BUSFIN 4217 Exam 1 VC

homerun

10x greater than your investment

term sheet

Contract between a start-up and its investors that spells out the terms and conditions of an equity investment

key employees

Employees whose experience and skills are critical to the success of a business

Convertible Preferred

Gives the holder the right to switch his share into common stock at a FIXED RATIO. likely to fluctuate in price during a period of stable interest rates, based on supply and demand

venture capital

Money that is invested in new or emerging companies that are perceived as having great profit potential

Straight Preferred

No special features beyond the stated dividend payment

committed capital

The total amount of money promised or pledged to a private equity or venture capital fund and available for the purchase of or investment in portfolio companies.

vintage year

When the fund was started

deal flow

a measure of the number of potential investments that a fund reviews in any given period.

participating convertible preferred

additional feature that in the event of a sale or liquidation of the company, the holder has a right to receive the FV and the equity participation as if the stock were converted

exit strategy

an investor's plan for getting their investment back and potentially realizing a profit normally through IPOs or M&A

basis

book value of accounting for the company

series a

capital raised between 1.5m-5m

seed

capital raised between 25k-500k

series b

capital raised between 3m-10m

mezzanine

capital raised between 3m-20m

start-up

capital raised between 500k-3m

series c

capital raised between 5m-30m

IPO

capital raised over 15m

founder's stock

common stock is usually the type of stock that these people onbtain

analyst

do lots of due diligence, basically do a lot of the nitty-gritty details in the VC fund

Georges Doriot

founder of venture capital

GP

general partner

alpha

idea of a product

event acceleration

in an event where a company gets bought/sold, specific person can get an additional portion of options that vest

Key Man Life Insurance

life insurance that is applied for, owned by, and payable to a business on the life of a key individual.

general partner

makes most money, and most of the decision of the VC fund

paper the deal

making a contract

management

most important aspect when looking to invest VC in a company

newco

new company

taxable event

occurs when you sell stock for a capital gain

1 year cliff

options can accrue but they can't vest until you work for 1 year

private equity

ownership assets that aren't publicly traded; includes venture capital

limited partners

partners in a limited partnership who invest capital but do not participate in management and are not personally liable for partnership debts beyond their capital contributions

beta

prototype of a product

dilution

raising additional capital by increasing shares and diluting your personal stake

senior associate

same as associate, but have more work experience

preferred stock

stock that entitles the holder to a fixed dividend, whose payment takes priority over that of common-stock dividends.

common stock

the basic form of ownership in a corporation

burn rate

the rate at which an enterprise spends money, especially venture capital, in excess of income

20:80

typical carried interest ratio for the GP:LP once the LPs get their money back

2.5% of committed capital

typical management fees

associate

usually out of grad school, same duties as analyst but one step higher major tasks include: create investment opportunities (deal flow) evaluate companies negotiate terms of investments help build successful companies liquidate investments

post money

value of company after receiving outside money from investors

pre money

value of company before taking in any outside money from an investor (at the beginning of each quarter)

cash flow

what is king in financial due diligence?

Capital Call or Takedown

when the VC fund leader receives the actual funds from the investors

down round

when the valuation of a company at the time of an investment round is lower than its valuation at the conclusion of a previous round

junior partner (principal)

you are a GP with less carried interest