A special set of vocabulary has developed in the private equity / venture capital sector over the years. This is a summary of the most important terms.*
* Source: based on: Venture Capital Manual from W. Weinener, Munich 2000
ADDES VALUE
Via involvement on advisory boards, supervisory boards etc. other operative activities. up
AMBER LIGHT
A warning signal which indicates problems in (potential) participation companies ("Red Flag"). up
ASSET SALES DEALS
Take-over transactions in which a large part of the purchase price is realised by the sale of assets belonging to the company which has been taken-over. The sale of assets which are not required for the operation of the company lead to a reduction of the debt service. up
ASSET STRIPPING
Break-up of the company which has been taken-over by the sale of partial divisions or assets. up
BENCHMARK
Also known as "milestone"; identified points in the company's development which, when reached, result in e. g. further discussion about additional capital input. up
BREAK-EVEN-POINT
This states the turnover level required to exactly cover the fixed and variable costs, i. e. when a company does not work at a loss or a profit. up
BRIDGE FINANCING
Financial resources which are given to a company to prepare for a flotation with the special objective of improving the equity capital ratio. up
BUFFER
An expression used to refer to the unused credit line or cash reserves. up
BURN-OUT-TURNAROUND
Also known as re-start; drastic reorganisation or restructuring of a company which has economic problems. For this purpose, new partnership capital is given from a third party; the shares of the old partners are diluted. up
BURN RATE
The time period during which the company uses up the capital which has been made available. up
BUSINESS ANGEL
A private person which finances research or inventions. This is often called SEED financing in the Anglo-American speaking areas. up
BUSINESS PLAN
A document which lists and quantifies the intentions or goals and ways of reaching these. up
BUY BACK EXIT
Variation in which the shares are bought back by the old partners. up
CAPITAL GAIN
Sales profit from the sale of company shares. up
CAPTIVE FUND
Is the name given to a fund which is part of a larger financial institution or belongs to it (opposite: INDEPENDENT FUND). up
CARRIED INTEREST
Delayed result for their capital shares by those responsible for the pool. A HURDLE RATE is usually inserted. up
CASE SCENARIOS
In connection with the review of a potential participation, different case scenarios are performed: A "Pessimistic Case Scenario" for a negative development, an "Optimistic Case Scenario" for the best development and a "Most Likely Scenario" for the most probable development. up
CASH-FLOW-DEALS
Traditional form of the management buy-out, which is usually financed on the basis of a company's generated liquid resources.The key factor is the cash-flow from which the borrowed capital resources can be paid and the interest service for the financing of a buy-out can be borne. up
CHINESE WALLS
Information barriers which exist or are created within a financial situation so that different departments do not what know the others are doing, e. g. to avoid conflicts of interest. up
CORPORATE VENTURING
Venture capital financing by industrial companies and/or their own venture capital companies which mainly follow the strategic interests of the group. up
CO-VENTURING
Participations in a company by several investors one of which acts as the LEAD INVESTOR (SYNDICATION). up
DEAL FLOW
Investment possibilities which are offered to a venture capital company. up
DEVELOPMENT CAPITAL
Capital for financing the corporate development of medium-sized companies (EXPANSION FINANCING). up
DUE DILIGENCE
The detailed investigation, review and assessment of a potential participation company which is the basis for the investment decision. up
EARLY STAGE FINANCING
Financing of the early stages of the development of a company, starting with the financing of the concept up to the start of production and marketing. up
EQUITY KICKER
A possibility for an external creditor to purchase shares at special terms in the company being financed. up
EXPANSION FINANCING
Growth and expansion financing; the money resources are used for extra production capacity, product diversification or expanding the market and/or as further "Working Capital". up
FEASIBILITY STUDY
An analysis of the technical and economical feasibility of a project. up
FLOP
Participation which is a big mistake (In contrast to a HIGH FLYER). up
FUNDRAISING
The starting phase of a venture capital fund for which institutional, industrial or private investors are won to subscribe shares. up HANDS OFF
After the equity capital has been supplied, the company is left alone to operate without any direct active interference until the time of the exit. A more passive management by means of involvement in advisory boards, supervisory boards, strategy workshops etc. up
HANDS ON
Active management: The investor aims to increase the value by actively supporting the management. (ADDED VALUE) up
HIGH FLYER
A name given to shares or company participations with an extremely high increase of value and way above average market price-profit ratio (in contrast to a FLOP). up
HURDLE RATE
The investors are given a basic compensation before the participation in profits by the management company or their management (Carried Interest) comes into effect.
INDEPENDENT FUND
Either independent funds or a VC company which is not controlled by a specific financial group (In contrast to a CAPTIVE FUND). up
IPO
Initial Public Offering; an Anglo-American term for the first public offering of shares of young or medium-sized companies. up
IRR
Internal Rate of Return; a mathematical financial technique for calculating the return of an investment. up LATER STAGE FINANCING
Financing of expansions, take-overs, bridging etc. for established medium-sized companies. up
LEAD INVESTOR
In a syndicate of VC companies, this is the investor (usually with the largest share), which takes on both the organisation of the financing and also HANDS ON management. up
LBO
Leveraged Buy-Out; mainly company take-overs financed with external capital. up
MBI
Management Buy-In; Take-over of a company by an external management. up
MBO
Management Buy-Out; Take-over of a company by the existing management. up
MEZZANINE MONEY
Financial resources which fill the financing gap between external and equity capital in the capital structure, in particular for an MBO/MBI. The usual forms in Germany: SUBORDINATED DEBT
With-profit participation
Company loan
Preference shares
Certificates of beneficial interest
Dormant equity holding SELLER'S NOTES up PAY BACK
Invested sum plus CAPITAL GAIN, realised on EXIT. up RATCHET/SUDING SCALE
Bonus and/or extra premium agreement in which equity capital shares can be purchased at preferential terms from the seller (bonus) or the purchaser (extra premium) depending on the achievement level of the company. up
REPLACEMENT CAPITAL
Purchase of company shares from shareholders which want to leave the company. up
RESTART TURNAROUND; a new company concept is drawn up due to the poor current situation of the company. If necessary, the company should be newly started with a new management team and a modified product range. up
ROI
Return on Investment; profit from dividends and the sale of a participation. up
SECOND ROUND FINANCING
Second round financing for a company which has already received first round venture capital. up
SECONDARY PURCHASE
Exit variant; a VC company sells its shares of one company to another VC company or a partner with a financial interest. up
SEED CAPITAL
Financing for the maturing and implementation of an idea into quantifiable results up to the prototype stage upon which a business concept is drawn up for the new formation of a company. up
SELLER´S NOTES
Deferred payment; deferred payment claims by the seller, a type of seller's loan (sometimes in conjunction with the level of target achievement). up
SHARE DEAL
Company take-over by means of the purchase of business shares. up
SPIN-OFF
Separation and independence of a department or a part of the company from a company or a group. up
START-UP FINANCING
The specific company is still in the formation phase, start-up stage or recently started business and has not yet marketed or only just begun to market its products. up
SUBORDINATED DEBT
The subordination refers to the prioritised sequence of providers of external capital, in particular in the event of a settlement or liquidation case. up
SYNDICATION
Co-investments; when several capital participation companies work together in order to finance larger high-risk investments. up
TRACK RECORD
The history of success and experience of a participation company or a company or even a manager, entrepreneur. up
TRADE SALE
Sale of company shares to an industrial investor. up
TURNAROUND FINANCING
Financing a company which looks as though the future development will be positive after difficulties have been overcome (e. g. sales problems). up VULTURE CAPITALIST
Ironic-satiric term for financial investors whose goal is to earn a "quick killing" using dubious methods. up
