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

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

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

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

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

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

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

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, 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

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

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

Any pooled fund that is not a broad distribution pooled fund.

Source: GIPS

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

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

ILPA: An organization comprised of a general partner, who manages a fund, and 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, the 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

The document which constitutes a Limited Partnership. These will be the subject of discussion and negotiation prior to first closing.

Source: ILPA

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

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

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

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

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

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

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

The point at which 75% of all returns in a group are greater and 25% are lower.

Source: ILPA

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