Source: ILPA
Derivatives
Derivatives are financial instruments based on a contract between two or more parties. As their name indicates, their value is derived from other products since the fluctuations in these underlying products affect the resulting value of the derivative. Derivatives were created centuries ago to protect intensive users of a certain product from severe price movements. Thus, airlines buy fuel futures contracts (a type of derivative) to allow them to be certain of the price they will pay for airline fuel in a year's time. Without such futures, business decisions could not be made within a predictable environment. Derivatives are also used to insure against fluctuations in exchange rates, interest rates, as well as share prices and, more recently, the risk of a default on bonds (credit default swaps or CDS). Derivatives can be traded on markets before their expiration date in the same way as shares in a company. This has led them to be used as a speculative instrument. The latest case making the headlines related to the market activity in CDS tied to Greek government bonds. Derivatives can be traded privately ("over the counter" or OTC) or publicly through dedicated exchange platforms such as Eurex or the NYSE Euronext. For exchange-traded derivatives, the market price is usually transparent. However, complications can arise with OTC contracts, as trading is handled manually, with little opportunity for those other than the direct participants to learn the prices involved or the trades undertaken. In particular with OTC contracts, there is no central exchange to collate and disseminate prices. This lack of transparency as to, effectively, who owes what to whom, has made judging the value and even solvency of some financial firms extremely complex and has led to calls to limit the trade in OTC derivatives.

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

Source: ILPA
Dilution Protection
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.

Source: ILPA
Direct investments
Investments made directly in companies rather than investments made in fund investment vehicles or cash and/or cash equivalents.

Source: GIPS
Director
Person elected by shareholders to serve on the board of directors. The directors appoint the president, vice president and all other operating officers, and decide when dividends should be paid (among other matters).

Source: ILPA
Disbursement
The investments by funds into their portfolio companies. The actual dollar amount flowing from a private equity fund or funds to a company in a given transaction.

Source: ILPA
Disclosure Document
A booklet outlining the risk factors associated with an investment.

Source: ILPA
Disinvestment Period
Period in which the general partners focus on realizing returns on the fund's assets.

Source: ILPA
Distinct business entity
A unit, division, department, or office that is organizationally and functionally segregated from other units, divisions, departments, or offices and that retains discretion over the assets it manages and that should have autonomy over the investment decision making process. Possible criteria for determining this status include:

• Being a legal entity.

• Having a distinct market or client type (e.g., institutional, retail, or private client).

• Using a separate and distinct investment process.

Source: GIPS
Distressed debt
Corporate bonds of companies that have either filed for bankruptcy or appear likely to do so in the near future. 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. (This strategy explains why distressed debt firms are considered to be private equity firms).

Source: ILPA
Distressed or Forced Transaction
A forced liquidation or distress sale (i.e., a forced transaction) is not an Orderly Transaction and is not determinative of Fair Value. An entity applies judgement in determining whether a particular transaction is distressed or forced.

Source: IPEV
Distributed to Committed Capital (DCC)
The Ratio of total distributions to Limited Partners to date, to the total committed capital of the fund. As defined in the current GIPS Standards, any recallable distributions should be included in the numerator of this ratio.

Source: ILPA
Distributed to Paid in (DPI)
ILPA : The ratio of money distributed to Limited Partners by the Fonds, relative to contributions. As defined in the current GIPS Standards, any recallable distributions should be included in the numerator of this ratio. Any reinvested capital (resulting from recallable distributions) should be included in the denominator.

GIPS : Since-inception distributions divided by since-inception paid-in capital.

Source: ILPA, GIPS
Distribution(s)
Invest EUROPE: All amounts returned by the fund to the LPs. This can be in cash, or in shares or securities (in the latter case known as “distribution(s) in-specie”).

ILPA: Cash and/or securities paid out to the Limited Partners from the Limited Partnership.

GIPS: Cash or stock distributed to limited partners (or investors) from an investment vehicle. Distributions are typically at the discretion of the general partner (or the firm). Distributions include both recallable and non-recallable distributions.

Source: Invest EUROPE, ILPA, GIPS
Diversification
The process of spreading investments among various different types of securities and various companies in different fields.

Source: ILPA
Divestiture Financing
Capital provided to a company to facilitate the sale of its interest in a product, division or subsidiary to another business entity.

Source: ILPA
Dividend
The payments designated by the Board of Directors to be distributed pro-rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortune of the company and the amount of cash on hand and may be omitted if business is poor or if the Directors determine to withhold earnings to invest in capital expenditures or research and development. Dividends can be paid either in cash or in kind, i.e. additional shares of stock. Cumulative - Missed dividend payments that continue to accrue. Non-cumulative - Missed dividend payments that do not accrue. Participating - Dividends which share (participate) with common stock. Non-participating - Dividends which do not share with common stock.

Source: ILPA
Dollar Value Add
Dollar-weighted (returns)
A misleading term when compared with time-weighted returns. Simply the calculation of the IRR of a series of fund cashflows, i.e., the compound return over time. This is the classic measure of private equity returns, and is to be commended. Great care should be taken not to confuse this measure with time-weighted returns which, contrary to first impressions, actually means something completely different (and should be avoided at al costs).

Source: ILPA
Down Round
Issuance of shares at a later date and a lower price than previous investment rounds.

Source: ILPA
Drag-Along Rights
A majority shareholders' right, obligating shareholders whose shares are bound into the shareholders' agreement to sell their shares into an offer the majority wishes to execute.

Source: ILPA
Drawdown(s)
Invest EUROPE: LP commitments to a fund are drawn down as required over the life of the fund, to make investments and to pay the fees and expenses and other liabilities of the fund. When LPs are required to pay part of their commitment into the fund, GP issues a drawdown notice. Drawdowns are sometimes referred to as “capital calls”.

ILPA: When used by an investor, the total amount of committed capital which has actually been requested by its private equity funds. When used by a fund, the total amount of committed capital which it has actually drawndown from its investors.

Source: Invest EUROPE, ILPA
Due Diligence
A process undertaken by potential investors -- individuals or institutions -- to analyze and assess the desirability, value, and potential of an investment opportunity. The process of assessing the business and financial viability of a potential investment target, as well as the potential terms and conditions of an investment agreement.

Source: ILPA
E
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.

Source: ILPA
Early Stage Financing
Capital provided to a young or emerging company to facilitate its growth and development, as illustrated in Seed Financing and Start-up Financing.

Source: ILPA
Early Stage Fund
Venture capital funds focused on investing in companies in the early stages of their lives.

Source: Invest Europe
Early Stages of Development
Seed stage: A developing business entity that has not yet established commercial operations and needs financing for research and product development.

Start-up: A business in the earliest phase of established operations and needs capital for product development, initial marketing and other goals.

Other early stage: A firm that has begun initial marketing and related development and needs financing to achieve full commercial production and sales.

Source: ILPA
Earn out
A provision which used to be commonplace but is now increasingly rare whereby the buyer of acompany agres to pay the seller a fixed multiple of the actual profits of each of the next two or three years. The alternative is often to try to get certain minimum levels of future profits made the subject of a warranty, but this is now very difficult to achieve except in the case of a forced sale or a classic traditional-style MBO.

Source: ILPA
EBA
European Banking Authority

Source: esma
EBIT
Earnings before interest and tax

Source: IPEV
EBITA
Earnings before interest, tax, and amortisation

Source: IPEV
EBITDA
ILPA: Earnings Before Interest, Taxes, Depreciation and Amortization: A measure of cash flow calculated as: Revenue - Expenses (excluding tax, interest, depreciation and amortization). EBITDA looks at the cash flow of a company. By not including interest, taxes, depreciation and amortization, we can clearly see the amount of money a company brings in. This is especially useful when one company is considering a takeover of another because the EBITDA would cover any loan payments needed to finance the takeover.

IPEV: Earnings before interest, tax, depreciation, et amortisation

Source: ILPA, IPEV
ECB
European Central Bank

Source: esma
ECON
Economic and Monetary Affairs Committee of the European Parliament

Source: esma
Economies of Scale
Economic principle that as the volume of production increases, the cost of producing each unit decreases.

Source: ILPA
EEA
European Economic Area

Source: esma
EECS
European Enforcers’ Co-ordination Sessions

Source: esma
EFC
Economic and Financial Committee

Source: esma
EFRAG
European Financial Reporting Advisory Group

Source: esma
EIOPA
European Insurance and Occupational Pensions Authority

Source: esma
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.

Source: ILPA
EMIR
European Market Infrastructure Regulation

Source: esma
Employee Buyout Financing
Capital provided to facilitate the takeover of all or part of a business entity by employees or a labour organization.

Source: ILPA
Employee Stock Option Plan (ESOP)
A plan established by a company whereby a certain number of shares are 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.

Source: ILPA
Employee Stock Ownership Plan
A trust fund established by a company to purchase stock on behalf of employees.

Source: ILPA
Endowments and foundations
Endowment : An investment fund established by a foundation, university or cultural institution providing capital donations for specific needs or to further a company’s operating process. They are generally structured so that the principal amount invested remains intact (for perpetuity, for a defined period of time or until sufficient assets have been accumulated to achieve a designated purpose).
Foundations : A non-profit organisation through which private wealth is distributed for the public good. It can either donate funds and support other organisations, or provide the sole source of funding for their own charitable activities.

Source:
Enterprise
A commercial company or business financed through debt and equity capital provided by debt holders and owners.

Source: IPEV
Enterprise Value
ILPA: The total value of a business, the price at which it may be sold. Can be thought of as earnings x PE ratio (or any of the other earnings measures x the appropriate multiple) or as equity value + debt.

IPEV: The Enterprise Value is the total value of the financial instruments representing ownership interests (equity) in a business entity plus the value of its debt or debt-related liabilities, minus any cash or cash equivalents available to meet those liabilities.

Source: ILPA, IPEV
Environmental, Social and Governance (“ESG”)
ESG stands for the environmental, social and governance factors that can impact (the performance of) a portfolio company and/or an investment, including the GP itself. It is a phrase commonly used alongside responsible investment.

Source: Invest EUROPE
EP
European Parliament

Source: esma
Equity
Ownership interest in a company, usually in the form of stock or stock options.

Source: ILPA
Equity Kicker
Option for private equity investors to purchase shares at a discount. Typically associated with mezzanine financings where a small number of shares or warrants are added to what is primarily a debt financing.

Source: ILPA
ERISA
ILPA: ERISA shall mean the United States Employee Retirement Income Security Act of 1974, as amended, including the regulations promulgated there under.

Invest EUROPE : The US Employee Retirement Income Security Act of 1974, as amended.

Source: ILPA, Invest EUROPE
ERISA Significant Participation Test
A test that is satisfied if the General Partner determines in its reasonable discretion that Persons that are "benefit plan investors" within the meaning of Section (f)(2) of the Final Regulation constitute or are expected to constitute at least 25 percent in interest of the Limited Partners. Note that the test is 25% of the interests of all the limited partners, which means 20% (+/-) in the partnership as a whole, taking into account the general partner's interest.

Source: ILPA
ESAs
European Supervisory Authorities

Source: esma
ESC
European Securities Committee

Source: esma
ESCB
European System of Central Banks

Source: esma
ESFS
European System of Financial Supervision

Source: esma
ESMA
European Securities and Markets Authority

Source: esma
ESRB
European Systemic Risk Board

Source: esma
EU
European Union

Source: esma
Event Transaction
A generic term for a range of activity of interest to buyout and mezzanine funds. "Event" refers to the nature of the specific business objective that is the basis for financing, such as a Divestiture, Management Buyout and other buyout activity, Merger/Acquisition, Re-capitalization, Restructuring/Turnaround or Succession Plan.

Source: ILPA
Evergreen Promise
This occurs when the company agrees to pay an employee's salary for a number of years, regardless of when termination occurs, the day after he or she is employed or 10 years after.

Source: ILPA
Ex ante
Before the fact.

Source: GIPS
Ex post
After the fact.

Source: GIPS
Exercise Price
The price at which an option or warrant can be exercised.

Source: ILPA
Exit Mechanism
The strategic means by which a private equity fund liquidates its stake in a business and achieves optimal returns. There are multiple exit routes, including Acquisition, Company Buyback, Initial Public Offering, Secondary Purchase and Write-off.

Source: ILPA
Exit Strategy
A fund's intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company's shares after an initial public offering (IPO), a sale of the portfolio company or a recapitalization. Exiting climates: The conditions that influence the viability and attractiveness of various exit strategies.

Source: ILPA
Exit(s)
The realisation of an investment made by a fund. This will normally take the form of a sale or flotation (IPO) of the portfolio company.

Source: Invest EUROPE
Exits (AKA divestments or realizations)
The means by which a private equity firm realizes a return on its investment. Private equity investors generally receive their principal returns via a capital gain on the sale or flotation of investments. Exit methods include a trade sale (most common), flotation on a stock exchange (common), a share repurchase by the company or its management or a refinancing of the business (least common). A Secondary purchase of the LP interest by another private equity firm is becoming an increasingly common phenomenon.

Source: ILPA
Expansion Financing
Capital provided to a company to facilitate its growth and development objectives.

Source: ILPA
Expense ratio
The ratio of total pooled fund expenses to average net assets. The expense ratio should not reflect transaction costs.

Source: GIPS
External cash flow
Capital (cash or investments) that enters or exits a portfolio. Dividend and interest income payments are not considered external cash flows.

Source: GIPS
External valuation
An assessment of value performed by an independent third party.

Source: GIPS
F
Factoring
A procedure in which a firm can sell its accounts receivable invoices to a factoring firm, which pays a percentage of the invoices immediately, and the remainder (minus a service fee) when the accounts receivable are actually paid off by the firm's customers.

Source: ILPA
Fair Value
IPEV: Fair Value is the price that would be received to sell an asset in an Orderly Transaction between Market Participants given current market conditions at the Measurement Date.

GIPS: The amount at which an investment could be sold in an arm’s-length transaction between willing parties in an orderly transaction. The valuation must be determined using the objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, if available. In the absence of an objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, valuation must represent the firm’s best estimate of the fair value. Fair value must include any accrued income.

Source: IPEV, GIPS
Family office
An entity that provides services to one or more affluent families, including investment management and other services (accounting, tax, financial and legal advice etc.).

Source: Invest Europe
FASB
Financial Accounting Standards Board

Source: esma
FCD / FICOD
Financial Conglomerates Directive

Source: esma
Fee schedule
The firm’s current schedule of investment management fees or bundled fees appropriate to prospective clients or prospective investors.

Source: GIPS
Final Exit Date
The date and underlying holding has been sold or fully realized.

Source: ILPA
Final Regulation
An ERISA term, it is the United States Department of Labor's Final Regulation relating to the definition of "plan assets" in (29 C.F.R. ¤2510.3-101).

Source: ILPA
Financings and Investments
Each transaction involving a private equity fund or funds in a given portfolio company represents one round of financing. Each financing is made up of one or more investments, depending on the presence of co-investors. Financings are also known as deals.

Source: ILPA
Finder
A person who helps to arrange a transaction.

Source: ILPA
Firm
The entity defined for compliance with the GIPS standards.

Source: GIPS
First Close
An early close of part of a round financing upon the agreement of all parties. This is often used as part of a "Rolling closing" strategy.

Source: ILPA
First Refusal Rights
A negotiated obligation of the company or existing investors to offer shares to the company or other existing investors at fair market value or a previously negotiated price, prior to selling shares to new investors.

Source: ILPA
First-time Financing
See: New Investment

Source: ILPA
Fixed commitment
Having a predetermined amount of committed capital.

Source: esma
Fixed life
Having a predetermined, finite investment time horizon.

Source: GIPS
Flipping
The act of buying shares in an IPO and selling them immediately for a profit. Brokerage firms underwriting new stock issues tend to discourage flipping, and will often try to allocate shares to investors who intend to hold on to the shares for some time. However, the temptation to flip a new issue once it has risen in price sharply is too irresistible for many investors who have been allocated shares in a hot issue.

Source: ILPA
Flotation
When a firm's shares start trading on a formal stock exchange, such as the NASDAQ or the NYSE. This is probably the most profitable exit route for entrepreneurs and their financial backers.

Source: ILPA
Follow-on Financing
A supplementary round of financing in an existing Portfolio Company that builds on its original financing, generally in line with business growth and development. Venture-backed firms are often engaged in multiple follow-on deals.

Source: ILPA
Follow-on funding
Companies often require several rounds of funding. If a private equity firm has invested in a particular company in the past, and then provides additional funding at a later stage, this is known as 'follow-on funding'.

Source: ILPA
Follow-on Investment period
The period defined in the LPA whereby a fund can complete follow-on investments in underlying holdings.

Source: ILPA
Forced Buyback
Redemption of convertible debt, convertible preferred stock or common stock on pre-specified terms in situations where the company's value has not appreciated according to the agreed upon plan.

Source: ILPA
Forced Transaction
A Forced Transaction entails the involuntary sale of assets or securities to create liquidity in the event of an uncontrollable or unforeseen situation. Forced selling is normally carried out in reaction to an economic event, personal life change, company regulation, or legal order.

Source: IPEV
Foreign Investor
See: Investor Types

Source: ILPA
Form 10-K
This is the annual report that most reporting companies file with the Commission. It provides a comprehensive overview of the registrant's business. The report must be filed within 90 days after the end of the company's fiscal year.

Source: ILPA
Form 10-KSB
This is the annual report filed by reporting "small business issuers." It provides a comprehensive overview of the company's business, although its requirements call for slightly less detailed information than required by Form 10-K. The report must be filed within 90 days after the end of the company's fiscal year.

Source: ILPA
Form S-1
The form can be used to register securities for which no other form is authorized or prescribed, except securities of foreign governments or political sub-divisions thereof.

Source: ILPA
Form S-2
This is a simplified optional registration form that may be used by companies that have been required to report under the '34 Act for a minimum of three years and have timely filed all required reports during the 12 calendar months and any portion of the month immediately preceding the filing of the registration statement. Unlike Form S-1, it permits incorporation by reference from the company's annual report to stockholders (or annual report on Form 10-K) and periodic reports. Delivery of these incorporated documents as well as the prospectus to investors may be required.

Source: ILPA
Form SB-2
This form may be used by "small business issuers" to register securities to be sold for cash. This form requires less detailed information about the issuer's business than Form S-1.

Source: ILPA
Formation Date
The date a fund registers as a limited partnership.

Source: ILPA
Founder Vesting
A term imposed on founders of seed and early stage deals in which the founder ownership is subject to a vesting schedule with nothing up front and linear vesting over, typically, four years. The first twelve months ownership is often "cliff" vested after the first year with monthly vesting thereafter. For more mature companies, vesting credit can be applied at the time of investment. The purpose of this term is to protect investors from an early, unplanned exit by the founder and to provide investors with the equity necessary to attract a new management team.

Source: ILPA
Founders' Shares
Shares owned by a company's founders upon its establishment.

Source: ILPA
Free cash flow
The cash flow of a company available to service the capital structure of the firm. Typically measured as operating cash flow less capital expenditures and tax obligations.

Source: ILPA
FSB
Financial Stability Board

Source: esma
FSC
Financial Services Committee

Source: esma
FST
Financial Stability Table

Source: esma
Full Ratchet Anti-dilution
The sale of a single share at a price less than the favored investors paid reduces the conversion price of the favored investors' convertible preferred stock "to the penny". For example, from $1.00 to 50 cents, regardless of the number of lower priced shares sold.

Source: ILPA
Fully Diluted Earnings Per Share
Earnings per share are expressed as if all outstanding convertible securities and warrants have been exercised.

Source: ILPA
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.

Source: ILPA
Fund (Private Capital Fund)
ILPA: The pool of capital established for the purposes of private equity activity. Often a Management Company will be responsible for several funds that may vary according to mandate or investment period.

Invest EUROPE: Fund or private equity fund is the generic term used to refer to any designated pool of investment capital targeted at any stage of private equity investment from start-up to large buyout, including those held by corporate entities, limited partnerships and other investment vehicles, established with the intent to exit these investments within a certain timeframe. A closed-ended Limited Partnership is a common structure used for such a fund, but other legal forms are also used, e.g. FCPR, KG, SICAR, AB, BV and NV, etc.

IPEV: The Fund or Private Capital Fund is the generic term used in these Valuation Guidelines to refer to any designated pool of Investment capital targeted at all types and stages of Private Capital Investment from start-up to large buyout and including infrastructure and private credit Investment. It includes those pools held by corporate entities, limited partnerships, and other Investment vehicles. Institutional and retail investors provide the capital, which can be used, inter alia, to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.

Source: ILPA, Invest EUROPE, IPEV
Fund Age
The age of a fund (in years) from its first takedown to the time an IRR is calculated.

Source: ILPA
Fund Commitment/Investment Commitment
A Limited partner's obligation to provide a certain amount of capital to a private equity fund for investments.

Source: ILPA
Fund documents
The entire set of legal documents, including the Limited Partnership Agreement (LPA) or equivalent legally binding document and side letters agreed by the investors and the fund manager. Matters covered in the legal documentation include the establishment of the fund, management, and winding up of the fund and the economic terms agreed between the investors and the fund manager.

Source: Invest EUROPE
Fund Focus
The indicated area of specialization of a venture capital fund usually expressed as Balanced, Seed and Early Stage, Later Stage, Mezzanine or Leveraged Buyout (LBO).

Source: ILPA
Fund Manager
ILPA : See: Management Company

IPEV : The Fund Manager is responsible for implementing a Fonds’s investing strategy and managing its portfolio trading activities. The Fund Manager is also responsible for providing reporting data to the Fund’s investors.

Source: ILPA, IPEV
Fund of Funds
ILPA: A 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. They may be able to provide investors with a route to investing in particular funds that would otherwise be closed to them. Investing in fund of funds can also help spread the risk of investing in private equity because they invest the capital in a variety of funds.

Invest Europe: A private equity fund that primarily takes equity positions in other funds.

Europarl: A fund of funds (FOF) is an investment fund that invests in other funds with the main idea being that of tapping into the expertise of many managers and achieving maximum diversification. The concept is founded on the premise that not all investment managers are good in all markets and that not all managers are successful at all times. There are different types of 'fund of funds', each investing in a different type of collective investment scheme (typically one type per FoF), eg. hedge fund FoF, private equity FoF or investment trust FoF.

Source: ILPA, Invest Europe, Europarl
Fund Size
The total amount of capital committed by the investors of a venture capital fund.

Source: ILPA
Fund-of-Funds
ILPA: A professionally managed intermediary vehicle where-in individual and institutional investors allocate or pool assets for subsequent commitment to private equity funds.

IPEV: Fund-of-Funds is the generic term used in these Valuation Guidelines to refer to any designated pool of Investment capital targeted at Investment in underlying Private Capital Funds.

Source: ILPA, IPEV
Fund-raising
The activity whereby a private equity fund seeks to raise new Capital Commitments from external sources of supply. In Canada, the most active fund-raisers are LSVCCs and Private-Independent Funds.

Source: ILPA
Fundraising and fundraising team
The process by which money is raised to create a fund. Fonds are typically raised by a team of identified professionals within the GP that may include investor relations, fundraising and investment professionals (together, the “fundraising team”). The fundraising team may choose to work in conjunction with an intermediary (usually called a placement agent or placement adviser) particularly when looking to establish relationships with new LPs, as well as legal and other outside service providers.

Source: Invest EUROPE
G
GAAP
ILPA: Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures. GAAP is a combination of authoritative standards set by standard-setting bodies as well as accepted ways of doing accounting.

Esma: Generally Accepted Accounting Principles

Source: ILPA, Esma
Gatekeeper
Specialist advisers who assist institutional investors in their private equity allocation decisions. Institutional investors with little experience of the asset class or those with limited resources often use them to help manage their private equity allocation. Gatekeepers usually offer tailored services according to their clients' needs, including private equity fund sourcing and due diligence through to complete discretionary mandates. A professional advisor or intermediary operating in the private equity market on behalf of clients, such as institutional investors.

Source: ILPA
GDR's
Global Depositary Receipt (GDR's). Receipts for shares in a foreign based corporation traded in capital markets around the world. While ADR's permit foreign corporations to offer shares to American citizens, GDR's allow companies in Europe, Asia and the US to offer shares in many markets around the world.

Source: ILPA
General Partner (GP)
ILPA: The managing partner in a private equity management company who has unlimited personal liability for the debts and obligations of the limited partnership and the right to participate in its management. The General Partner is the intermediary between investors with capital and businesses seeking capital to grow. See: Limited Partnership.

GIPS: Typically, the manager of a limited partnership in which the limited partners are the other investors. The general partner earns an investment management fee that may include a percentage of the limited partnership’s profits. (See “carried interest.”)

Invest EUROPE: General Partner (GP) is the term typically used to refer to the different entities and professionals within a private equity firm which source, analyse, negotiate and advise on potential transactions as well as invest and manage the fund. It is this definition which is used for the purposes of this Handbook. More specifically, it means the general partner of a Limited Partnership. The term GP may also be used to refer to the manager or investment adviser of a fund, depending on the fund structure.

Source: ILPA
General Partner Clawback
This is a common term of the private equity agreement. To the extent that the general partner receives more than its fair share of profits, as determined by the carried interest, the general partner clawback holds the individual partners responsible for paying back the limited partners what they are owed.

Source: ILPA
General Partner Contribution
The amount of capital that the fund manager contributes to its own fund in the same way that a limited partner does. This is an important way in which limited partners can ensure that their interests are aligned with those of the general partner. While the U.S. Department of Treasury has removed the legal requirement of the general partner to contribute at least 1 percent of fund capital. A 1 percent general partner contribution remains standard practice, particularly among venture capital funds.

Source: ILPA
Generalist Fund
Fonds investing in all stages of private equity.

Source: Invest Europe
Geographical sources of funds
Capital raised from an LP located in the same country as the fund it commits to is usually considered to be domestically raised according to the Invest Europe classification.

Source: Invest Europe
Gips advertisement
An advertisement by a GIPS-compliant firm that adheres to the requirements of the GIPS Advertising Guidelines.

Source: GIPS
Gips compliance notification form
The form required to be filed with CFA Institute to notify CFA Institute that the firm claims compliance with the GIPS standards.

Source: GIPS
Gips composite report
A presentation for a composite that contains all the information required by the GIPS standards and may also include recommended information or supplemental information.

Source: GIPS
Gips pooled fund report
A presentation for a pooled fund that contains all the information required by the GIPS standards and may also include recommended information or supplemental information.

Source: GIPS
Gips report
Golden Handcuffs
This occurs when an employee is required to relinquish unvested stock when terminating his employment contract early.

Source: ILPA
Golden Parachute
Employment contract of upper management that provides a large payout upon the occurrence of certain control transactions, such as a certain percentage share purchase by an outside entity or when there is a tender offer for a certain percentage of a company's shares. Discussed in more detail at The Executive Employment Agreement.

Source: ILPA
Government agencies
Country, regional, governmental and European agencies or institutions for innovation and development.

Source: Invest Europe
Government Fund
A government-owned private equity fund, usually organized through a federal or provincial agency or crown corporation.

Source: ILPA
Gross
The IRR based upon the performance of the investments, not taking into account management fees or carried interest.

Source: ILPA
Gross Management Fee
The total amount of management fees paid by a Limited Partner, excluding management fee offsets.

Source: ILPA
Gross-of-fees
The return on investments reduced by any transaction costs.

Source: GIPS
Growth capital
A type of private equity investment (often a minority investment) in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business.

Source: Invest Europe
Growth Fund
Funds that make private equity investments (often minority investments) in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business.

Source: Invest Europe
H
Harvest
Reaping the benefits of investment in a privately held company by selling the company for cash or stock in a publicly held company, also known as an "exit strategy".

Source: ILPA
Headquarters
The geographical location of a portfolio company's main corporate office.

Source: ILPA
Hedge fund
As the name implies, hedge funds were initially designed with the aim of hedging (protecting against) some of the risks inherent in their investments using a variety of methods, including short selling (see below) and derivatives. However, the term "hedge fund" has also come to be applied to funds that do not, in fact, hedge their investments, but which may use “hedging” techniques and a wide range of other investment methods with the aim of increasing the return on their investment. Hedge funds also tend to differ from traditional investment funds in that a performance fee of perhaps 20 per cent of the increase in a fund’s value, if any, is paid to the fund manager. In most jurisdictions hedge funds are not open to general retail investors, but only to a limited range of professional investors or wealthy individuals who meet certain criteria set by regulators. Hedge funds, meanwhile, have until now been exempt from many regulations that govern ordinary investment funds, such as those restricting short selling, the use of derivatives and leverage (see below), and fee structures. The legislation now before the European Parliament aims to bring hedge funds within a more structured regulatory framework.

Source: europarl
Hedging
In finance, a hedge is undertaken to reduce risk by taking a position in one market in an attempt to offset exposure to price fluctuations in another market. There are many specific financial instruments to accomplish this, the most well known being 'futures contracts' for hedging the values of energy, precious metals, foreign currency, agricultural products and interest rate fluctuations. In these cases a company signs a contract for its future purchase of an essential product at a given price which means its costs for those products are predictable, enabling better planning. For more on this, see the definition of 'derivatives' below. Hedge funds use similar strategies to increase the predictability of their returns and protect themselves from shocks in one of their areas of activity, at a specific moment in time.

Source: europarl
High watermark
The return or value that a pooled fund or segregated account must exceed for the firm to be entitled to earn a performance-based fee.

Source: GIPS
Hockey Stick Projections
The general shape and form of a chart showing revenue, customers, cash, or some other financial or operational measure that increases dramatically at some point in the future. Entrepreneurs often develop business plans with hockey stick charts to impress potential investors.

Source: ILPA
Holding Company
Corporation that owns the securities of another, in most cases with voting control.

Source: ILPA
Holding Period
ILPA: The amount of time an investor has held an investment. The period begins on the date of purchase and ends on the date of sale, and determines whether a gain or loss is considered short-term or long-term, for capital gains tax purposes.

Invest EUROPE: The length of time an investment remains in a fund.

Source: ILPA, Invest EUROPE
Hot Issue
A newly issued stock that is in great public demand. Technically, it is when the secondary market price on the effective date is above the new issue offering price. Hot issues usually experience a dramatic rise in price at their initial public offering because the market demand outweighs the supply.

Source: ILPA
Hurdle
Use in its commonly accepted sense of a hurdle return, i.e., the lowest possible return which a particular investor will accept. However, also used specifically to describe a return which a GP has to at least equal before any carry is calculated or payable. This mechanism is commonly found in buyout and development capital funds, but rarely in venture funds.

Source: ILPA
Hurdle Rate
ILPA: The internal rate of return that a fund must achieve before its general partners or managers may receive an increased interest in the proceeds of the fund. Often, if the expected rate of return on an investment is below the hurdle rate, the project is not undertaken.

GIPS: Minimum rate of return that a pooled fund or segregated account must exceed in order for the investment manager to be able to accrue a performance-based fee.

Source: ILPA, GIPS
I
IA
Impact Assessment

Source: esma
IAASB
International Auditing and Assurance Standards Board

Source: esma
IASB
International Accounting Standards Board

Source: esma
IFRS
International Financial Reporting Standards

Source: esma
IFRS IC
International Financial Reporting Standards Interpretations Committee

Source: esma
Illiquid investments
Investments that may be difficult to sell without a price reduction or that cannot be sold quickly because of a lack of market or ready/willing investors.

Source: GIPS
ILPA Acronyms
AC/BU - Acquisition or buyout. BIO - Biotechnology. C - Corporate fund. COMM - Communications and networking. COMP - Computer software. CON - Consumer products and services. ELEC - Electronics and semiconductors. ES - Early stage. EX - Expansion. FI - Foreign investor. G - Government fund. GP - General Partner. INT - Internet specific. IT - Information technology. IN - Institutional investor. LP - Limited Partner. LPA - Limited Partnership Agreement. LS - Life sciences. LSVCC - Labour-sponsored venture capital corporation. MAN - Manufacturing and processing. MED - Medical/health related. MIS - Miscellaneous sectors. OT - Other (i.e. investor type, sector, stage of development). PI - Private independent fund. SE - Seed stage. ST - Start-up. TU - Turnaround. VC - Venture capital.

Source: ILPA
Income return
The investment income earned on all investments (including cash and cash equivalents) during the measurement period, net of all non-recoverable expenditures, interest expense on debt, and property taxes. The income return is computed as a percentage of the capital employed.

Source: GIPS
Incubator
An entity designed to nurture business concepts or new technologies to the point that they become attractive to venture capitalists. An incubator typically provides both physical space and some or all of the services-legal, managerial, and/or technical-needed for a business concept to be developed. Incubators often are backed by venture firms, which use them to generate early-stage investment opportunities.

Source: ILPA
Independent and captive funds
“Captive funds” refers to funds that are 100% owned by the parent organisation, while “independent funds” relates to semi-captive funds (those in which the parent owns less than 100%) as well as wholly independent funds. A fund that is 100% owned by capital markets or individuals is considered independent, so only 100% ownership by an institution qualifies the fund as captive

Source: Invest Europe
Industry
Refers to the private equity, venture capital and infrastructure industry, which includes GPs, LPs and the service providers to its participants. For the purposes of this Handbook, “industry” is used as a generic term to refer to and to encompass the full industry, including venture capital, infrastructure and private equity.

Source: Invest EUROPE
Informal Investor
See: Angel Investor.

Source: ILPA
Information Rights
Rights granting access to company's information, i.e. inspecting the company books and receiving financial statements, budgets and executive summaries.

Source: ILPA
Initial Investment Date
The date a fund completed its first contribution of capital to an underlying holding.

Source: ILPA
Initial Public Offering (IPO)
ILPA: The sale or distribution of the privately-held stock of a Portfolio Company on public markets for the first time. This is a common Exit Mechanism for private equity funds, especially venture capital funds. The sale or distribution of a stock of a portfolio company to the public for the first time. IPOs are often an opportunity for the existing investors (often venture capitalists) to receive significant returns on their original investment. During periods of market downturns or corrections the opposite is true.

Esma: Initial Public Offering

SourceILPA, Esma
Institutional Investor
Pension funds, insurance companies, endowments, charitable foundations, mutual funds and other non-bank financial institutions that are often key suppliers to private equity funds. Organizations that professionally invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, et endowment funds.

Source: ILPA
Institutional Venture Capital
The organized market for venture activity, based on an industry of management firms and funds, as distinct from the informal investment market (see: Angel Investors). Venture financing has taken place in Canada for decades, but a core industry emerged for the first time in the early 1980s.

Source: ILPA
Intellectual Property
A venture's intangible assets, such as patents, copyrights, trademarks, and brand name.

Source: ILPA
Internal dispersion
A measure of the spread of the annual returns of individual portfolios within a composite. Measures may include, but are not limited to, high/low, range, and standard deviation (asset weighted or equal weighted) of portfolio returns.

Source: GIPS
Internal rate of return (IRR)
The discount rate at which the present value of future cash flows of an investment equals to the cost of the investment. It is determined when the net present value of the cash outflows (the cost of the investment) and the cash inflows (returns on the investment) equal zero, with the discount rate equal to the IRR.

Source: ILPA
Invested Capital
The total amount of drawndown capital which has actually been invested in companies. In practice, this will be equal to the amount of drawndown capital less amounts which have been used to pay fees, or which are awaiting investment.

Source: ILPA
Investee Company
The term Investee Company refers to a single Enterprise or group of Enterprises in which a Fonds is invested either directly or through a number of dedicated holding companies.

Source: IPEV
Investment
ILPA: See: Financings and Investments.

IPEV: An Investment refers to the individual financial instruments held by the Fonds in an Investee Company.

Source: ILPA, IPEV
Investment agreements
These are the set of agreements relating to the acquisition of a portfolio company by the fund. They typically include a Share Purchase Agreement, regulating the actual purchase of interests in the company, and ancillary agreements, such as a Shareholders Agreement, setting out the understanding among the portfolio company’s shareholders with respect to the management and governance of the portfolio company post transaction. Investment Agreements may also include the arrangements with the management of the portfolio company. For the purposes of section 3 of this Handbook, reference to Investment Agreement also includes the articles of association of the portfolio company, shareholder loan agreements, investor rights’ agreements and other such agreements between the portfolio company shareholders.

Source: Invest EUROPE
Investment Bankers
Representatives of financial institutions engaged in the issue of new securities, including management and underwriting of issues as well as securities trading and distribution.

Source: ILPA
Investment Committee
It is normal for a GP to have an Investment Committee, which is the board of the GP or a specific body within the GP making the ultimate investment and divestment decisions. It will typically also make ownership-related decisions during the holding period of those investments, including follow-on investment decisions.

Source: Invest EUROPE
Investment Company Act of 1940
Investment Company Act shall mean the Investment Company Act of 1940, as amended, including the rules and regulations promulgated there under.

Source: ILPA
Investment Letter
A letter signed by an investor purchasing unregistered long securities under Regulation D, in which the investor attests to the long-term investment nature of the purchase. These securities must be held for a minimum of 1 year before they can be sold.

Source: ILPA
Investment management fee
The fee payable to the firm for management of a portfolio. Investment management fees are typically asset based (percentage of assets), performance based (see “performance-based fee”), or a combination of the two but may take different forms as well. Investment management fees also include carried interest.

Source: GIPS
Investment Multiple (TVPI)
ILPA: Calculation performed by adding the reported value and the distributions received and subsequently dividing that amount by the total capital contributed.

GIPS: Total value divided by since-inception paid-in capital.

Source: ILPA, GIPS
Investment period
Typically the initial few years of a fund’s term, during which time it is intended that the fund will make its investments.

Source: Invest EUROPE
Investment trust
An investment trust is a form of collective investment found mostly in the United Kingdom which holds a portfolio of securities on behalf of its own shareholders. Because an investment trust is itself a listed company, its shares can be bought and sold in the usual way. An investment trust manager is legally allowed to borrow capital to purchase shares. This leverage may increase investment gains but also increases investor risk. Investment trusts can also invest in unquoted or unlisted companies, which may not be trading on the stock exchange either because they don't wish to or because they do not meet the given criteria. This possibility, combined with the ability to borrow money for investments, can make investment trusts more volatile. Unlike hedge funds, most investment trusts are open to retail/inexperienced investors.

Source: europarl
Investor Types
The key players in the private equity industry, based on particular fund structures and sources of capital supply. In the United States, private equity is dominated by Private-Independent Funds, while Canadian activity is diversified across several major groups. Corporate funds (C): Subsidiaries of financial or industrial corporations. Government funds (G): Agencies or crown corporations owned by government. Institutional investors (IN): Funds managed inside certain large institutions. Retail Funds: Funds (e.g., LSVCCs, PVCCs) established with benefit of government tax credits to individuals. Private-Independent Funds (PI): Funds structured on Limited Partnerships and related vehicles. Foreign investors (FI): Non-resident private equity funds or corporations active in Canada. Other investors (OT): Investors with an interest in specific private equity deals, but without a permanent market presence.

Source: ILPA
IOSCO
International Organisation of Securities Commissions

Source: esma
IRA Rollover
The reinvestment of assets received as a lump-sum distribution from a qualified tax-deferred retirement plan. Reinvestment may be the entire lump sum or a portion thereof. If reinvestment is done within 60 days, there are no tax consequences.

Source: ILPA
IRR
ILPA: Internal Rate of Return. A typical measure of how VC Funds measure performance. IRR is a technically a discount rate: the rate at which the present value of a series of investments is equal to the present value of the returns on those investments.

Invest EUROPE: The Internal Rate of Return or “IRR” is one of the calculations used to measure the return of a private equity fund. IRRs are used in private equity instead of time-weighted returns (“TWRs”), which are more common in other asset classes. Technically, the IRR is defined as the discount rate which, when applied to all the cash flows in the fund and the fair value of the fund’s assets at a point in time, would produce a net present value of zero. In other words, the IRR represents an absolute measure of the cash flow return of a fund at a point in time. It is therefore one of the most common measures for comparing the performance of different funds covering different time periods. The IRR can be calculated on a net basis (meaning net of fees, expenses and carried interest) or a gross basis (meaning before fees, expenses and deduction of carried interest). The IRR is calculated as an annualised compounded rate of return, using actual cash flows and annual valuations.

Source: ILPA, Invest EUROPE
ISO
Incentive Stock Option. Plan which qualifying options are free of tax at the date of grant and the date of exercise. Profits on shares sold after being held at least 2 years from the date of grant or 1 year from the date of exercise are subject to favorable capital gains tax rate.

Source: ILPA
Issue Price
The price per share deemed to have been paid for a series of Preferred Stock. This number is important because Cumulative Dividends, Liquidation Preference and Conversion Ratios are all based on Issue Price. In some cases, it is not the actual price paid. The most common example is where a company does a bridge financing (a common way for investors to provide capital without having to value the Company as a whole) and sells debt that is convertible into the next series of Preferred Stock sold by the Company at a discount to the Issue Price.

Source: ILPA
Issued Shares
The amount of common shares that a corporation has sold (issued).

Source: ILPA
Issuer
Refers to the organization issuing or proposing to issue a security.

Source: ILPA
IT
Information Technology

Source: esma
J
J-Curve Effect
The curve realized by plotting the returns generated by a private equity fund against time (from inception to termination). The common practice of paying the management fee and start-up costs out of the first draw-down does not produce an equivalent book value. As a result, a private equity fund will initially show a negative return. When the first realizations are made, the fund returns start to rise quite steeply. 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.

Source: ILPA
K
Key Employees
Professional management attracted by the founder to run the company. Key employees are typically retained with warrants and ownership of the company.

Source: ILPA
Key Person and Key Person provisions
The key senior investment professionals actively involved in the sourcing, analysis, negotiation and subsequent monitoring of potential investments made by a fund are typically identified and named in the fund documents as Key Persons. Provisions are made regarding what happens should any of these individuals cease to devote sufficient time to the fund; so-called Key Person provisions.

Source: Invest EUROPE
Key Person Clause
If a specified number of key named executives cease to devote a specified amount of time to the Partnership, which may include time spent on other funds managed by the manager, during the commitment period, the "key person" clause provides that the manager of the fund is prohibited from making any further new investments (either automatically or if so determined by investors) until such a time that new replacement key executives are appointed. The manager will, however, usually be permitted to make any investments that had already been agreed to be made prior to such date.

Source: ILPA
L
Labour-sponsored Venture Capital Corporation (LSVCC)
A professionally managed private equity fund that raises capital on a retail basis from individual Canadians, with the assistance of federal and provincial government tax credits. LSVCCs operate according to some legislative specifications in most Canadian jurisdictions.

Source: ILPA
Large cash flow
The level at which the firm determines that an external cash flow may distort the return if the portfolio is not valued and a sub-period return is not calculated. The firm must define the amount in terms of the value of cash/asset flow or in terms of a percentage of the portfolio assets or composite assets. The firm must also determine if a large cash flow is a single external cash flow or an aggregate of a number of external cash flows within a stated period.

Source: GIPS
Late Stage Financing
A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume. Later stage funds often provide the financing to help a company achieve critical mass in order to position its shareholders for an Exit Event, e.g. an IPO on strategic sale of the company. Also see: Stages of Development.

Source: ILPA
Late Stages of Development
Expansion: An established or near-established company that needs capital to expand its productive capacity, marketing and sales.

Acquisition/Buyout: An established or near-established firm that needs financing to acquire all or a portion of another business entity for growth purposes, such as an Acquisition for Expansion Financing.

Turnaround: An established or near-established company that needs capital to address a temporary situation of financial or operational distress.

Other Stage: Includes Secondary Purchase, or the sale of portfolio assets among investors, and working capital.

Staggered Board: This is an anti-takeover measure in which the election of the directors is split in separate periods so that only a percentage (e.g. one-third) of the total number of directors come up for election in a given year. It is designed to make taking control of the board of directors more difficult.

Source: ILPA
Later stage venture
Financing provided for an operating company, which may or may not be profitable. Late stage venture tends to be financing into companies already backed by VCs. Typically in C or D rounds.

Source: Invest Europe
Later Stage Venture Fund
Venture capital funds providing capital for an operating company which may or may not be profitable. Typically in C or D rounds.

Source: Invest Europe
Lead Investor
The member of a private equity syndicate that leads other co-investors into successful conclusion of a company financing. Reporting of Lead Investor commenced in January 2004. Also known as a bell cow investor. Member of a syndicate of private equity investors holding the largest stake, in charge of the financing and most actively involved in the overall project.

Source: ILPA
Lemon
An investment that has a poor or negative rate of return. An old venture capital adage claims that "lemons ripen before plums."

Source: ILPA
Leverage
Leverage, in general, means using techniques to increase the returns offered by an investment strategy, for example investing borrowed money alongside capital. If the gains from investing the borrowed money are larger than the cost of borrowing, the leverage used pays off a profit. Leverage is attractive to companies because it can increase returns for shareholders and can allow large investments to be made through debt and not by issuing new shares (which would dilute the existing owner’s stake in the company) It can also have tax advantages, since interest payments are deductible from the company’s pre-tax profits, unlike dividend payments to shareholders. If kept at sound levels leverage can therefore contribute to increasing a company's wealth. But if companies borrow too much – become too “highly leveraged” – they can be vulnerable in the event of a crisis or downturn – or simply if their plans turn out to be over-optimistic. This was the case with a number of banks prior to the financial crisis of 2007-2008, with Lehman Brothers for example having 30 times more debt than capital on its books. When profits were not being made through the money borrowed, the interest expense on the vast debt and credit risk of default destroyed all shareholder value. It should be noted that capital requirement rules in themselves do not limit the use a company can make of leverage.

Source: ILPA
Leveraged Buyout (LBO)
A takeover of a company, using a combination of equity and borrowed funds. Generally, the target company's assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds, using the assets of the company as collateral, in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares. A substantially debt-weighted financing of an Acquisition.

Source: ILPA
Lifestyle firms
Category comprising around 90 percent of all start-ups. These firms merely afford a reasonable living for their founders, rather than incurring the risks associated with high growth. These ventures typically have growth rates below 20 percent annually, have five-year revenue projections below $10 million, and are primarily funded internally-only very rarely with outside equity funds.

Source: ILPA
Limited distribution pooled fund
Any pooled fund that is not a broad distribution pooled fund.

Source: GIPS
Limited Partner
ILPA: The investors in a limited partnership. (See: Limited Partnership.) Limited partners are not involved in the day-to-day management of the partnership and generally cannot lose more than their capital contribution.

GIPS: An investor in a limited partnership.

Invest EUROPE: A Limited Partner (LP) is an investor in a fund. More specifically, it means the limited partner in a Limited Partnership. LPs in a fund include sophisticated investors, such as pension funds/ retirement systems, insurance companies, experienced high-net-worth individuals and entrepreneurs, sovereign wealth funds, endowment funds, foundations and family offices.

Source: ILPA, GIPS, Invest EUROPE
Limited Partner Clawback
This is a common term of the private equity partnership agreement. It is intended to protect the general partner against future claims, should the general partner of the limited partnership become the subject of a lawsuit. Under this provision, a fund's limited partners commit to pay for any legal judgment imposed upon the limited partnership or the general partner. Typically, this clause includes limitations in the timing or amount of the judgment, such as that it cannot exceed the limited partners' committed capital to the fund.

Source: ILPA
Limited Partnership (LP)
ILPA: An organization comprised of a general partner, who manages a fund, et limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners receive income, capital gains, and tax benefits. A legal fund structure most frequently used by Private-Independent Funds to raise capital from external sources, such as institutional investors. The primary relationship in this structure is the general partner (the fund manager) and the limited partner (the capital source).

GIPS: The legal structure used by many private market investment closed-end pooled funds. Limited partnerships are usually fixed life investment vehicles. The general partner manages the limited partnership pursuant to the partnership agreement.

Invest EUROPE: A legal structure commonly used by many private equity funds. It is used especially when catering for broad categories of international investors looking to make cross-border investments. The partnership is usually a fixed-life investment vehicle, and consists of a general partner (the GP/manager of the fund which has unlimited liability) and limited partners (the LPs which have limited liability and are not involved with the day-to-day operations of the fund).

Source: ILPA, GIPS, Invest EUROPE
Limited Partnership Agreement (LPA)
The document which constitutes a Limited Partnership. These will be the subject of discussion and negotiation prior to first closing.

Source: ILPA
Link
The method by which sub-period returns are geometrically combined to calculate the period return, or by which periodic returns are geometrically combined to calculate longer-period returns, using the following formula:

Period return = [(1 + R1) × (1 + R2) … (1 + Rn)] – 1

where R1, R2 … Rn are the sub-period or periodic returns for sub-periods or periods 1 through n, respectively.

Source: GIPS
Liquidation
1) The process of converting securities into cash.
2) The sale of the assets of a company to one or more acquirers in order to pay off debts. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Source: ILPA
Liquidation Preference
The amount per share that a holder of a given series of Preferred Stock will receive prior to distribution of amounts to holders of other series of Preferred Stock of Common Stock. This is usually designated as a multiple of the Issue Price, for example 2X or 3X, and there may be multiple layers of Liquidation Preferences as different groups of investors buy shares in different series. For example, holders of Series B Preferred Stock may be entitled to receive 3X their Issue Price, and then if any money is left, holders of Series A Preferred Stock may be entitled to receive 2X their Issue Price and then holders of Common Stock receive whatever is left. The trigger for the payment of the Liquidation Preference is a sale or liquidation of the company, such as a merger or other transaction where the company stockholders end up with less than half of the ownership of the new entity or a liquidation of the company.

Source: ILPA
Liquidity
IPEV: A measure of the ease with which an asset may be converted into cash. A highly liquid asset can be easily converted into cash; an illiquid asset may be difficult to convert into cash. Liquidity represents the relative ease and promptness with which an instrument may be sold when desired.

ILPA: See: Capital Available for Investment.

Source: IPEV, ILPA
Liquidity Event
An event that allows a VC to realize a gain or loss on an investment. The ending of a private equity provider's involvement in a business venture with a view to realizing an internal return on investment. Most common exit routes include Initial Public Offerings [IPOs], buy backs, trade sales and secondary buy outs.

Source: ILPA
LLC - Limited Liability Company
A company owned by "members" who either manage the business themselves or appoint "managers" top run it for them. All members and managers have the benefit of limited liability, and, in most cases, are taxed in the same way as a subchapter S corporation, i.e. flow-through taxation, without having to conform to the S Corporation restrictions.

Source: ILPA
Lock-up Period
The period of time that certain stockholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups of at least 180 days from large shareholders (1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners and such large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed.

Source: ILPA
Lower Quartile
The point at which 75% of all returns in a group are greater and 25% are lower.

Source: ILPA
LP Advisory Committee (“LPAC”)
The LPAC is typically comprised of a cross-section of LPs in a fund. The role of the LPAC is essentially to be consulted by the GP on material matters affecting the fund and on conflicts of interest. More generally, it acts as a sounding board for the GP.

Source: Invest EUROPE
M
M&A
MAD
Market Abuse Directive

Source: esma
Management Buyout Financing
Capital provided to facilitate the takeover of all or part of a business entity by a team of managers. 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.

Source: ILPA
Management Company
The professional manager of a private equity fund or funds.

Source: ILPA
Management fee(s) or Priority profit share
Invest EUROPE: These are the terms that are used to refer to the fee/profit share paid by the fund to the GP. For the GP to be able to employ and retain staff in order to invest and properly manage the fund until such time as profits are realised, it will typically receive, on a quarterly basis, an advance from LPs to cover the fund’s overhead costs. This management charge, generally funded out of LP commitments, is generally equal to a certain percentage of the committed capital of the fund during the investment period and thereafter a percentage of the cost of investments still held by the fund.

ILPA: The management fee is used to provide the partnership with resources such as investment and clerical personnel, office space and administrative services required by the partnership.

Source: Invest EUROPE, ILPA
Management Fees Offsets
The extent to which monitoring, transaction, and other portfolio company related expenses, paid to the General Partner are offset against management fees.

Source: ILPA
Management Team
The persons who oversee the activities of a venture capital fund.

Source: ILPA
Management/ Owner buy-back
The buyer of the company is its management team.

Source: Invest Europe
Mandatory Redemption
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.

Source: ILPA
Market Capitalization
The total dollar value of all of a company's outstanding shares. It is calculated by multiplying the number of outstanding shares times the current market share price and is often referred to as market cap. 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.

Source: ILPA
Market Participants
Buyers and sellers in the Principal (or Most Advantageous) Market for the asset that have the following characteristics:
a. They are independent of each other;
b. They are knowledgeable;
c. They are able to transact; and
d. They are willing to transact, that is, they are motivated but not forced or otherwise compelled to do so.

Source: IPEV
Market Standoff Agreement
Similar to Lock-Up Agreements and prevents selling company stock for number of predetermined days after a previous stock offering by the company.

Source: ILPA
Market value
The price at which investors can buy or sell an investment at a given time multiplied by the quantity held, plus any accrued income.

Source: GIPS
Marketability
The time required to complete a transaction or sell an Investment. Accounting standards dictate that the Marketability period begins sufficiently in advance of the Measurement Date such that the hypothetical transaction determining Fair Value occurs on the Measurement Date. Therefore, accounting standards do not allow a discount for Marketability when determining Fair Value.

Source: IPEV
Master-feeder funds
The master-feeder fund structure allows fund managers to benefit from the efficiencies of larger pools of finances while providing the flexibility of designing smaller funds, which are tailor-made for different market situations. One or more investment vehicles pool their finances within another vehicle – i.e. there are several smaller feeder funds and one master to which they contribute. This master fund is then responsible for performing all the investments of the assets transferred to it from the feeders. Sometimes, especially when the feeders are hedge funds, this is a way of complying with the distinct legal systems of separate jurisdictions.

Source: europarl
Material error
An error in a gips composite report or gips pooled fund report that must be corrected and disclosed in a corrected gips composite report or gips pooled fund report.

Source: GIPS
Measurement Date
The date for which the valuation is being prepared, which often equates to the reporting date.

Source: IPEV
Merchant Banking
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.

Source: ILPA
Merger
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. The strategic combination of one business entity with another, often with the assistance of private equity.

Source: ILPA
Mezzanine Capital
A specialized form of private equity, characterized chiefly by use of Subordinated Debt, or preferred stock with an equity kicker, to invest largely in the same realm of companies and deals as buyout funds (see: Event Transaction, Middle Market).

Source: ILPA
Mezzanine Financing
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.

Source: ILPA
Mezzanine fund
Fonds using a hybrid of debt and equity financing, comprising equity-based options (such as warrants) and lower-priority (subordinated) debt.

Source: Invest Europe
Middle Market
A generic term used to describe the universe of well-established, and mostly private, companies in traditional sectors that form the demand side of much buyout and mezzanine activity.

Source: ILPA
Middle-Market Firms
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.

Source: ILPA
MiFID
Markets in Financial Instruments Directive

Source: esma
Minimum effective compliance date
The date after which a firm may present only GIPS-compliant performance. Real estate and private equity composites and pooled funds and wrap fee composites have a minimum effective compliance date of 1 January 2006. All other composites and pooled funds have a minimum effective compliance date of 1 January 2000.

Source: GIPS
Money-weighted return (mwr)
The return for a period that reflects the change in value and the timing and size of external cash flows.

Source: GIPS
Most Advantageous Market
The market that maximises the amount that would be received to sell an asset after taking into account transaction costs and transportation costs.

Source: IPEV
Most Favoured Nation
The Most Favoured Nation (or “MFN”) clause is a common protection sought by LPs in which the GP assures the LP that it will also benefit from any provisions granted to other LPs. The MFN provision usually carves out specific provisions that relate to tax or regulatory considerations of individual LPs. The MFN may be found in the constitutional documents of the fund or in side letters agreed between an individual LP and the GP.

Source: Invest Europe
MoU
Memorandum of Understanding

Source: esma
MTF
Multilateral Trading Facility

Source: esma
Must
A provision, task, or action that is mandatory or required to be followed or performed. (See “require/requirement”)

Source: GIPS
Must not
A task or action that is forbidden or prohibited.

Source: GIPS
Mutual Fund
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.

Source: ILPA
N
Naked short selling
Naked short selling is a case of short selling without first arranging to borrow the shares. If the stock is in short supply, finding shares to borrow can be difficult. The seller may also decide not to borrow the shares because of the lending costs. This practice allows an unlimited number of shares to be sold short with the result that a company's share price can be driven down faster than by regular short selling. In 2008 it was argued that naked short selling contributed to the rapid demise of Lehman Brothers and Bear Stearns. As in short selling, naked short selling, notably of shares of financial institutions, faces tightened legislation in view of the recent crisis but rules vary from country to country.

Source: europarl
Narrow-Based Weighted Average Ratchet
A type of anti-dilution mechanism. A weighted average ratchet adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A's preferred stock is repriced to a weighed average of investor A's price and investor B's price. A narrow-based ratchet uses only common stock outstanding in the denominator of the formula for determining the new weighed average price.

Source: ILPA
NASD
The National Association of Securities Dealers. Any mandatory association of brokers and dealers in the over the counter securities business. Created by the Maloney Act of 1938, an amendment to the Securities Act of 1934.

Source: ILPA
NASDAQ
An automated information network which provides brokers and dealers with price quotations on securities traded over the counter.

Source: ILPA
NCAs
National Competent Authorities

Source: esma
NDA (Non-disclosure agreement)
An agreement issued by entrepreneurs to potential investors to protect the privacy of their ideas when disclosing those ideas to third parties.

Source: ILPA
Net Asset Value (“NAV”)
IPEV: NAV of a Fonds is the amount estimated as being attributable to the investors in that Fonds on the basis of the Fair Value of the underlying Investee Companies and other assets and liabilities.

ILPA: NAV is calculated by adding the value of all of the investments in the fund and dividing by the number of shares of the fund that are outstanding. NAV calculations are required for all mutual funds (or open-end funds) and closed-end funds. The price per share of a closed-end fund will trade at either a premium or a discount to the NAV of that fund, based on market demand. Closed-end funds generally trade at a discount to NAV.

Source: IPEV, ILPA
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.

Source: ILPA
Net Income
The net earnings of a corporation after deducting all costs of selling, depreciation, interest expense and taxes.

Source: ILPA
Net IRR
The dollar-weighted internal rate of return, net of management fees and carried interest generated by an investment in the fund. The return considers the daily timing of all cash flows and cumulative fair stated value, as of the end of the reported period.

Source: ILPA
Net Management Fee
Net Present Value
An approach used in capital budgeting where the present value of cash inflow is subtracted from the present value of cash outflows. NPV compares the value of a dollar today versus the value of that same dollar in the future after taking inflation and return into account. A firm or project's net contribution to wealth. This is the present value of current and future income streams, minus initial investment.

Source: ILPA
Net-of-fees
The gross-of-fees return reduced by investment management fees.

Source: GIPS
New Investment
The original round of financing in a company. Venture-backed firms typically receive further Follow-on Financing as they grow and develop in portfolios. Also known as a first-time transaction.

Source: ILPA
New Issue
A stock or bond offered to the public for the first time. New issues may be initial public offerings by previously private companies or additional stock or bond issues by companies already public. New public offerings are registered with the Securities and Exchange Commission.

Source: ILPA
Newco
The typical label for any newly organized company, particularly in the context of a leveraged buyout.

Source: ILPA
No Shop, No Solicitation Clauses
A no shop, no solicitation, or exclusivity, clause requires the company to negotiate exclusively with the investor, and not solicit an investment proposal from anyone else for a set period of time after the term sheet is signed. The key provision is the length of time set for the exclusivity period.

Source: ILPA
No-Fault Divorce
A "no fault divorce" clause permits investors at a time after the final closing date, to remove the general partner of a fund and either terminate the Partnership or appoint a new general partner. This clause covers situations where the general partner has not defaulted or breached the terms and conditions of the Limited Partnership Agreement. Either an ordinary consent or a special consent may be required to effectuate the removal of the general partner and this clause will usually be subject to the general partner receiving compensation for its removal.

Source: ILPA
Non-accredited
An investor not considered accredited for a Regulation D offering. (Accredited Investor).

Source: ILPA
Non-Compete Clause
An agreement often signed by employees and management whereby they agree not to work for competitor companies or form a new competitor company within a certain time period after termination of employment. Governed by state law.

Source: ILPA
NYSE
The New York Stock Exchange. Founded in 1792, the largest organized securities market in the United States. The Exchange itself does not buy, sell, own or set prices of stocks traded there. The prices are determined by public supply and demand. Also known as the Big Board.

Source: ILPA
O
OAM
Officially Appointed National Mechanism

Source: esma
OFC
Non-cooperative Jurisdictions

Source: esma
Offering Memorandum
An OM is a document issues by or on behalf of a private equity firm with the object of raiding money from the investment community. Sometimes referred to as a Private Placing Memorandum.

Source: ILPA
Offering Size
Total dollar amount raised through an IPO.

Source: ILPA
Open-end Fund
ILPA: An open-end fund, or a mutual fund, generally 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 generally sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor generally buys newly issued shares directly from the fund.

GIPS: A pooled fund in which the number of investors is not fixed and the fund is open for subscriptions and/or redemptions.

Europarl: This fund does not have restrictions on the number of shares to be issued. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-ended funds also buy back shares when investors wish to sell. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders. The price at which shares in an open-ended fund are issued or can be redeemed will vary in proportion to the value of the fund's assets and will therefore directly reflect the fund's performance. Hedge funds are typically open-ended funds.

Source: ILPA, GIPS, Europarl
Option Pool
The number of shares set aside for future issuance to employees of a private company.

Source: ILPA
Orderly Transaction
An Orderly Transaction is a transaction that assumes exposure to the market for a period prior to the Measurement Date to allow for marketing activities that are usual and customary for transactions involving such assets; it is not a Forced Transaction.

Source: IPEV
Original Issue Discount (OID)
A discount from par value of a bond or debt-like instrument. In structuring a private equity transaction, the use of a preferred stock with liquidation preference or other clauses that guarantee a fixed payment in the future can potentially create adverse tax consequences. The IRS views this cash flow stream as, in essence, a zero coupon bond upon which tax payments are due yearly based on "phantom income" imputed from the difference between the original investment and "guaranteed" eventual payout. Although complex, the solution is to include enough clauses in the investment agreements to create the possibility of a material change in the cash flows of owners of the preferred stock under different scenarios of events such as a buyout, dissolution or IPO.

Source: ILPA
Other asset manager
A financial institution (other than a bank, endowment, family office, foundation, insurance company or pension fund) managing a pool of capital by investing it across different asset classes with the purpose of generating financial returns. It may include private equity direct funds that occasionally do indirect investments, but excludes fund of funds that are a standalone option.

Source: Invest Europe
Outstanding Stock
The amount of common shares of a corporation which are in the hands of investors. It is equal to the amount of issued shares less treasury stock.

Source: ILPA
Over-the-Counter (OTC)
ILPA: A market for securities made up of dealers who may or may not be members of a formal securities exchange. The over-the-counter market is conducted over the telephone and is a negotiated market rather than an auction market such as the NYSE.

Esma: Over-The-Counter

Source: ILPA, Esma
Overhang
Capital raised by private equity funds but as yet uninvested. This can become acute when levels of investment fail to keep pace with levels of fundraising. Overhang will tend to put upward pressure on valuations, raise suspicions that deal quality may be sacrificed in order to put money to work, and may also stretch out the fund cycle.

Source: ILPA
Overlay exposure
The economic value for which a firm has investment management responsibility. Overlay exposure is the notional value of the overlay strategy being managed, the value of the underlying portfolios being overlaid, or a specified target exposure.

Source: GIPS
Overlay strategy
A strategy in which the management of a certain aspect of an investment strategy is carried out separately from the underlying portfolio. Overlay strategies are typically designed either to limit or maintain a specified risk exposure that is present in the underlying portfolio or to profit from a tactical view on the market by changing a portfolio’s specified risk exposure.

Source: GIPS
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.

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

Source: ILPA
P
Paid-in Capital
ILPA: The amount of committed capital a limited partner has actually transferred to a venture fund. Also known as the cumulative takedown amount.

GIPS: Capital inflows to a pooled fund or composite. It includes committed capital drawn down through capital calls and distributions that are subsequently recalled and reinvested.

Source: ILPA, GIPS
Paid-in to Capital Committed (PICC)
The ratio of contributions to date measured against its committed capital.

Source: ILPA
Pari Passu
At an equal rate or pace, without preference.

Source: ILPA
Participating Preferred
A preferred stock in which the holder is entitled to the stated dividend, and also to additional dividends on a specified basis upon payment of dividends to the common stockholders. The preferred stock entitles the owner to receive a predetermined sum of cash (usually the original investment plus accrued dividends) if the company is sold or has an IPO. The common stock represents additional continued ownership in the company.

Source: ILPA
Participation
Describes a right of a holder of Preferred Stock to enjoy both the rights associated with the Preferred Stock and also participate in any benefit available to Common Stock, without converting to Common Stock. This may occur with Liquidation Preferences, for example, a series of Preferred Stock may have the right to receive its Liquidation Preference and then also share in whatever money is left to be distributed to the holders of Common Stock. Dividends may also be "Participating" where after a holder of Preferred Stock receives its Cumulative Dividend it also receives any dividend paid on the Common Stock.

Source: ILPA
Partnership
A nontaxable entity in which each partner shares in the profits, loses and liabilities of the partnership. Each partner is responsible for the taxes on its share of profits and loses.

Source: ILPA
Partnership Agreement
The contract that specifies the compensation and conditions governing the relationship between investors (LP's) and the venture capitalists (GP's) for the duration of a private equity fund's life.

Source: ILPA
Partnership Expenses
Expenses borne by the partnership including costs associated with the organization of the partnership, the purchase, holding or sale of securities, and legal and auditing expenses.

Source: ILPA
Pay to Play
A "Pay to Play" provision is a requirement for an existing investor to participate in a subsequent investment round, especially a Down Round. Where Pay to Play provisions exist, an investor's failure to purchase its pro-rata portion of a subsequent investment round will result in conversion of that investor's Preferred Stock into Common Stock or another less valuable series of Preferred Stock.

Source: ILPA
Payback Period
The length of time which is takes to recover your initial capital on any investment, i.e., for the investment to return 1x. Once widely used as a means of evaluating rival projects or investments for capital allocation purposes but now largely superseded by IRR.

Source: ILPA
Penny Stocks
Low priced issues, often highly speculative, selling at less than $5/share.

Source: ILPA
Pension funds
A pension fund that is regulated under private or public sector law.

Source: Invest Europe
Performance examination
A process by which an independent verifier conducts testing of a specific composite or pooled fund in accordance with the required performance examination procedures of the GIPS standards.

Source: GIPS
Performance examination report
A report issued by an independent verifier after a performance examination has been performed.

Source: GIPS
Performance-based fee
A type of investment management fee that is typically based on the portfolio’s performance on an absolute basis or relative to a benchmark or other reference point.

Source: GIPS
Performance-based fee description
General information regarding the performance-based fee. It must include enough information to allow a prospective client or prospective investor to understand the key characteristics of the performance-based fee. It must include relevant information (e.g., performance-based fee rate, hurdle rate, clawback, high watermark, reset frequency, accrual frequency, crystallization schedule) and on what basis fees are charged.

Source: GIPS
Performance-related information
Includes:

• Information expressed in terms of investment return and risk.

• Other information and input data that directly relate to the calculation of investment return and risk (e.g., portfolio holdings), as well as information derived from investment return and risk input data (e.g., performance contribution or attribution).

Source: GIPS
Periodicity
The length of the period over which a variable is measured (e.g., a variable measured at a monthly periodicity consists of observations for each month).

Source: GIPS
Pic multiple
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.

Source: ILPA
PIK Debt Securities
(Payment in Kind) PIK Debt are bonds that may pay bondholders compensation in a form other than cash.

Source: ILPA
Placement adviser
A person or entity acting as an agent for the fundraising team in raising investment funds. Placement advisers should comply with Invest Europe’s separate Guidance for Placement Advisers (see page 65).

Source: Invest Europe
Placement Agent
A company that specializes in finding institutional investors that are willing and able to invest in a private equity fund or company issuing securities. Sometimes the "issuer" will hire a placement agent so the fund partners can focus on management issues rather than on raising capital. In the U.S., these companies are regulated by the NASD and SEC.

Source: ILPA
Plain English Handbook
The Securities and Exchange Commission online version of Plain English Handbook: How to Create Clear SEC Disclosure Documents.

Source: ILPA
Plum
An investment that has a very healthy rate of return. The inverse of an old venture capital adage claims that "plums ripen later than lemons."

Source: ILPA
Poison Pill
A right issued by a corporation as a preventative antitakeover measure. It allows rightholders to purchase shares in either their company or in the combined target and bidder entity at a substantial discount, usually 50%. This discount may make the takeover prohibitively expensive.

Source: ILPA
Pooled fund
A fund whose ownership interests may be held by more than one investor.

Source: GIPS
Pooled fund description
General information regarding the investment mandate, objective, or strategy of the pooled fund. The pooled fund description must include enough information to allow a prospective investor to understand the key characteristics of the pooled fund’s investment mandate, objective, or strategy, including:
• The material risks of the pooled fund’s strategy.
• How leverage, derivatives, and short positions may be used, if they are a material part of the strategy.
• If illiquid investments are a material part of the strategy.

Source: GIPS
Pooled fund gross return
The return on investments reduced by any transaction costs.

Source: GIPS
Pooled fund inception date
The date when the pooled fund’s track record starts. For a limited distribution pooled fund, the pooled fund inception date may be based on the following dates:
• When investment management fees are first charged.
• When the first investment-related cash flow takes place.
• When the first capital call is made.
• When the first committed capital is closed and legally binding.

Source: GIPS
Pooled fund net return
The pooled fund gross return reduced by all fees and expenses, including investment management fees, administrative fees, and other costs.

Source: GIPS
Pooled fund of funds
An investment vehicle that invests in underlying investment vehicles.

Source: GIPS
Pooled fund termination date
The date when the pooled fund’s assets have all been distributed, or when investment discretion ends.

Source: GIPS
Pooled Investment Vehicle (PIV)
A legal entity that pools various investors' capital and deploys it according to a specific investment strategy.

Source: ILPA
Pooled IRR
A method of calculating an aggregate IRR by summing cash flows together to create a portfolio cash flow. The IRR is subsequently calculated on this portfolio cash flow.

Source: ILPA
Portfolio
An individually managed group of investments. A portfolio may be a segregated account or a pooled fund, including assets managed by a sub-advisor for which the firm has discretion over the selection of the sub-advisor.

Source: GIPS
Portfolio Company
ILPA : A business entity that has secured at least one round of financing from one or more private equity funds. Also known as an investee firm. A Company in which a given fund has invested.

Invest EUROPE : A company or companies in which a fund has made an investment.

Source: ILPA, Invest EUROPE
Portfolio-weighted custom benchmark
A benchmark created using the benchmarks of the individual portfolios in the composite.

Source: GIPS
Post-Money Valuation
The valuation of a company immediately after the most recent round of financing. For example, a venture capitalist may invest $3.5 million in a company valued at $2 million "pre-money" (before the investment was made). As a result, the startup will have a post-money valuation of $5.5 million.

Source: ILPA
Potential Clawback Value
The amount of clawback payable to the General Partner if the fund is liquidated. A clawback obligation represents the General Partners' promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. When triggered, the clawback will require that the General Partner return to the fund's Limited Partners an amount equal to what is determined to be excess distributions.

Source: ILPA
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.

Source: ILPA
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.

Source: ILPA
Preference Shares
Shares of a firm that encompass preferential rights over ordinary common shares, such as the first right to dividends and any capital payments.

Source: ILPA
Preferred Dividend
A dividend ordinarily accruing on preferred shares payable where declared and superior in right of payment to common dividends.

Source: ILPA
Preferred Investment Range
A private equity fund's preferred scope for making investments. This varies by market segment, with many venture funds preferring ranges below $10 million and many buyout/mezzanine funds preferring ranges between $10 million and $50 million or higher.

Source: ILPA
Preferred Return (AKA Hurdle Rate)
The minimum return to investors to be achieved before a carry is permitted. A hurdle rate of 10% means that the private equity fund needs to achieve a return of at least 10% per annum before the profits are shared according to the carried interest arrangement.

Source: ILPA
Preferred Stock
A class of capital stock that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets. Many venture capital investments use preferred stock as their investment vehicle. This preferred stock is convertible into common stock at the time of an IPO.

Source: ILPA
Primary fund
An investment vehicle that makes direct investments rather than investing in other investment vehicles.

Source: GIPS
Principal Market
The market with the greatest volume and level of activity for the potential sale of an asset.

Source: IPEV
Private Capital
Investment activity involving early-stage ventures, management buyouts, management buyins, infrastructure, credit, and similar Investments.

Source: IPEV
Private Equity
ILPA: Equity securities of companies that have not ""gone public"" (are not listed 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.

Invest EUROPE: Private equity provides funding in equity form from funds to acquire a majority or minority stake in portfolio companies in different stages of development across a wide range of sectors. The term is widely used and, for the purposes of this Handbook, is used as a generic term to encompass venture capital (typically a minority stake invested in an early-stage or pre-profitable business), through to growth capital or larger ‘buyouts’ (a minority or majority stake invested in portfolio companies at critical points of their development), as well as infrastructure investments.

GIPS: Investment strategies include, but are not limited to, venture capital, leveraged buyouts, consolidations, mezzanine and distressed debt investments, and a variety of hybrids, such as venture leasing and venture factoring.

Source: ILPA, Invest EUROPE, GIPS
Private Equity Fund
IPEV: A Private Capital fund that invests principally in the equity of private companies, or engages in buyouts of public companies, in order to achieve the delisting of public equity.

Europarl: This is a fund that invests specialised investors' money directly in private companies. The strategy of managers of a private equity fund is to use its investors' contributions to acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity funds generally receive a return on their investments by offering shares of the company to the public, selling the company for cash or exchanging it for shares in another company. They can also distribute funds to the investors by recuperating some of the company's profits or increasing the company's debt. A common way for private equity funds to acquire a significant stake in a company is through a leveraged buyout (LBO) whereby a significant percentage of the finance used to purchase the stake is obtained through borrowing (leverage). In this case most of the finances needed do not come from the fund's investors but from debt. The assets of the acquired company are used as collateral for the borrowed capital, with much of the debt ending up on the books of the company. Proponents of private equity investments argue that removing a company from the stock market enables its management to take a longer term view of the business’s interests, and that having debt on the company’s books acts as an incentive for managers to run their businesses more efficiently. Critics counter that the long-term viability of acquired companies can be put at risk by excessive debt and have compared some private equity deals to asset stripping.

Source: IPEV, Europarl
Private Equity Industry Guidelines Group (PEIGG)
A body which has produces a set of advisory valuation guidelines in the USA.

Source: ILPA
Private Investment In Public Equities (PIPES)
Investments by a private equity fund in a publicly traded company, usually at a discount.

Source: ILPA
Private Investment In Public Equity (PIPE)
A transaction in which accredited investors are allowed to purchase stock in a public company through an exemption allowed by provincial securities regulation. As a result of the exemption, there is less disclosure required by these investors than for other more widely distributed issues, like IPOs and secondary offerings.

Source: ILPA
Private market investments
Includes real assets (e.g., real estate and infrastructure), private equity, and similar investments that are illiquid, not publicly traded, and not traded on an exchange.

Source: GIPS
Private Placement
ILPA: Also known as a Reg. D offering. The sale of a security (or in some cases, a bond) directly to a limited number of investors. Avoids the need for S.E.C. registration if the securities are purchased for investment as opposed to being resold. The size of the issue is not limited, but its sale is limited to a maximum of thirty-five non-accredited investors.

Europarl: Private placement (or non-public offering) is a way of raising capital through a sale (offering) of shares without an initial public offering, usually to a small number of chosen private investors. Purchasers are often institutional investors such as banks, insurance companies or pension funds. Such an offering is exempt from many of the reporting and information requirements necessary in the case of a public offering.

Source: ILPA, Europarl
Private Placement Memorandum
Also known as an Offering Memorandum or "PPM". A document that outlines the terms of securities to be offered in a private placement. Resembles a business plan in content and structure. A formal description of an investment opportunity written to comply with various federal securities regulations. A properly prepared PPM is designed to provide specific information to the buyers in order to protect sellers from liabilities related to selling unregistered securities. Typically PPMs contain: a complete description of the security offered for sale, the terms of the sales, and fees; capital structure and historical financial statements; a description of the business; summary biographies of the management team; and the numerous risk factors associated with the investment. In practice, the PPM is not generally used in angel or venture capital deals, since most sophisticated investors perform thorough due diligence on their own and do not rely on the summary information provided by a typical PPM.

Source: ILPA
Private Securities
Private securities are securities that are not registered and do not trade on an exchange. The price per share is set through negotiation between the buyer and the seller or issuer.

Source: ILPA
Private-Independent Fund
A professionally managed private equity fund that raises capital from external sources of supply, such as institutional investors. Most private-independent funds utilize Limited Partnerships and related vehicles.

Source: ILPA
Proprietary assets
Investments owned by the firm, the firm’s management, and/or the firm’s parent company that are managed by the firm. General partner assets in a pooled fund are considered proprietary assets.

Source: GIPS
Prospective client
Any person or entity that has expressed interest in one of the firm’s composite strategies and qualifies to invest in the composite. Current clients may also qualify as prospective clients for any composite strategy that differs from their current investment strategy. Investment consultants and other third parties are included as prospective clients if they represent individuals or entities that qualify as prospective clients.

Source: GIPS
Prospective investor
Any person or entity that has expressed interest in one of the firm’s pooled funds and qualifies to invest in the pooled fund. Current pooled fund investors may also qualify as prospective investors for any pooled fund that differs from their current pooled fund. Investment consultants and other third parties are included as prospective investors if they represent individuals or entities that qualify as prospective investors.

Source: GIPS
Prospectus
A formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Companies offering securities, mutual funds, and offerings of other investment companies including Business Development Companies are required to issue prospectuses describing their history, investment philosophy or objectives, risk factors and financial statements. Investors should carefully read them prior to investing.

Source: ILPA
Provincial Venture Capital Corporation (PVCC)
A professionally managed private equity fund that raises capital on a retail basis from individual Canadians, with the assistance of provincial tax credits. At present, PVCCs operate according to some legislative specifications in British Columbia and Quebec.

Source: ILPA
Public market equivalent (pme)
The performance of a public market index expressed in terms of a money-weighted return (MWR), using the same cash flows and timing as those of the composite or pooled fund over the same period. A PME can be used as a benchmark by comparing the MWR of a composite or pooled fund with the PME of a public market index.

Source: GIPS
Public offering
- First divestment following flotation (IPO): The sale or distribution of a private company’s shares to the public for the first time by listing the company on the stock exchange.
- Sale of quoted equity post flotation: It includes sale of quoted shares only if connected to a former private equity investment, e.g. sale of quoted shares after a lock-up period.

Source: Invest Europe
Pure gross-of-fees
The return on investments that is not reduced by any transaction costs incurred during the period.

Source: GIPS
Put Option
The right to sell a security at a given price (or range) within a given time period.

Source: ILPA
Q
Q&A
Questions and Answers
QPAM
Qualified professional asset manager as defined by ERISA.

Source: ILPA
Quoted Investment
A Quoted Investment is any financial instrument for which quoted prices reflecting normal market transactions are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency.

Source: IPEV
R
Ratchet
Ratchets reduce the price at which venture capitalists can convert their debt into preferred stock, which effectively increases their percentage of equity. Often referred to as an "anti-dilution adjustment".

Source: ILPA
Re-capitalization Financing
Capital provided for a significant overhaul of a company's financial structure.

Source: ILPA
Real estate
Real estate includes wholly owned or partially owned:
Investments in land, including products grown from the land (e.g., timber or crops).
• Buildings under development, completed buildings, and other structures or improvements.
• Equity-oriented debt (e.g., participating mortgage loans).
• Private interest in a property for which some portion of the return to the investor at the time of investment relates to the performance of the underlying real estate.

Source: GIPS
Realisation
Realisation is the sale, redemption, or repayment of an Investment, in whole or in part; or the insolvency of an Investee Company, where no significant return to the Fonds is envisaged.

Source: IPEV
Realized Investment
An underlying investment of a fund that has been exited.

Source: ILPA
Realized Proceeds
Cash and/or securities received by a partner.

Source: ILPA
Recallable
The total amount of distributions that may be recalled by the fund at a future date.

Source: ILPA
Recapitalization
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. Recapitalization can be an alternative exit strategy for venture capitalists and leveraged buyout sponsors.

Source: ILPA
Recommend/ Recommendation
A suggested provision, task, or action that should be followed or performed. A recommendation is considered to be best practice but is not a requirement. (See “should.”)

Source: GIPS
Reconfirmation
The act a broker/dealer makes with an investor to confirm a transaction.

Source: ILPA
Red Herring
The common name for a preliminary prospectus, due to the red SEC required legend on the cover.

Source: ILPA
Redeemable Preferred Stock
Redeemable preferred stock, also known as exploding preferred, at the holder's option after (typically) five years, which in turn gives the holders (potentially converting to creditors) leverage to induce the company to arrange a liquidity event. The threat of creditor status can move the founders off the dime if a liquidity event is not occurring with sufficient rapidity.

Source: ILPA
Redemption
The right or obligation of a company to repurchase its own shares. 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"). A Put allows one to liquidate an investment in the event an IPO or public merger becomes unlikely. One may also negotiate a Put effective when the company defaults or fails to make payments upon a key employee's death, etc.

Source: ILPA
Registration
The SEC's review process of all securities intended to be sold to the public. The SEC requires that a registration statement be filed in conjunction with any public securities offering. This document includes operational and financial information about the company, the management and the purpose of the offering. The registration statement and the prospectus are often referred to interchangeably. Technically, the SEC does not "approve" the disclosures in prospectuses.

Source: ILPA
Registration Rights
Provisions in the investment agreement that allow investors to sell stock via the public market. Means by which one can transfer shares in compliance with the securities laws subject to Lock-Up and Market Stand-off Agreements.
Long-form Demand - Demand registration before the company becomes public. Usually starts one-three years after making an investment and may involve one or two demands for a percentage of stock. Company will use the SEC's long-form S-1.
Short-form Demand - Demand made after the company is publicly traded and is eligible to use SEC's Form S-3.
Piggyback - Company is registering stock either for itself or other stockholders and one can "piggyback" a portion of shares for registration onto the company's registration. Usually have these rights for up to five years after the company becomes public, but cannot exercise them for mergers or employee offerings.

Source: ILPA
Regulation A
SEC provision for simplified registration for small issues of securities. A Reg. A issue may require a shorter prospectus and carries lesser liability for directors and officers for misleading statements. The conditional small issues securities exemption of the Securities Act of 1933 is allowed if the offering is a maximum of $5,000,000 U.S. Dollars.

Source: ILPA
Regulation C
The regulation outlines registration requirements for Securities Act of 1933.

Source: ILPA
Regulation D
Regulation D, is the rule (Reg. D is a "regulation" comprising a series of "rules") that allow for the issuance and sale of securities to purchasers if they qualify as accredited investors.

Source: ILPA
Regulation S
The rules relating to offers and sales made outside the U.S. without SEC Registration.

Source: ILPA
Regulation S-B
Reg. S-B of the Securities Act of 1933 governs the Integrated Disclosure System for Small Business Issuers.

Source: ILPA
Regulation S-K
The Standard Instructions for Filing Forms Under Securities Act of 1933, Securities Exchange Act of 1934 and Energy Policy and Conservation Act of 1975.

Source: ILPA
Regulation S-X
The regulation that governs the requirements for financial statements under the Securities Act of 1933, and the Securities Exchange Act of 1934.

Source: ILPA
Reorganization or Corporate Reorganization
Reorganizations are significant changes in the equity base of a company such as converting all outstanding shares to Common Stock, or combining outstanding shares into a smaller number of shares (a reverse split). A reorganization is frequently done when a company has already had a few rounds of venture financing but has not been able to successfully increase the value of the company and therefore is doing a Down Round that is essentially a restart of the company.

Source: ILPA
Repayment of preference shares/ loans or mezzanine
If the private equity firm provided loans or bought preference shares in the company at the time of investment, then their repayment according to the amortisation schedule represents a decrease of the financial claim of the firm into the company, and hence a divestment.

Source: Invest Europe
Replacement capital
Minority stake purchase from another private equity investment organisation or from another shareholder or shareholders.

Source: Invest Europe
Reported/Remaining Value
The current fair stated value for each of the investments, as reported by the General Partner of the fund.

Source: ILPA
Reps and Warranties
Representations and warranties by the vendor placed in the sale agreement when a company changes hands. They most usually cover things such as contingent liabilities, the company's tax position and the accuracy of the most recent audited accounts.

Source: ILPA
Require/requirement
A provision, task, or action that must be followed or performed.

Source: GIPS
Rescue / Turnaround
Financing made available to an existing business, which has experienced financial distress, with a view to re-establishing prosperity.

Source: Invest Europe
Residual value
The remaining equity that limited partners or investors have in an investment vehicle at the end of the performance reporting period.

Source: GIPS
Residual Value to Paid In (RVPI)
ILPA: The ratio of the current value of all remaining investments within a fund to the total contributions of Limited Partners to date. As defined in the current GIPS Standards (www.gipsstandards.org/standards/current/Pages/index.aspx), any reinvested capital (resulting from recallable distributions) should be included in the denominator of this ratio.

GIPS : Residual value divided by since-inception paid-in capital.

Source: ILPA, GIPS
Responsible investment
‘Responsible investment’ involves an investment approach that integrates ESG factors into corporate conduct, investment decisions and ownership activities. A responsible investor will commonly be interested in the ESG conduct, impact or performance of a portfolio company it invests in, and in case of an LP, this may also include ESG aspects related to the GP.

Source: Invest Europe
Restricted Securities
Public securities that are not freely tradable due to SEC regulations.

Source: ILPA
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.

Source: ILPA
Restructuring/ Turnaround Financing
Capital provided to an established firm, usually in a traditional sector, that is undergoing financial distress or a major re-organization, but is perceived as having long-term commercial viability.

Source: ILPA
Retail Fund
A category of professionally managed private equity fund that relies on tax-assisted retail fund-raising, composed essentially of Labour-Sponsored Venture Capital Corporations and Provincial Venture Capital Corporations.

Source: ILPA
Return
Reverse Leveraged Buyouts
The act of offering new, publicly-traded shares in a firm that was previously taken private through a buyout transaction.

Source: ILPA
Revlon Duties
The legal principle that actions, such as anti-takeover measures, that promote the value of an auction process are allowable, whereas those that thwart the value of an auction process are not allowed. The duty is triggered when a company is in play as a target acquisition.

Source: ILPA
Right of First Refusal
The right of first refusal gives the holder the right to meet any other offer before the proposed contract is accepted.

Source: ILPA
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.

Source: ILPA
Risk
The chance of loss on an investment due to many factors including inflation, interest rates, default, politics, foreign exchange, call provisions, etc. In Private Equity, risks are outlined in the Risk Factors section of the Placement Memorandum.

Source: ILPA
RTO
A private company strategy for gaining access to public markets through takeover of a listed business entity.

Source: ILPA
Rule 144
Rule 144 provides for the sale of restricted stock and control stock. Filing with the SEC is required prior to selling restricted and control stock, and the number of shares that may be sold is limited.

Source: ILPA
Rule 144A
A safe harbor exemption from the registration requirements of Section 5 of the 1933 Act for resales of certain restricted securities to qualified institutional buyers, which are commonly referred to as "QIBs." In particular, Rule 144A affords safe harbor treatment for reoffers or resales to QIBs - by persons other than issuers - of securities of domestic and foreign issuers that are not listed on a U.S. securities exchange or quoted on a U.S. automated inter-dealer quotation system. Rule 144A provides that reoffers and resales in compliance with the rule are not "distributions" and that the reseller is therefore not an "underwriter" within the meaning of Section 2(a)(11) of the 1933 Act. If the reseller is not the issuer or a dealer, it can rely on the exemption provided by Section 4(1) of the 1933 Act. If the reseller is a dealer, it can rely on the exemption provided by Section 4(3) of the 1933 Act.

Source: ILPA
Rule 147
Provides an exemption from the registration requirements of the Securities Act of 1933 for intrastate offerings, if certain requirements are met. One requirement is that 100% of the purchasers must be from within one state.

Source: ILPA
Rule 501
Rule 501 of Regulation D defines Accredited Investor.

Source: ILPA
Rule 504
Company can raise up to $1 million in any 12-month period from any number or investors provided that the company does not advertise the sale. There are restrictions on the resale of the securities, but there is no requirement of disclosure. Investors need not to be sophisticated nor is any formal private offering memorandum required. However, offering is subject to the general antifraud provisions of the federal securities laws requiring that all material information be accurately presented to purchasers.

Source: ILPA
Rule 505
Rule 505 of Regulation D is an exemption for limited offers and sales of securities not exceeding $5,000,000. Company can raise up to $5 million in a 12-month period. Security sales can be made to an unlimited number of accredited investors plus 35 additional investors. Disclosure documents, i.e. a private placement memorandum, must be delivered to all non-accredited investors. If dealing with accredited investors, the number of these is unlimited, but there is no advertising allowed.

Source: ILPA
S
S Corporation
A corporation that limits its ownership structure to 100 shareholders and disallows certain types of shareholders [e.g. partnerships cannot hold shares in an S corporation.] An S corporation does not pay taxes, rather, similar to a partnership, its owners pay taxes on their proportion of the corporation's profits at their individual tax rates.

Source: ILPA
Sale to another private equity firm
The buyer of the portfolio company is a private equity firm.

Source: Invest Europe
Sale to financial institution
A financial institution is an entity that provides financial services for its clients:
- Depositary Institutions: deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies
- Contractual Institutions : Insurance companies and pension funds
- Investment Institutes other than direct private equity firms.

Source: Invest Europe
Sales charges and loads
The costs associated with buying or selling shares of a pooled fund. These costs may also be known as subscription and redemption costs or as entry and exit fees.

Source: GIPS
SBIC
Small Business Investment Company. A company licensed by the Small Business Administration to receive government leverage in order to raise capital to use in venture investing.

Source: ILPA
SBIR
Small Business Innovation Research Program. See Small Business Innovation Development Act of 1982.

Source: ILPA
SEC (Securities and Exchange Commission)
esma: Securities and Exchange Commission

ILPA: The SEC is an independent, nonpartisan, quasi-judicial regulatory agency that is responsible for administering the federal securities laws. These laws protect investors in securities markets and ensure that investors have access to all material information concerning publicly traded securities. Additionally, the SEC regulates firms that trade securities, people who provide investment advice, and investment companies.

Source: esma, ILPA
Secondary Market
The market for the sale of partnership interests in private equity funds. Sometimes limited partners chose to sell their interest in a partnership, typically to raise cash or because they cannot meet their obligation to invest more capital according to the takedown schedule. Certain investment companies specialize in buying these partnership interests at a discount.

Source: ILPA
Secondary Purchase
The sale of private or restricted holdings in a portfolio company by one investor to another.

Source: ILPA
Secondary Sale
The sale of private or restricted holdings in a portfolio company to other investors. See secondary market definition.

Source: ILPA
Secondary Transaction
A Secondary Transaction refers to a transaction that occurs when a holder of an unquoted or illiquid interest in a Fund trades their interest to another party.

Source: IPEV
Securities Act of 1933
The federal law covering new issues of securities. It provides for full disclosure of pertinent information relating to the new issue and also contains antifraud provisions.

Source: ILPA
Securities Act of 1934
The federal law that established the Securities and Exchange Commission. The act outlaws misrepresentation, manipulation and other abusive practices in the issuance of securities.

Source: ILPA
Seed
Funding provided before the investee company has started mass production/distribution with the aim to complete research, product definition or product design, also including market tests and creating prototypes. This funding will not be used to start mass production/distribution.

Source: Invest Europe
Seed Financing
Capital provided to facilitate commercialization of new product concepts, often from laboratories, research centres or entrepreneurs. If successful, a seed financing may result in a Start-up.

Source: ILPA
Seed Money
The first round of capital for a start-up business. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides startup companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money.

Source: ILPA
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.
Series A - first round of institutional investment capital.
Series B - second round of institutional investment capital.
Series C - third round of institutional investment capital.

Source: ILPA
Segregated account
A portfolio owned by a single client.

Source: GIPS
Senior Securities
Securities that have a preferential claim over common stock on a company's earnings and in the case of liquidation. Generally, preferred stock and bonds are considered senior securities.

Source: ILPA
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.

Source: ILPA
Shell Corporation
A corporation with no assets and no business. Typically, shell corporations are designed for the purpose of going public and later acquiring existing businesses. Also known as Specified Purpose Acquisition Companies (SPACs).

Source: ILPA
Short selling
It is possible to make a profit from a fall in the price of a particular company’s shares or in a generally falling market. When a trader expects a company's shares to fall, they can borrow these shares for a fee from its shareholders, sell them and then purchase them back in order to return them to the original shareholders. Provided the price has fallen between the selling and re-purchase the trader would make a profit. On the other hand a loss is incurred if the price of the shares rises. Short selling is useful in providing liquidity in the market (i.e. making sure shares are available for sale to investors who want them) and also has a corrective function in adjusting the share price of a company which may be overvalued. The mechanics behind short selling result in some unique risks, theoretically including infinite losses, and have sometimes been associated with concerted efforts to drive down share prices to levels which do not reflect a company's true value. For these reasons this practice is regulated and at times prohibitions have been imposed on short selling securities of a specific company or sector. Regulation however varies between countries.

Source: europarl
Should
A provision, task, or action that is recommended to be followed or performed and is considered to be best practice but is not required.

Source: GIPS
Should not
A task or action that is recommended not to be followed or performed and is considered best practice not to do so.

Source: GIPS
Side pocket
A type of account used mainly in alternative investment pooled funds to separate illiquid investments or distressed assets from other, more liquid investments or to segregate investments held for a special purpose from other investments. Side pockets are typically not available for investing for new pooled fund investors that invest after the side pocket was created.

Source: GIPS
Significant cash flow
The level at which the firm determines that one or more client-directed external cash flows may temporarily prevent the firm from implementing the composite strategy. The cash flow may be defined by the firm as a single flow or an aggregate of a number of flows within a stated period. The measure of significance must be determined as either a specific monetary amount (e.g., €50,000,000) or a percentage of portfolio assets (based on the most recent valuation), and no other criteria, such as the effect of the cash flow or the number of portfolios in the composite, may be considered. Transfers of assets between asset classes within a portfolio or firm-initiated cash flows must not be considered significant cash flows.

Source: GIPS
Since Inception
ILPA: The time period from the fund's formation date to the current period.

GIPS: For composites, from the composite inception date. For pooled funds, from the pooled fund inception date.

Source: ILPA, GIPS
Size of Financings
Transactions defined according to their respective sizes. In the venture capital realm, there are four categories of deal size.
Very small deals: Less than $500,000.
Small deals: Less than $1 million.
Mid-sized deals: Between $1 million and $5 million.
Large deals: Greater than $5 million.

Source: ILPA
SLD
Securities Law Directive

Source: esma
Small Business Administration (SBA)
Provides loans to small business investment companies (SBICs) that supply venture capital and financing to small businesses.

Source: ILPA
Small Business Innovation Development Act of 1982
The Small Business Innovation Research (SBIR) program is a set-aside program (2.5% of an agency's extramural budget) for domestic small business concerns to engage in Research/Research and Development (R/R&D) that has the potential for commercialization. The SBIR program was established under the Small Business Innovation Development Act of 1982 (P.L. 97-219), reauthorized until September 30, 2000 by the Small Business Research and Development Enhancement Act (P.L. 102-564), and reauthorized again until September 30, 2008 by the Small Business Reauthorization Act of 2000 (P.L. 106-554).

Source: ILPA
SMSG
Securities Markets Stakeholder Group

Source: esma
Sovereign wealth funds
State-owned investment funds investing in foreign direct private equity funds to diversify their portfolio.

Source: Invest Europe
Special Purpose Vehicle
A special company, usually outside the United States, established by a company to meet a specific financial problem, often to pay lower taxes (e.g., a re-invoicing subsidiary or offshore insurance company).

Source: ILPA
Specialized Fund
A private equity fund strategy whereby the focus in on specific investment targets (e.g., sectors, stages of development), as distinct from a Balanced Fund.

Source: ILPA
Spin Out
A division or subsidiary of a company that becomes an independent business. Typically, private equity investors will provide the necessary capital to allow the division to "spin out" on its own; the parent company may retain a minority stake.

Source: ILPA
SSM
Single Supervisory Mechanism

Source: esma
Stages of Development
Critical points on the growth continuum for firms assisted by venture capital and other types of private equity. Typically, a venture-backed company receives cumulative rounds of financing to facilitate its progression from one stage of development to the next.

Source: ILPA
Stakeholder
The private equity industry has a range of stakeholders. In addition to GPs and LPs, this includes (and is not limited to) portfolio companies, their employees, trade unions, customers, suppliers, regulators, and the wider community.

Source: Invest Europe
Standard deviation
A measure of the variability of returns. As a measure of internal dispersion, standard deviation quantifies the distribution of the individual portfolios’ returns within the composite. As a measure of historical risk, standard deviation quantifies the variability of the composite, pooled fund, or benchmark returns over time. Also referred to as “external standard deviation.”

Source: GIPS
Start-up
Funding provided to companies, once the product or service is fully developed, to start mass production/distribution and to cover initial marketing. Companies may be in the process of being set up or may have been in business for a shorter time, but have not sold their product commercially yet. The destination of the capital would be mostly to cover capital expenditures and initial working capital.

This stage contains also the investments reported as “Other early stage” which represents funding provided to companies that have initiated commercial manufacturing but require further funds to cover additional capital expenditures and working capital before they reach the break-even point. They will not be generating a profit yet.

Source: Invest Europe
Start-up Financing
Capital provided to facilitate the first-time establishment of a legal company structure around a marketable product concept.

Source: ILPA
Statutory Voting
A method of voting for members of the Board of Directors of a corporation. Under this method, a shareholder receives one vote for each share and may cast those votes for each of the directorships. For example: An individual owning 100 shares of stock of a corporation that is electing six directors could cast 100 votes for each of the six candidates. This method tends to favor the larger shareholders. Compare Cumulative Voting.

Source: ILPA
Stock Options
1) The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies.
2) A widely used form of employee incentive and compensation. The employee is given an option to purchase its shares at a certain price (at or below the market price at the time the option is granted) for a specified period of years.

Source: ILPA
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.

Source: ILPA
Sub-advisor
A third-party investment manager hired by the firm to manage some or all of the assets for which a firm has investment management responsibility. May also be referred to as a sub-manager or third-party investment manager.

Source: GIPS
Sub-depositary/Sub-custodian
This body (typically a bank) would act as an agent to the main depositary with regard to custodial functions in a country where the depositary is not represented (usually a country outside the EU in the case of this directive). The main task would therefore be the safeguarding of a fund's financial assets. The control over the fund's operation cannot be delegated to a sub-depositary or sub-custodian.

Source: europarl
Subordinated Debt
Debt with inferior liquidation privileges to senior debt in case of a bankruptcy; sub debt will carry higher interest rates than senior debt, to which it is subordinated, to compensate for the added risk, and will typically have attached warrants or equity conversion features.

Source: ILPA
Subscription Agreement
The application submitted by an investor wishing to join a limited partnership. All prospective investors must be approved by the General Partner prior to admission as a partner.

Source: ILPA
Subscription line of credit
A loan facility that is put in place to facilitate administration when the firm is calling for funds from investors. Alternatively, it can be used in lieu of calling funds from investors.

Source: GIPS
Succession Plan
The basis for transfer of business ownership from one generation of managers to the next, often with the assistance of private equity.

Source: ILPA
Supplemental information
Any performance-related information included as part of a gips composite report or gips pooled fund report that supplements or enhances the requirements and/or recommendations of the GIPS standards.

Source: GIPS
Sweat Equity
Ownership of shares in a company resulting from work rather than investment of capital--usually founders receive "sweat equity".

Source: ILPA
Syndicate
Underwriters or broker/dealers who sell a security as a group. (See Allocation)

Source: ILPA
Syndication
A number of investors offering funds together as a group on a particular deal. A lead investor often coordinates such deals and represents the group's members. Within the last few years, syndication among angel investors (an angel alliance) has become more common, enabling them to fund larger deals closer to those typifying a small venture capital fund. Also see: Co-investment.

Source: ILPA
T
Tag-Along Rights / Rights of Co-Sale
A minority shareholder protection affording the right to include their shares in any sale of control and at the offered price.

Source: ILPA
Takedown Schedule
A takedown schedule means the timing and size of the capital contributions from the limited partners of a venture fund.

Source: ILPA
Target Multiples
The desired return on investment of private investors in early stage companies, defined in a multiple of the original investment.

Source: ILPA
Tax-free Reorganizations
Types of business combinations in which shareholders do not incur tax liabilities. There are four types-A, B, C, and D reorganizations. They differ in various ways in the amount of stock/cash that can be offered. See Internal Revenue Code Section 368.

Source: ILPA
TD
Transparency Directive

Source: esma
Temporary new account
An account for temporarily holding client-directed external cash flows until they are invested according to the composite strategy or disbursed. A firm can use a temporary new account to remove the effect of a significant cash flow on a portfolio. When a significant cash flow occurs in a portfolio, the firm may direct the external cash flow to a temporary new account according to the composite’s significant cash flow policy.

Source: GIPS
Tender Offer
An offer to purchase stock made directly to the shareholders. One of the more common ways hostile takeovers are implemented.

Source: ILPA
Term Sheet
A summary of the terms the investor is prepared to accept. A non-binding outline of the principal points which the Stock Purchase Agreement and related agreements will cover in detail.

Source: ILPA
Termination Date
The date defined in the LPA whereby the fund must cease operations and liquidate its investments.

Source: ILPA
Theoretical performance
Performance that is not derived from a portfolio or composite with actual assets invested in the strategy presented. Theoretical performance includes model, backtested, hypothetical, simulated, indicative, ex ante, and forward-looking performance.

Source: GIPS
Time Value of Money
The basic principle that money can earn interest, therefore something that is worth $1 today will be worth more in the future if invested. This is also referred to as future value.

Source: ILPA
Time-weighted (returns)
A most misleading term as it actually means the exact opposite of what it suggests. Instead of calculating the actual IRR of a series of cashflows over a given period (i.e., the compound return over time), time-weighted returns calculate the geometric mean, i.e., the average of the annual percentage return in any one year.

Source: ILPA
Time-weighted return (twr)
A method of calculating period-by-period returns that reflects the change in value and negates the effects of external cash flows.

Source: GIPS
TOD
Takeover Bids Directive

Source: esma
Total capital under management
This includes the total amount of funds available to fund managers for future investments plus the amount of funds already invested (at cost) and not yet divested.

Source: Invest Europe
Total Enterprise Value (TEV)
A valuation measurement used to compare companies with varying levels of debt. It is calculated as follows: TEV = Market Capitalization + Interest-Baring Debt + Preferred Stock - Excess Cash

Source: ILPA
Total firm assets
All discretionary and non-discretionary assets for which a firm has investment management responsibility. Total firm assets include assets assigned to a sub-advisor provided the firm has discretion over the selection of the sub-advisor.

Source: GIPS
Total Invested/Invested Capital
The Total amount of called capital which has actually been invested in companies. In practice, this will be equal to the amount of called capital less amounts which have been used to pay fees, or which are awaiting investment.

Source: ILPA
Total pooled fund fees
All fees and expenses charged to the pooled fund, including but not limited to investment management fees and administrative fees.

Source: GIPS
Total Return
ILPA: A phrase invented by the writer which refers to the return which an LP earns on the whole private equity allocation, as opposed to just that part of it which is at any one time invested in underlying buyout or venture companies.

GIPS: The rate of return that includes the realized and unrealized gains and losses plus income for the measurement period.

Source: ILPAGIPS
Total Value
ILPA: A Limited Partner's total market value plus any capital distributions received.

GIPS: Residual value plus distributions.

Source: ILPA, GIPS
Total Value to Paid In (TVPI)
ILPA: The ratio of the current value of remaining investments within a fund, plus the total value of all distributions to date, relative to the total amount of capital paid into the fund to date. As defined in the current GIPS Standards (www.gipsstandards.org/standards/current/Pages/index.aspx), any recallable distributions should be included in the numerator of this ratio. Any reinvested capital (resulting from recallable distributions) should be included in the denominator. Perhaps the best available measure of performance before the end of a fund's life.

GIPS: Total value divided by since-inception paid-in capital.

Source: ILPA, GIPS
Trade date accounting
Recognizing the asset or liability on the date of the purchase or sale and not on the settlement date. Recognizing the asset or liability within three business days of the date upon which the transaction is entered (trade date, T + 1, T + 2, or T + 3) satisfies the trade date accounting requirement for purposes of the GIPS standards.

Source: GIPS
Trade Sale
ILPA: The sale of the equity share of a portfolio company to another company.

Invest Europe: The sale of a company's shares to industrial investors.

Source: ILPA, Invest Europe
Tranche
Funds flowing from investors to a company that represent a partial round or an "early close." Subsequent funds of the single round are generally under the same terms and conditions as the first tranche (or early close), however, those funding the early tranches may receive bonus warrant coverage, in consideration of the additional risk. (a French word meaning a slice or cutting).

Source: ILPA
Transaction costs
The costs of buying or selling investments. These costs typically take the form of brokerage commissions, exchange fees and/or taxes, and/ or bid–offer spreads from either internal or external brokers. Custodial fees charged per transaction should be considered custody fees and not transaction costs. For real estate, private equity, and other private market investments, transaction costs include all legal, financial, advisory, and investment banking fees related to buying, selling, restructuring, and/or recapitalizing investments but do not include dead deal costs.

Source: GIPS
Transaction fee(s) and Broken deal fees
A transaction fee is a fee charged by the GP, or its related party, in relation to the purchase or sale of a portfolio company. Increasingly, transaction fees also include any directors’, monitoring, or other fees charged by the GP or its related parties in connection with portfolio companies during the holding period of the investment. The treatment of transaction fees is agreed in the fund documentation, usually requiring their offset (either wholly or in part) against the management fee. Broken deal fees (also referred to as “abort costs”) are costs incurred by the GP in pursuing a deal that does not reach completion (e.g. accountants, lawyers, due diligence costs, etc.).

Source: Invest Europe
Transfers of interest and Secondary investments
“Transfers of interest” is a term typically used to refer to the transfer of an LP’s contractual commitment and interest in an existing fund to another LP. It may also be referred to as a secondary investment. In contrast, the term “secondary direct sale” is used to describe the sale by a fund of its interests in one or more portfolio companies to a fund managed by a different GP.

Source: Invest Europe
Treasury Stock
Stock issued by a company but later reacquired. It may be held in the company's treasury indefinitely, reissued to the public, or retired. Treasury stock receives no dividends and does not carry voting power while held by the company.

Source: ILPA
TREM
Transaction Reporting Exchange Mechanism

Source: esma
Tvpi (investment multiple)
U
UBTI
UBTI, Unrelated Business Taxable Income, is a concern to tax exempt investors in a hedge fund because the receipt of UBTI requires the tax exempt entity to file a tax return that it would not otherwise have to file and pay taxes on income that would otherwise be exempt, at the corporate rate. UBTI includes most business operations income and does not include interest, dividends and gains from the sale or exchange of capital assets. Hedge Funds trade their own securities and therefore the tax exempt investor's share of such income of the hedge fund is not UBTI and not subject to federal income tax. However, hedge funds may subject tax exempt entities to UBTI under certain Circumstances where the hedge fund is borrowing or purchasing securities on margin. Such transactions may subject the tax exempt to UBTI tax.

Source: ILPA
UCITS
europarl : Undertakings for Collective Investment in Transferable Securities (UCITS) are a particular class of investment funds that comply with the terms of an EU directive of the same name. The EU rules allow fund managers to market their UCITS EU-wide without needing to register in each of the member states they are marketing in. These funds are typically sold to retail investors. Until the entry into force of an EU law regulating alternative investment funds (AIFs), the requirements imposed on UCITS are much more stringent than those on AIFs.

esma: Undertakings for Collective Investment in Transferable Securities (Directive).

Source: europarl, esma
ULPA
Uniform Limited Partnership Act.

Source: ILPA
Unfunded Commitment
Money that has been committed to an investment but not yet transferred to the General Partner.

Source: ILPA
Unit of Account
Unit of Account is an accounting term which identifies the level at which an asset is aggregated or disaggregated for Fair Value recognition purposes. Unit of Account is dictated by individual accounting standards that are subject to interpretation. Because Fair Value accounting standards seek to reflect the economic behaviour and the perspective of Market Participants these Valuation Guidelines generally use a Market Participant view in assessing the level of aggregation or disaggregation. For example, where accounting guidance is open to interpretation, if a Market Participant would purchase an entire interest in a private company (not focusing on individual shares) the Unit of Account would be the overall interest purchased. However, if accounting standards clearly define Unit of Account, such guidance should be followed.

Source: IPEV
Unquoted Investment
IPEV: An Unquoted Investment is any financial instrument other than a Quoted Investment.

ILPA: An underlying holding that is still active.

GIPS: Residual value divided by since-inception paid-in capital.

Source: IPEV, ILPA, GIPS
Upper Quartile
The point at which 25% of all returns in a group are greater and 75% are lower.

Source: ILPA
US
United States

Source: esma
V
Valuation
Method of ascribing value to a company. In private equity, methods used include discounted cash flow, comparables and adjusted present value.

Source: ILPA
Valuation Policy
The method or guidelines used by a private equity fund to determine the value of its portfolio assets.

Source: ILPA
Valuation Technique
A Valuation Technique is a generally accepted methodology used to determine the Fair Value of an equity or Debt Investment in an Investee Company. Valuation Techniques include the Income Approach, the Market Approach, and the Replacement Cost Approach. Each of these Valuation Techniques involves methodologies including, but not limited to, pricing multiples of comparable public companies, discounted cash flow analysis, and net assets.

Source: IPEV
Valuator
A valuator is the entity responsible for the process of estimating the potential market value of a financial asset or liability. In the case of AIF, valuations would be carried out on the assets, for example, the investments in marketable securities such as stocks and options. Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, and for financial reporting.

Source: europarl
Valuer
The Valuer is the person with direct responsibility for valuing one or more of the Investments of the Fonds or Fund-of-Funds.

Source: IPEV
Venture Capital
ILPA: A specialized form of private equity, characterized chiefly by high-risk investment in new or young companies following a growth path (see: Stages of Development) in technology and other value-added sectors.

Invest EUROPE: Funding typically provided in equity form to companies in the early stages of their life cycles, i.e. seed, early-stage, development, or expansion.

Source: ILPA, Invest EUROPE
Venture Capital Fund / Financing
IPEV: A Private Capital Fund that invests in start-up and small- to medium-sized enterprises with strong growth potential. These Investments are generally characterised as high-risk/high-return opportunities.

Invest EUROPE: Venture capital funds focused on both early and later stage investments.

ILPA: 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.

Source: IPEV, Invest EUROPE, ILPA
Venture Capital Operating Company (VCOC)
A term used in the ERISA regulations.

Source: ILPA
Venture Capitalist
A financial institution specializing in the provision of equity and other forms of long-term capital to enterprises, usually to firms with a limited track record but with the expectation of substantial growth. The venture capitalist may provide both funding and varying degrees of managerial and technical expertise.

Source: ILPA
Verification
A process by which an independent verifier conducts testing of a firm on a firm-wide basis, in accordance with the required verification procedures of the GIPS standards.

Source: GIPS
Verification report
A report issued by an independent verifier after a verification has been performed.

Source: GIPS
Vesting Schedules
Timetables for stock grants and options mandating that entrepreneurs earn (vest) their equity stakes over a number of years, rather than upon conversion of the stock options. This guarantees to investors and the market that the entrepreneurs will stick around, rather than converting and cashing in their shares.

Source: ILPA
Vintage Year
ILPA: The year of fund formation and/or its first takedown of capital. By placing a fund into an particular vintage year, the Limited Partner can compare the performance of a given fund with all other similar types of funds form in that particular year.

GIPS: Two methods used to determine vintage year are:
1. The year of the investment vehicle’s first drawdown or capital call from its investors.
2. The year when the first committed capital from outside investors is closed and legally binding.

Source: ILPA, GIPS
Vintage Year Returns
Vintage year returns show (in respect of any one vintage year) the compound return of all constituent funds formed during the vintage year, from the vintage year to the date specified.

Source: ILPA
Voluntary Redemption
The right of a company to repurchase some or all of an investors' outstanding shares at a stated price at a given time in the future. The purchase price is usually the Issue Price, increased by Cumulative Dividends.

Source: ILPA
Voting Right
The common stockholders' right to vote their stock in the affairs of the company. Preferred stock usually has the right to vote when preferred dividends are in default for a specified amount of time. The right to vote may be delegated by the stockholder to another person.

Source: ILPA
W
Warrant
A type of security that entitles the holder to buy a proportionate amount of common stock or preferred stock at a specified price for a period of years. Warrants are usually issued together with a loan, a bond or preferred stock - and act as sweeteners, to enhance the marketability of the accompanying securities. They are also known as stock- purchase warrants and subscription warrants.

Source: ILPA
Wash-Out Round
A financing round whereby previous investors, the founders, and management suffer significant dilution. Usually as a result of a washout round, the new investor gains majority ownership and control of the company. Also known as burn-out or cram-down rounds.

Source: ILPA
Weighted Average Anti-dilution
The investor's conversion price is reduced, and thus the number of common shares received on conversion increased, in the case of a down round; it takes into account both:
(a) the reduced price and, (b) how many shares (or rights) are issued in the dilutive financing. See Broad-Based Ratchet and Narrow-Based Ratchet definitions.

Source: ILPA
Williams Act of 1968
An amendment of the Securities and Exchange Act of 1934 that regulates tender offers and other takeover related actions such as larger share purchases.

Source: ILPA
Workout
A negotiated agreement between the debtors and its creditors outside the bankruptcy process.

Source: ILPA
Wrap fee
A type of bundled fee specific to a particular investment product. The wrap fee is charged by a wrap fee sponsor for investment management services and typically includes associated transaction costs that cannot be separately identified. Wrap fees can be all-inclusive, asset-based fees and may include a combination of investment management fees, transaction costs, custody fees, and/or administrative fees. A wrap fee portfolio is sometimes referred to as a “separately managed account” (SMA) or “managed account".

Source: GIPS
Write-off
ILPA: The act of changing the value of an asset to an expense or a loss. A write-off is used to reduce or eliminate the value an asset and reduce profits. The write-down of a portfolio asset to the value of zero, with the result that the private equity investor or investors go without proceeds upon disposition.

Invest Europe: "The value of the investment is eliminated and the return to investors is zero or negative."

Source: ILPA, Invest Europe
Write-up/Write-down
An upward or downward adjustment of the value of an asset for accounting and reporting purposes. These adjustments are estimates and tend to be subjective; although they are usually based on events affecting the investee company or its securities beneficially or detrimentally.

Source: ILPA
X
XBRL
Extensible Business Reporting Language

Source: esma
Y
Year-to-Date
The calendar year that runs January 1st to December 31st.

Source: ILPA
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