Accelerator
A program startup can apply to that provides funds and mentorship to help companies grow, usually in exchange for equity. Most accelerators focus on helping early-stage companies.
Add-on/Bolt-on
When a private equity firm acquires a company to add onto an existing portfolio company. In add-on deals, the existing portfolio company is called the platform and the private equity firm is called the sponsor. Bolt-on is used more often in Europe.
Alternative Investment
An asset that is not a conventional investment type (stocks, bonds, cash). Alternative investments include venture capital, private equity, hedge funds, and real estate.
Angel
A high-net worth individual who invests in a start-up, usually before a start-up raises institutional investments
Annualized Run Rate/ Annual Recurring Revenue
This indicates a SaaS company’s revenue for the next 12 months with the current monthly MRR, i.e.: ARR = 12 x MRR.
Average Revenue Per Account
For SaaS businesses, ARPA is the amount of money a company makes per customer account per month (or per year) on average.
Asset allocation
The mix of investments in a portfolio. To balance risk and reward, asset allocation is generally determined by investment goals, risk tolerance, and time.
Asset-based Lending
Any form of lending to a business that is collateralized or secured by a balance sheet asset. Pledged assets may include inventory, equipment, or accounts receivable that will be redeemed in the event of default by the debtor.
Asset Deal
When the assets of a company are acquired instead of shares.
Acqui-hire
A type of corporate strategy in which one company buys another company to acquire its employees rather than its products or services
Alpha Test
Alpha testing is the initial phase of testing whether a product meets business requirements and functions as expected. Alpha tests are carried out by the internal team before moving on to beta testing.
Anti-dilution Clause
A contractual clause that allows investors the right to maintain their ownership percentages even if new shares are issued.
Assets under Management
This is the total amount of money a fund manager is managing. Includes all the funds they are still working with, also the full original size of some very old funds that are no more making new investments, just waiting to liquidate the last few remaining portfolio companies.
Accredited Investor
An accredited investor is a person or entity that meets specific income, networth or professional qualification requirements set by s securities regulator
Active Management
A style of investment management where the fund manager aims to outperform a benchmark by superior asset allocation, market timing or stock selection (or a combination of these).
Alpha
A fund's alpha is its outperformance relative to a benchmark. It is often used loosely to describe the amount of investment return an active manager adds from their management of the fund. If a fund has a consistently high alpha this can indicate skilful management.
Asset Allocation
The strategic investment of the available assets in different asset classes, such as money market instruments, bonds, equities, real estate, etc. The portfolio is also broken down by sector and according to geographic and currency criteria.
Asset Class
A collective term for investments of a similar type with a unique combination of investment characteristics. The main asset classes are equities (shares), bonds, cash and real estate.
Benchmark
An index against which an investment fund's performance is measured. Also called a reference index.
Break-up Fee
A fee paid by the seller if it breaches or decides to terminate a definitive acquisition agreement.
Bridge Loan
A short-term loan which a startup can use to fund operations until a longer-term financing option is available. Usually used when a startup runs out of cash before being able to close a new funding round.
Brownfield
An investment in an existing asset, land, or structure that typically requires repairs, upgrades, and expansion.
Burn Rate
This refers to the rate at which a start-up company spends money, before reaching profitability, typically expressed as dollars per month. There are two types of burn rate: gross burn rate refers to how much you spend each month, and net burn rate refers to the difference between cash inflow and cash outflow.
Buyout/Leveraged Buyout
A private equity transaction in which a firm acquires all or a significant amount of equity in a company. A leveraged buyout is when firms use a mix of cash and debt to acquire equity, which is very common.
Buyout Fund
Leveraged buyout funds typically acquire controlling stakes of mature, cash flow stable companies. To finance these transactions, they will use a combination of debt (bank and term loans and subordinated or mezzanine debt) and equity.
Beta Test
This is the final phase of testing in which the product is tested by users in a production environment to validate the product’s functionality, usability, and compatibility.
Bootstrapping
When a start-up founder uses his/her resources to launch and operate a startup without external sources of financing like venture capital or angel investment.
Basis Point
One hundredth of 1% (i.e. 0.01%). Also referred to as bps.
Bear Market
A market where prices decline against a background of widespread pessimism. Compare with bull market.
Beneficial Owner
The person or persons who have ultimate rights to the value of an investment or property, as distinct from the registered owner who may be a nominee.
Best Execution
The duty of an investment firm to take all reasonable steps to obtain, when executing orders on behalf of clients or decisions to deal, the best possible result for those clients considering factors such as price, costs, speed, likelihood of execution and settlement, size, nature and any other consideration relevant to the execution of the order.
Beta
A measure of risk which indicates the sensitivity of an investment, such as an investment fund, to fluctuations in the market, as represented by the relevant benchmark.
Bull Market
A market where prices increase against a background of widespread optimism. Compare with bear market.
Capital Call
This happens when a general partner in a private fund is ready to make an investment, it will ask its limited partners for the capital they’ve already committed to the fund.
Carried Interest
A general partner’s share of the capital gains from a fund, usually 20%.
Carveout
When a company sells all or part of its business.
Closed Fund
A fund that is finished taking commitments from limited partners and is ready to make investments.
Closing Account
An account that helps determine the net debt and working capital that will be used to establish the final price of an M&A deal according to the agreed price formula.
Co-investment
When a limited partner invests directly in a company alongside a general partner, instead of through a general partner.
Convertible Debt
Debt that can be converted to equity when certain conditions are met, like a specific valuation or date.
Convertible Preferred Shares
A type of share that gives the owner the right to convert its preferred shares to common shares after a predetermined period or specific date. T
Corporate Venture Capital
A type venture capital investment business carried on by the venture capital arm of a company.
Churn
Customer churn measures the number of customers or accounts leaving a service each month as a percentage of the overall customer count. Revenue churn measures the amount of revenue paid by customers leaving the service each month, as a percentage of overall revenue.
Customer Acquisition Costs
Customer Acquisition Cost (CAC) is calculated by dividing all the sales and marketing costs involved to acquire a new customer within a certain timeframe. The CAC is one of the defining factors that determine whether a SaaS company has a viable business model.
Customer Lifetime Value
An estimate of the average gross revenue that a SaaS customer will generate before they churn (cancel). An investor will be interested in a start-up’s CLV especially in relation to its CAC to determine whether the business model is viable.
Crowdfunding
The process of raising small amounts of capital from the public to fund a venture or project
Cap Table
A document that shows the capital structure of a company. Generally used to view the ownership of each shareholder and option-holder.
Cliff
Employee stock agreements have often a cliff, usually one year before the employee stock options start vesting. Option holders may only exercise an option after it has vested but before the specified expiry date.
Closing
The final event to complete a transaction (investment, merger, acquisition) at which time all the legal documents are signed and the funds are transferred
Churn Rate
This refers to customers lost after the acquisition stage in a subscription-based business model.
Cash Flow
Cash flow is the amount of money flowing in and out of a business at a given time. Being cash flow positive means there’s more cash inflow, or money going into your company, than coming out. Conversely, a negative cash flow is when the cash outflow, the amount of money going out of your business, exceeds how much you’re making.
Closed-end Fund
An investment fund in the form of a company (normally a stock company) with fixed capital. A closed-end fund is not obliged to redeem issued units at the request of the unitholder.
Collateral
Assets put up as a security for the fulfillment of a future financial obligation
Collective Investment Scheme
A fund in which several investors hold units. The assets are not held directly by each client, but as part of a ''pool''. Unit trusts are types of pooled funds.
Convertible Bonds
Bonds which feature a conversion right entitling the holder to convert the bond into shares of the company in question at a certain point in time and at a conversion ratio set in advance.
.
Corporate Governance
This generally describes the ways in which mutual responsibilities are distributed between a company's management and its shareholders.
Correlation
A measure of the degree to which the price trends of various investment categories or instruments move in the same direction.
Cost Averaging
This method of investing takes advantage of regular payments. The investor invests the same amount every month, and thus acquires more units when the issue price is lower and less units when it is higher. Over the long term, the investor thus attains a more favourable cost price than with the regular purchase of a fixed number of units over the same period of time.
Country Fund
An investment fund which invests primarily in equities of a specific country.
Credit Rating
This is a measurement of the quality of a borrower, particularly in respect of solvency and willingness to pay. Investors typically rely on a credit rating to draw conclusions regarding the quality of bonds and the probability that interest payments will be made regularly and that the principal amount will be repaid at maturity.
Currency of Account
Currency in which the fund's accounts are kept and in which the net asset value and the issue and redemption prices are calculated.
Currency Swap
Generally, an arrangement in which a currency is sold at the spot rate and then immediately repurchased forward or the other way round. Currency swaps are used to hedge currency risks on export credits.
Custodian
Ttypically, a bank is responsible for keeping the entire assets of the fund in its custody and for the issue and redemption of fund units. It ensures that the fund management company complies with the provisions of the Investment Fund Act and the provisions of the fund prospectus
Data Room
A secure, digital location where potential investors can review confidential information on a target company, including financial statements, compensation agreements, intellectual property and client contracts.
Deal Flow
The number of transactions that have closed during a given period.
Debt & Cash-free Pricing
This indicates a target company’s price without financial debts or cash.
Debt Financing
A type of funding provided to startups by a lender or investor such as a bank. Like a traditional loan, a company that takes debt financing borrows money and pays it back with interest. With debt financing, borrowers do not need to offer equity in return.
Distressed Investment
An investment made into a company experiencing liquidity, capitalization, and/or underperformance issues.
Distributed to Paid in (DPI)
The value of all distributions divided by the amount limited partners have contributed to the fund.
Distribution
The capital limited partners receive from general partners after they exit an investment.
Drawdown Rate
The speed at which a general partner calls down the capital committed by its limited partners.
Due Diligence
The vetting, analyzing, and assessing of a target company and its promoters prior to a commitment to invest by an investor.
Decacorn
A decacorn is a privately held startup company valued at over $10 billion.
Delaware Flip
A Delaware Flip (or just a US Flip) is the process of creating an American holding company for an international company. The end result is that the international company will be owned entirely by the new American company. The reasons behind this are often either being able to operate better in the US market or being able to attract US funding.
Dilution
Equity dilution occurs when the ownership percentage for existing shareholders goes down as the company issues new shares.
Direct Listing
Direct listings (or Direct Public Offerings or DPOs) are an alternative to Initial Public Offerings (IPOs) in which a company does not work with an investment bank to underwrite the issuing of stock. While forgoing the safety net of an underwriter provides a company with a quicker, less expensive way to raise capital, the opening stock price will be completely subject to market demand and potential market swings.
In a direct listing, instead of raising new outside capital like an IPO, a company’s employees and investors convert their ownership into stock that is then listed on a stock exchange. Once the stock is listed shares can be purchased by the general public and existing investors can cash out at any time without the ‘lock up’ period of traditional IPOs.
Down Round
This is when a company raises a pre-money valuation that’s lower than the post-money valuation in the previous funding round.
Drag-along Rights
A provision in an agreement that allows a majority shareholder to force a minority shareholder to join in the sale or merger of the company.
Dry Powder
The amount of money a VC fund has available for new investments.
Early-stage
The period of venture capital investment between seed and late-stage deals, when companies have a proven concept and little or no revenue.
Earnout Provision
This provision provides compensation for the seller if the business attains certain performance goals.
EBITDA (earnings before interest, taxes, depreciation and amortization)
A company’s net profit plus interest, taxes, depreciation, and amortization.
Enterprise Value (EV)
A company’s value calculated as market capitalization, including all debt and equity interests, minus excess cash.
Evergreen Fund
A fund that never closes and keeps fundraising to ensure consistent cash flows.
Earnings before interest and taxes (EBIT)
A measurement of the operating profit of the company.
EBIT Multiple
A valuation methodology based on a comparison of private and public companies’ value as a multiple of Earnings Before Interest and Taxes (EBIT). Revenue multiple is usually used for valuing a company when it’s not profitable yet.
Employee Stock Ownership Program (ESOP or SOP)
Also called Employee Stock Option Pool. A pool of options reserved for employee compensation. The option pool is used to both attract new talent and keep the existing stars on board and motivated.
Entrepreneur in Residence (EIR)
A seasoned entrepreneur who is employed by a Venture Capital Firm to help the firm vet potential investments and mentor the firm’s portfolio companies. Sometimes the term “serial entrepreneur in residence is used”. It is not unusual for an entrepreneur in residence to at some point jump in as a team member in a portfolio company.
Exercise Price (also Strike Price)
The amount that must be paid to execute options i.e. convert options to shares. Generally, in the US the exercise price is based on “Fair Market Value” when issued, rather than the vesting date.
Exit
When an investor sells its equity in a portfolio company.
Elevator Pitch
A short and concise presentation an entrepreneur gives to a potential investor about the investment opportunity. The pitch should be straightforward enough that it can be shared during an elevator ride.
Equity Stake
The percentage of a company owned by the holder of some shares of stock in that company.
Equity Financing
When companies raise capital through the sales of shares. Equity financing usually comes from venture capitalists during a round of financing.
Earnings per share (EPS)
A common way of expressing company profits – dividing the profits after tax by the number of shares in issue. Earnings per share is the basis for the calculation of the PE ratio (price/earnings ratio).
Eco-innovator
A company whose products and services help to achieve a specific benefit with the greatest possible resource efficiency. Examples: a supplier of organic food or regenerative energies such as wind and solar power.
Efficient Frontier
Modern financial theory sees the relationship between return and risk as two-dimensional, taking returns and volatility into consideration. The portfolio return corresponds to the weighted average of the returns from each of the individual securities. The volatility of the portfolio is not however calculated as a weighted average of the individual securities' volatility, as the valuations of the individual securities do not correlate perfectly. Through diversification, the investor can thus reduce risk without having to forego returns. Due to the close correlation of alternative and traditional investments, an existing portfolio is able to achieve a more favourable risk/return profile by adding alternative investments.
Exchange-rate Risk
The risk that investors are exposed to due to changes in exchange rates potentially affecting the value of investments. This is applicable when investing in non-domestic investments, i.e. when buying foreign currency denominated shares or bonds. See currency risk.
Family Office
A firm that manages assets, investments, and trusts for a wealthy family.
Fund-of-funds
A fund that invests in other funds. A fund-of-funds devotes all its time to evaluating fund managers, which usually leads to above-average returns. However, there are extra fees associated with investing in a fund-of-funds.
Fund of Funds
These are funds that invest in other funds.
Fair Market Value
The value of a company based on what investors are willing to pay for it. FMV is usually derived from comparable companies that have recently had a financial transaction associated with them.
Follow-On Investment
A subsequent investment made by an investor who has made a previous investment in the company — generally a later stage investment in comparison to the initial investment.
Fully Diluted
Ownership of the company based on the total number of shares outstanding when all possible sources of new shares (convertible loans, options, warrants) are considered.
Flat Round
This is when the valuation is the same as the previous round of funding.
Full Ratchet
A type of antidilution protection in a venture capital term sheet where if another VC later pays a lower price for shares in a company, the VC that bought shares earlier with the “ratchet” protection gets a price adjustment to that lower price. Ratchets are not standard in typical early stage investments
General Partner (GP)
An entity that raises capital from limited partners for a fund and determines which assets the fund should invest in.
Greenfield
An investment that involves an asset or structure that does not yet exist. Investors fund all stages of development, including design, construction, infrastructure, and operations.
Growth Equity Investment
When an investor gives a mature company capital it can use to expand or restructure in exchange for equity (usually a minority stake).
Gearing Ratio
Borrowed funds taken up for financing (mortgages and other interest-bearing liabilities) expressed as a percentage of the market value of the real estate (including building land and buildings under construction) at the end of the period under review.
Going Public
Going public refers to going from a private company to a public company by selling shares to the public. It’s up to the company when they want to go public — some may go public after being in business for less than five years, others may decide to wait longer.
Haircut
A haircut is applied in order that capital is preserved whilst the asset is sold.
Heads of Agreement
The basic elements of a deal spelled out more specifically in a share purchase agreement.
Herfindahl-Hirschman Index (HHI)
A commonly accepted way to measure concentration within an industry. It is calculated by finding the square of the market share for each firm competing in a market and adding up the results, which can range from near zero to 10,000.
Hedge Funds
A hedge fund is a pooled investment set up by a hedge fund manager which is designed to make returns using different investment strategies. They’re limited to higher net-worth individuals and are often set up as limited partnerships.
Hedging Costs
These are costs that arise when a portfolio is hedged against losses using dynamic or static hedging. For portfolios with dynamic hedging, the expenses primarily consist of purchase and redemption costs for shifting investments between the Core Portfolio and the Opportunity Portfolio. For static hedging, the costs can arise from the purchase of derivative instruments.
High Watermark
The high watermark is used in connection with the performance fee. Typically, the fund manager calculates his or her share of the profits on the basis of the value increment over and above the last peak in the NAV. As a result, the performance fee does not become payable until all losses incurred have been completely recovered.
Incubator
A program that helps entrepreneurs refine their business idea, develop a business plan, and grow their company from the ground up. An incubator differs from an accelerator, where a company has already developed its minimum viable product and is looking to scale growth rapidly.
Initial Public Offering (IPO)
The first time a private company’s stock is available to the public. All companies undergoing an IPO must register with the securities regulator and take the necessary steps to comply with all applicable rules and regulations.
Institutional Investor
An entity that invests capital on the behalf of organizations, companies, or individuals. Examples include university endowments, insurance companies, and pension funds.
Internal Rate of Return
A metric to measure the success of an investment. In the context of venture capital, IRR represents the annualized percent return an investor’s fund has earned over the lifetime of the investment. The higher the IRR, the better the investment is performing.
Impact Investing
Impact investing refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.
Insider Round
A round of financing entirely composed of existing investors. Compare to External Round – a round of financing including new independent investors with significant investments.
Ideation
Ideation is the process of generating ideas and solutions through sessions such as brainstorming, prototyping, and sketching. The purpose is to come up with numerous ideas, which your team can then narrow down.
Illiquidity
Illiquid assets are those assets that cannot be easily bought, sold or converted into cash. It may often be impossible to convert the asset to cash until the end of the life of the asset. Illiquid funds are those that take time for investors to trade.
Index
Indicator of performance on one or more markets. The oldest and best-known stock market index is the Dow Jones. Indexes make it possible to compare the performance of a fund which is invested in a specific market with the development of this market. See also benchmark.
Index Fund
An investment fund which replicates a chosen stock market index in its stock selection and weightings as exactly as possible.
Indexation
A style of fund management that aims to construct a portfolio to provide the same return as that of a chosen market index. This can be achieved on a full replication or sampling basis or via synthetic replication. Full replication involves buying all the stocks in the index in the same proportions in which they make up the index. Sampling means using statistical methods to choose an appropriate portfolio to best match index performance. Indexation is also known as passive management.
Information Ratio
The information ratio is a measure used to assess an investment fund, and refers to the excess return relative to the tracking error. It is calculated by dividing the fund's return (expressed as alpha) by the fund's risk (expressed as tracking error). The alpha measures the fund's outperformance relative to its benchmark. The tracking error shows the volatility in deviations between the fund's return and that of the benchmark, and is thus a measure of the fund's risk. The higher the information ratio, the more rewarding this makes a strategy that deviates from the benchmark for investors.
Interest Rate
An interest rate is a fee paid on capital borrowed. It indicates the price at which you can borrow. For example, when you get a bank loan, the interest rate is the rate you pay and will often depend on how much you want loaned to you.
Investment Grade
Term used to denote securities with ratings of between BBB and AAA, indicating that their credit quality is satisfactory or good.
Investment Horizon
The period of time for which investors want to commit a part of their assets.
Investment Instruments
The various investment categories such as equities, bonds and money market instruments.
Investment Management Agreement (IMA)
A document setting out the investment management contract between the fund manager and the client. Contains appropriate legal details and details of investment objectives and benchmarks agreed.
Investment Policy
The investment policy describes the approach taken to achieve the investment objective (stock selection, timing, cash holdings, etc.).
Investment Thesis
The investment thesis characterize and defines the fund. The investor receives information about the securities held in the portfolio, the investment currency, the geographic mix of the investments and the risk diversification of the investment fund.
Issue Price
This is the price at which investors can subscribe fund units. It corresponds to the net asset value per unit plus the issuing commission.
Issuer
A legal entity or public entity which issues securities in order to raise borrowed capital.
J curve
A curve used to indicate a phenomenon that occurs at the beginning of a fund’s lifecycle, when performance and cash flows are negative because the fund is investing and not yet yielding returns. As the fund starts exiting investments, performance and cash flows increase.
Key Performance Indicators (KPIs)
A set of metrics used to gauge the performance of a company. KPIs depend on a specific company’s strategic and operational goals. Examples include revenue growth and monthly active users.
Late Stage
A later period of venture capital investment when start-ups have increased revenue and are near exit.
Lead Investor
The investor that makes the largest investment in a venture capital round. As the primary financier of the round, the lead investor determines the valuation of the company.
Leakage
The distribution of profits or responsibilities for the repayment of loans to ensure a minimum amount of taxes are paid to preserve deal value (prevent leakage) when structuring a deal that involves several companies.
Legal Continuity
The question of whether the target company’s existing contracts should be retained after an acquisition. In asset deals, prior agreements typically cease and must be entered into again. Legal continuity rarely impacts share deals.
Letter of Intent (LOI)
The initial document that outlines the goals of the parties involved in a deal and is drafted to open negotiations under clauses dictating exclusivity and secrecy. A LOI is sometimes called a memorandum of understanding (MOU).
Leverage
The use of debt in an investment, including acquisitions and capital expenditures. With leverage, general partners can expedite improvements to portfolio companies and amplify returns.
Limited Partner (LP)
An entity that commits capital to a general partner’s fund.
Limited Partner (LP)
The investors of a VC fund are called Limited Partners or LPs
Limited Partnership
The legal relationship between a general partner and its limited partners.
Liquidity Event
When a general partner sells equity in an asset and returns capital to its limited partners.
Leveraged Buy-Out (LBO)
Leveraged buyout funds typically acquire controlling stakes of mature, cash flow stable companies. To finance these transactions, they will use a combination of debt (bank and term loans and subordinated or mezzanine debt) and equity. That means these PE firms buy companies using a bit of their own money, and a lot of borrowed money.
Liquidation
The process of bringing a business to an end through the selling of a company’s assets and inventory.
Liquidation Preferences
A liquidation preference is a contract clause that gives investors the right to get their money back first — ahead of other kinds of stockholders — in the event of a liquidation. This preference indicates an order in which investors, or debt holders, get paid in the event of company liquidation or bankruptcy
Liquidation preferences are expressed as a multiple of the initial investment — for example, 1x liquidation preference means they get their full amount back.
Lock-Up Period
The period an investor must wait before selling company shares subsequent to a transaction – usually in an initial public offering the lock-up period is determined by the underwriters.
Lean Startup
This is a business approach first coined by Eric Ries. It involves engaging in a build-measure-learn feedback loop by building an MVP to solve a problem, doing tests and analyses, and adjusting or pivots based on data.
Large caps
Companies with very large stock market capitalization in relation to the market on which they are traded.
Liquidity
Units of investment funds enable the unit holders to remain liquid, i.e. they can redeem their units as a rule at any time. The management company is obliged to redeem the units at the current redemption price without any notice of termination.
Listing
The admission of a security to official trading on a stock exchange, which is usually subject to the fulfilment of certain criteria.
Long/Short
The strategies that come under this heading invest in a combination of different financial instruments to optimise risk and return. The purchase of an equity that promises an increase in value (long) is combined with the sale of another equity where the value is expected to fall (short). Short selling and credit financing for investments are explicitly permitted.
Long-term Funds
An investment fund which invests in bonds with a (term to) maturity of at least 5 years.
Management Buyout (MBO)
A buyout a company’s management team leads or participates in.
Management Fee
The amount general partners charge limited partners to operate a fund. The fee is usually 0.5%–3% of the called capital amount.
Mergers & Acquisitions (M&A)
M&As occur when one company buys another company. (Mergers refer to two separate companies combining to form a joint company, but mergers of equals are rare compared to M&As.) M&As can be a strategic move for startup growth.
Mezzanine Investment
A financing round between senior and subordinated loans that typically includes equity-based options in the form of warrants.
Mezzanine Financing
Mezzanine financing is a financing method that mixes debt and equity financing, often taking the form of convertible debt or preferred stocks. Mezzanine loans typically have higher interest rates.
Minimum Viable Product (MVP)
An MVP is a basic version of your product with the necessary features that can be
Management Fee
The charge levied by the management company for the administration of an investment fund. The amount of the fee is expressed in percentage or tenth of a percentage of the fund assets or in basis points.
Market Capitalization
The market value of a listed company, corresponding to the current market price of its shares multiplied by the number of all the equity securities in circulation.
Mark-to-market
Valuing stocks or other financial instruments held against the current market price to determine the paper profit or loss to date.
Money Market Funds
Investment funds which invest in short-term fixed-interest paper (less than a year to maturity) in specific currencies.
Monthly Recurring Revenue
This is the total amount of the recurring revenue generated by that the customers in a month. MRR is the essential metric of SaaS businesses.
Money Market Instruments
Securities with maturities of no more than one year which are traded on the money market. The classic money market instruments are domestic bills of exchange, treasury bills and treasury notes..
NDA (Non-disclosure agreement or Confidentiality agreement)
A non-disclosure agreement (NDA) is a legal contract between two or more parties defining confidential material and information that the parties wish to share with one another, but should not be made available to others.
NFT (Non-fungible token)
A non-fungible token (NFT) is a digital file whose unique identity and ownership are verified on a blockchain (a digital ledger).
Net Asset Value (NAV)
This is used to describe the value of a company’s assets less the value of their liabilities.
Net Fund Assets
The fund assets calculated at market values less all liabilities.
No-load Fund
An investment fund which does not charge any commission on the subscription or redemption of units.
Offer Letter
A non-binding indication of one party’s intention to purchase a target company.
Operating Partner
An executive dedicated to working with portfolio companies to increase their value. They often have industry-specific expertise
Open-Ended Fund
An investment fund with variable capital which can continually issue new units but which must also redeem the units issued upon request at their net asset value.
Options
The buyer of an option acquires the right - but not the obligation - to buy (call option) or sell (put option) a specified amount of a certain underlying instrument at a predetermined price on or by a specified future date. The buyer pays the seller of the option a premium (option price) for this right.
Over the Counter Financial Contract (OTC)
An over the counter (OTC) financial contract is one that is not traded on an exchange but is ‘tailor-made’ for a client by a financial institution.
Paid-in Capital
The amount of committed capital that has been transferred from the limited partner to the general partner.
Placement Agent
A third-party firm that helps general partners fundraise.
Platform Company
A private equity-backed company that completes an add-on transaction.
Portfolio Company
A company that has received an investment from a venture capital or private equity firm.
Post-money Valuation
The value of a company after an injection of capital.
Pre-money Valuation
The value of a company that investors determine before they invest capital.
Pre-seed
The stage before the seed stage. As seed stage investing has become more popular, investors have started to invest in companies at this stage in the hopes of finding them early on. A pre-seed company is often just the founder(s) and an idea.
Private Investment in Public Equity (PIPE)
When a private investor purchases stock in a public company (usually for less than the current market price).
Public-to-private Transaction
When a private equity firm acquires all the shares of a public company, changing the company’s status from public to private.
Pari Passu
A legal term that refers to equal treatment for two or more parties in an agreement.
Pay to Play
A term in a financing agreement where an investor who does not participate in a future financing round will lose certain rights of existing shares. The rights lost can be anti-dilution rights, liquidation preference, etc.
Pivot
The act of a startup quickly changing direction with its business strategy.
Proof of Concept (POC)
This is the process of determining the feasibility and viability of a business or design idea through experimentation or testing.
Product-Market Fit
A product or service has a market fit when it provides enough value for customers to pay for using the product/service.
Pitch Deck
A pitch deck gives an overview of your product, business model, and team.
Pro-rata Rights
This is a right that can be given to an investor to allow them to maintain their level of percentage ownership in a company during subsequent funding rounds.
Portfolio Company
A company that a private equity or venture capital firm owns or holds an interest in. Investing in a portfolio company aims to increase its value and earn a return on investment via an exit or other liquidity events such as an IPO or sale.
Payout Ratio
Expresses the ratio of cash flow to distributed income, which indicates how much of the funds earned during a business year has actually been distributed.
Portfolio
In the investment fund business, the composition of a fund's assets.
Portfolio Theory
The relationship between risk and return is a key tenet of modern portfolio theory. In principle, a higher return can only be "purchased" for a higher risk. However, the relationship between risk and return may be optimised via a broad spread of investments (diversification). By doing so, a higher return can be generated with the same level of risk, and a lower return can be achieved with a lower level of risk.
Premium
A figure, usually expressed as a percentage, to indicate, for example, how high the issue price of a security lies over a specific reference price, usually the nominal value. A premium can also mean the amount (often also expressed as a percentage) a buyer is willing to pay for a right (option price, option, subscription right) above the book value.
Price-Earnings Ratio
A ratio used to value a company's shares. It is calculated by dividing the current market price by the earnings per share.
Price-to-book Ratio
The price-to-book ratio is measured as the market value of equity divided by the book-value of equity (common shareholders' equity).
Put Option
An option that gives the buyer the right (but not the obligation) to sell a specified quantity of the underlying instrument at a fixed price, on or before a specified date. The writer (seller) of the option has the obligation to take delivery of the underlying instrument if the option is exercised by the buyer. Compare with call option.
Recapitalization
A corporate reorganization designed to change a company’s capital structure. This process usually involves exchanging one type of finance for another, such as debt for equity, equity for debt, etc.
Residual Value to Paid In (RVPI)
The value of all remaining investments in a fund relative to the amount limited partners have contributed the fund.
Return on Investment (ROI)
The percentage of profit or loss that resulted from an investment.
Reverse Merger/Reverse Takeover
When a private company acquires a public company.
Reverse Termination Fee
A fee paid by the buyer if it breaches or decides to terminate a definitive acquisition agreement.
Revenue Multiple
A valuation methodology based on a comparison of private and public company values as a multiple of Revenue. Revenue multiple is usually used for valuing a company when it’s not profitable yet. For profitable companies, EBIT (Earnings before interest and taxes) multiple is an often-used valuation method.
Reverse Vesting (also known as Founder Vesting)
Reverse vesting occurs when a company’s co-founder receives (or has received) his or her shares and ownership interest upfront. This exchange is subject to vesting similar to employee stock options. If the co-founder leaves, the company may repurchase a set amount of those shares.
The founder already owns all the shares with reverse vesting and may be forced to sell a specific percentage of them for no profit if the complete vesting period hasn’t been finished. Reverse vesting is a term used to define a specific situation where an independent contractor or an employee gets stock that’s subject for the company to repurchase at-cost. The right to repurchase lapses the vesting period.
This is the opposite of a normal situation, where a provider for a service gets the right to buy stock or an option, but he or she can’t use that right until the provider vests. Many investors and employees must earn shares by staying with the company for a while through a vesting provision or from buying the equity. Founders have an advantage over them, as they get equity with the company from their first day of employment.
Run Rate
Run rate refers to the projected financial performance of a company based on the current financial performance and the assumption that current conditions will remain constant.
Right of First Refusal (ROFR)
A clause which requires any shareholder who wants to sell stock (common, preferred, etc.) to give a shareholder or investor the option but not the obligation to buy shares from existing shareholders before they can be sold to an external party.
Real Value
Post facto calculation of the actual asset value of a property, i.e. the cost of reconstructing a building of the same standard, considering the depreciation due to age that has occurred in the meantime and the value of the land.
Redemption Price
The price at which the fund management is obligated to buy back units, subject to the period of notice prescribed by law (net asset value minus any commission in accordance with the fund regulations).
Reinvestment
The possibility of reinvesting the distribution in the same fund. Certain funds offer investors a special reinvestment discount on the issuing price if the annual distribution is reinvested.
Reinvestment Fund
An investment fund that continuously reinvests its income in the fund rather than distributing it to unit holders, as opposed to distribution fund.
Reinvestment, Continuous
The continuous reinvestment of the income generated by a fund in the same fund.
Relative Value
This investment strategy aims to exploit market inefficiencies. Accordingly, simultaneous investments in long and short positions in strongly correlating portfolios are generally entered into.
Return on Equity
A method of valuation of company accounts which can determine how a company is spending its money, calculated by dividing a company’s net income by its stockholder equity.
Return on Investment
Change in the net asset value of units, assuming that distributions are reinvested at net asset value.
Rights Issue
When existing shareholders are given rights to purchase the new shares in proportion to their existing holding. Compare with bonus issue.
Risk Capacity
An investor’s capacity to tie up his money (capital) for a specified period of time without getting into financial difficulties.
Risk Tolerance
The degree of possible price fluctuations that an investor is willing to accept in order to attain a specific investment goal. Risk tolerance and an investor’s need for security are important factors when selecting an investment fund. The higher the risk tolerance, the greater the component of equities and foreign currencies.
Risk-free Asset/Rate
An investment with no chance of default, and a known or certain rate of return.
Secondary Sale
When one limited partner sells its alternative investments to another limited partner. Limited partners do this for a variety of reasons, including to adjust their asset allocation.
Seed Round
The earliest round of funding where angel investors, founders, friends, and family invest in a startup. At this point, the company is developing its product and is not yet generating revenue.
Senior Debt
The debt that takes priority over other securities in the event of liquidation.
Series A–D+
How you identify rounds of venture capital financing made after the seed round.
Series A Round
This is a company’s first significant round of venture funding, mostly by institutional investors
Spin-off
A type of divestiture that creates an independent company through the sale or distribution of new shares of an existing business or division of a company.
Staple Financing
A pre-arranged financing package offered to potential acquirers that includes all the details of a lending package. The name comes from the fact that the financing details are stapled to the back of the acquisition term sheet.
Step-up Multiple
The difference between the post-valuation of a company's previous VC round and the pre-money valuation of its new round.
Strategic Acquisition
When a corporation acquires a company for its technology, products, or services.
Subordinated Debt
Loans that have a lower priority than senior debt in the event of liquidation.
SAFE (simple agreement for future equity)
A SAFE (simple agreement for future equity) is an agreement between an investor and a company that provides rights to the investor for future equity in the company similar to a warrant, except without determining a specific price per share at the time of the initial investment.
Secondary Public Offering
When a company offers up new stock for sale to the public after an IPO. Often occurs when founders step down or desire to move into a lesser role within the company. Not to be confused with Secondary Sale (see next entry).
Secondary Sale
A secondary sale is when a shareholder (typically one of the founders or an early employee or an early investor) of a private company sells his or her shares to another buyer, often prior to an IPO. Secondary sales often happen in conjunction with pre-IPO funding rounds.
Serviceable Available Market (SAM)
This is the portion of Total addressable market targeted and served by a company’s products or services.
Serviceable Obtainable Market (SOM)
This is the share of market, is the percentage of serviceable available market which is realistically reached.
Software-as-a-Service (SAAS)
A business model in which the company provides its software solution to the customer as a service with a monthly or annual subscription fee instead of selling licenses and maintenance agreements.
Special-Purpose Acquisition Company (SPAC)
A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.
Syndication
Multiple venture capital funds (or other investors) investing jointly in a single company.
Sales Funnel
This is a representation of the sales process, which is funnel-shaped because it starts with a large number of potential customers at the top, but only a fraction of those people ends up making a purchase. The general stages of a sales funnel from top to bottom are: awareness, interest, consideration, and purchase.
Sector Average
The sector average is the unweighted average performance of all funds in the same investment category. Generally, all funds of the same investment category which are authorized for sale in one country are considered together.
Sector Fund
An investment fund which invests its assets solely in securities of companies in a specific sector of the economy.
Securitisation
The process of taking a set of underlying assets and repackaging them as a new security.
Security
A generic term for a financial asset such as a bond or equity (share).
Settlement
The completion of a purchase or sale of bonds or shares. The moment when the cash is delivered to the seller and the stock is delivered to the buyer.
Share
A stake in a company which confers ownership rights on the holder. Shares are also known as equities.
Sharpe Ratio
The Sharpe ratio expresses how much higher (or lower) a return an investor can expect compared to the risk-free rate of interest (e.g. interest rates on savings accounts) per unit of risk (volatility). The risk-free rate of interest varies from currency to currency.
Short Sale
The forward selling of financial instruments which the seller does not yet possess, whereby the investment objective is to be able to cover the missing securities at cheaper prices before the delivery date. The risk involved in short selling is that the price of the underlying may rise.
Short-term Fund
A fund which invests in bonds with a (term to) maturity of 1 to 3 years.
SICAF
Société d’investissement à capital fixe. An investment fund in the form of a joint-stock company with fixed capital.
Small/Mid Cap Funds
Funds which invest in shares of companies with relatively small market capitalization.
Socially Responsible Investments
Socially responsible investments (SRI) include those investments which consider social and environmental criteria in addition to traditional financial factors.
Solvency
The ability of an organisation to cover its liabilities. Solvency can be determined by using the ‘current ratio’, which divides total current liabilities by total current assets.
Speciality Fund
A fund which differs from conventional investment funds in that it adopts a special investment approach or focuses specifically on certain countries, industries or investment instruments.
Spread
The difference in yield between different types of bonds, for example between government bonds and corporate bonds. Also referred to as yield spread.
Standard Deviation
Standard deviation is a statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. The greater the degree of dispersion the greater the risk.
Strategic Asset Allocation
The long-term benchmark asset allocation, designed to meet the fund’s risk and return objectives.
Swap
A swap is a type of derivative where two parties agree to exchange assets or cashflows over an agreed period. Swaps can be based on equity indices, bonds of different maturities, baskets of securities, individual securities, or interest rates. As with other derivatives, swaps can be used to gain a desired exposure without trading in the underlying assets.
Switching Costs
The costs of buying and selling investments in order to implement a change in investment strategy.
Target Company
The entity purchased by an acquirer.
Target Working Capital
An amount recorded during negotiations to reflect a historical analysis of the working capital requirements of a target company. It reflects closing accounts as well as an increased or decreased price if a target company has more or less working capital than the target capital on the date of the closing accounts.
Total Value to Paid In (TVPI)
The value of all remaining investments in a fund plus the value of all distributions relative to the amount limited partners have contributed to the fund.
Tranche
A portion of an investment dependent on a company hitting certain milestones. Every tranche of a round is part of the same round.
Transaction Fees
The amount private equity firms charge the companies they acquire (typically between 1% and 2%).
Tag-Along Right
The right of a minority shareholder to sell the shares with the same terms as a majority shareholder, also known as co-sale right.
Ten-Bagger
A colloquial company that a venture capital firm exits with at least 10X return on its investment.
Term Sheet
A nonbinding document that includes the basic terms and conditions under which an investment will be executed. Term sheets cover a company’s valuation, investment amount, percentage stake, liquidation preference, voting rights, etc. Once the term sheet is signed, it indicates that the investor and the company would like to proceed with the transaction.
Total Addressable Market (TAM)
Total addressable market (TAM), or total available market, is the total market demand for a product or service, calculated in annual revenue or unit sales if 100% of the available market is achieved.
Turnaround
This word is used to describe businesses that are in trouble and whose management will cause the business to become profitable so they are no longer in trouble.
Target Market
This is the segment of the market to which a product or service is aimed at.
TER
The ratio of total expense to a funds average size over an annualised accounting period. Expenses are taken to include all expenses shown in the income account, including management, administration, custody, audit, legal and professional fees.
Term to Maturity
Remaining life of a bond from the current date to the final due date or the premature repayment of the bond.
Theme Fund
An investment fund which invests in securities which meet a specific criterion (environmentally friendly, ethical commitment, etc.) or which all have the same characteristic (e.g. companies which are undergoing restructuring programmes).
Total Cost of Ownership (TCO)
This means the overall charges that arise from buying and using a product.
Total Expense Ratio
The ratio of total expense to a fund’s average size over an annualised accounting period. Expenses are taken to include all expenses shown in the income account, including management, administration, custody, audit, legal and professional fees.
Total Return
This means, a combination of capital return and income return. To be precise, the aggregate increase (or decrease) in the value of the portfolio resulting from the net appreciation (or depreciation) of the principal of the fund, plus the net income during the period. This is expressed as a percentage of the value of the fund at the start of the period.
Total Return Index
Measures the performance of a stated index and assumes reinvestment of all dividends and distributions over a period of time.
Tracking Error
Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment fund is managed, the smaller the tracking error. The tracking error (TE) is calculated using the annualised standard deviation of a portfolio's excess return over the corresponding index return.
Turnover
A measure of the percentage of a fund switched within and into or out of a market sector.
Underwriting
When investment banks issue debt and equity securities on behalf of corporations and governments to generate investment capital.
Unicorn
A private venture capital-backed company with a valuation of $1B or more.
UCITS
Undertakings for Collective Investments in Transferable Securities. A UCITS fund is an authorised fund that may be sold across all countries in the EU.
Umbrella fund
An investment fund which comprises several subfunds. Together the subfunds form one single legal entity, meaning that only the umbrella fund needs to be submitted for authorisation. The subfunds are governed by the same fund regulations and prospectus. Once the umbrella fund has been approved, other subfunds can be created. All UBS Investment Funds domiciled in Luxembourg are umbrella constructions. Not to be confused with fund of funds.
Underlying instrument
A financial instrument (security, currency, index, commodity, etc.), which forms the basis for an option or future.
Venture Capital
A type of private equity investing that focuses on startups and early-stage companies with long-term, high-growth potential.
Venture Debt
This is a type of debt financing provided by specialized banks or venture debt funds, used by early- and growth-stage venture capital-backed startups. Venture debt is generally structured as three- to four-year term loans.
Venture Partner
A Venture Partner typically means a person whom a VC firm brings on board to help them do investments and manage them, but is not a full and permanent member of the partnership. The “full and permanent” members of the partnership are often called General Partners, Managing Members, or Partners.
Vesting
Vesting means to give or earn a right to present or future payment, asset, or benefit” such as employer-provided stock, according to Investopedia. Founder vesting is the process of granting initial stock packages to the startup founders. A vesting schedule defines when and how the shares will be distributed over a period of time, which allows the company to buy shares back if the founder decides to leave the company early.
Warrant
A security that gives the holder the option to purchase a company’s stock at a predetermined price for a specified period.
Working Capital
The customers, suppliers, inventories and other assets and liabilities required for day-to-day operations of a target company.
Write-Off
Within the context of venture capital, this indicates a decision by a VC to report a decrease in the value of a poorly performing portfolio company when reporting the state of the portfolio. Such write-off can be partial or total. A total write-off means the portfolio company is worthless.
Warrant Bonds
Bonds with a warrant attached. The warrant enhances the holder to buy a specific number of shares of the company in question during the exercise period at a price fixed in advance. Once the warrant is exercised, the bond continues to run until its maturity date.
Yield
A measure of the income return earned on an investment. In the case of a share the yield expresses the annual dividend payment as a percentage of the market price of the share.
Yield Curve
The yield curve represents the relationship between the maturities of bonds traded on the market and their yield to maturity.
Yield on Distribution
The yield on distribution is the ratio of distributed income to the current market price.
Yield Spread
The difference in yield between different types of bonds, for example between government bonds and corporate bonds.
Yield to Maturity
Weighted average rate earned by an investor who buys the bond portfolio today at the market price and holds the bond portfolio until maturity, and assuming that all coupon and principal payments will be made on schedule.
Yield to Worst
Weighted average potential rate that can be received on a bond portfolio without the bond issuers actually defaulting. The yield to worst is estimated by making a worst-case scenario assumption on the issue by calculating the returns that would be received if provisions, including prepayment, are used by the bond issuer. Yield to worst may be the same as yield to maturity but never higher.
Zombie Fund
A fund that invests all its committed capital, but holds onto investments longer than normal to continue collecting management fees.
Zero-coupon Bonds
Bonds that make no interest payments. Instead of interest payments, the buyer of a zero-coupon bond purchases the security at a discount. Redemption is made at 100%.