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
