ILPA: The amount of committed capital a limited partner has actually transferred to a venture fund. Also known as the cumulative takedown amount.

GIPS: Capital inflows to a pooled fund or composite. It includes committed capital drawn down through capital calls and distributions that are subsequently recalled and reinvested.

Source: ILPA, GIPS

The ratio of contributions to date measured against its committed capital.

Source: ILPA

At an equal rate or pace, without preference.

Source: ILPA

A preferred stock in which the holder is entitled to the stated dividend, and also to additional dividends on a specified basis upon payment of dividends to the common stockholders. The preferred stock entitles the owner to receive a predetermined sum of cash (usually the original investment plus accrued dividends) if the company is sold or has an IPO. The common stock represents additional continued ownership in the company.

Source: ILPA

Describes a right of a holder of Preferred Stock to enjoy both the rights associated with the Preferred Stock and also participate in any benefit available to Common Stock, without converting to Common Stock. This may occur with Liquidation Preferences, for example, a series of Preferred Stock may have the right to receive its Liquidation Preference and then also share in whatever money is left to be distributed to the holders of Common Stock. Dividends may also be "Participating" where after a holder of Preferred Stock receives its Cumulative Dividend it also receives any dividend paid on the Common Stock.

Source: ILPA

A nontaxable entity in which each partner shares in the profits, loses and liabilities of the partnership. Each partner is responsible for the taxes on its share of profits and loses.

Source: ILPA

The contract that specifies the compensation and conditions governing the relationship between investors (LP's) and the venture capitalists (GP's) for the duration of a private equity fund's life.

Source: ILPA

Expenses borne by the partnership including costs associated with the organization of the partnership, the purchase, holding or sale of securities, and legal and auditing expenses.

Source: ILPA

A "Pay to Play" provision is a requirement for an existing investor to participate in a subsequent investment round, especially a Down Round. Where Pay to Play provisions exist, an investor's failure to purchase its pro-rata portion of a subsequent investment round will result in conversion of that investor's Preferred Stock into Common Stock or another less valuable series of Preferred Stock.

Source: ILPA

The length of time which is takes to recover your initial capital on any investment, i.e., for the investment to return 1x. Once widely used as a means of evaluating rival projects or investments for capital allocation purposes but now largely superseded by IRR.

Source: ILPA

Low priced issues, often highly speculative, selling at less than $5/share.

Source: ILPA

A pension fund that is regulated under private or public sector law.

Source: Invest Europe

A process by which an independent verifier conducts testing of a specific composite or pooled fund in accordance with the required performance examination procedures of the GIPS standards.

Source: GIPS

A report issued by an independent verifier after a performance examination has been performed.

Source: GIPS

A type of investment management fee that is typically based on the portfolio’s performance on an absolute basis or relative to a benchmark or other reference point.

Source: GIPS

General information regarding the performance-based fee. It must include enough information to allow a prospective client or prospective investor to understand the key characteristics of the performance-based fee. It must include relevant information (e.g., performance-based fee rate, hurdle rate, clawback, high watermark, reset frequency, accrual frequency, crystallization schedule) and on what basis fees are charged.

Source: GIPS

Includes:

• Information expressed in terms of investment return and risk.

• Other information and input data that directly relate to the calculation of investment return and risk (e.g., portfolio holdings), as well as information derived from investment return and risk input data (e.g., performance contribution or attribution).

Source: GIPS

The length of the period over which a variable is measured (e.g., a variable measured at a monthly periodicity consists of observations for each month).

Source: GIPS

Since-inception paid-in capital divided by cumulative committed capital.

Source: GIPS

A situation when a securities underwriter allows existing holdings of shares in a corporation to be sold in combination with an offering of new public shares.

Source: ILPA

(Payment in Kind) PIK Debt are bonds that may pay bondholders compensation in a form other than cash.

Source: ILPA

A person or entity acting as an agent for the fundraising team in raising investment funds. Placement advisers should comply with Invest Europe’s separate Guidance for Placement Advisers (see page 65).

Source: Invest Europe

A company that specializes in finding institutional investors that are willing and able to invest in a private equity fund or company issuing securities. Sometimes the "issuer" will hire a placement agent so the fund partners can focus on management issues rather than on raising capital. In the U.S., these companies are regulated by the NASD and SEC.

Source: ILPA

The Securities and Exchange Commission online version of Plain English Handbook: How to Create Clear SEC Disclosure Documents.

Source: ILPA

An investment that has a very healthy rate of return. The inverse of an old venture capital adage claims that "plums ripen later than lemons."

Source: ILPA

A right issued by a corporation as a preventative antitakeover measure. It allows rightholders to purchase shares in either their company or in the combined target and bidder entity at a substantial discount, usually 50%. This discount may make the takeover prohibitively expensive.

Source: ILPA

A fund whose ownership interests may be held by more than one investor.

Source: GIPS

General information regarding the investment mandate, objective, or strategy of the pooled fund. The pooled fund description must include enough information to allow a prospective investor to understand the key characteristics of the pooled fund’s investment mandate, objective, or strategy, including:
• The material risks of the pooled fund’s strategy.
• How leverage, derivatives, and short positions may be used, if they are a material part of the strategy.
• If illiquid investments are a material part of the strategy.

Source: GIPS

The return on investments reduced by any transaction costs.

Source: GIPS

The date when the pooled fund’s track record starts. For a limited distribution pooled fund, the pooled fund inception date may be based on the following dates:
• When investment management fees are first charged.
• When the first investment-related cash flow takes place.
• When the first capital call is made.
• When the first committed capital is closed and legally binding.

Source: GIPS

The pooled fund gross return reduced by all fees and expenses, including investment management fees, administrative fees, and other costs.

Source: GIPS

An investment vehicle that invests in underlying investment vehicles.

Source: GIPS

The date when the pooled fund’s assets have all been distributed, or when investment discretion ends.

Source: GIPS

A legal entity that pools various investors' capital and deploys it according to a specific investment strategy.

Source: ILPA

A method of calculating an aggregate IRR by summing cash flows together to create a portfolio cash flow. The IRR is subsequently calculated on this portfolio cash flow.

Source: ILPA

An individually managed group of investments. A portfolio may be a segregated account or a pooled fund, including assets managed by a sub-advisor for which the firm has discretion over the selection of the sub-advisor.

Source: GIPS

ILPA : A business entity that has secured at least one round of financing from one or more private equity funds. Also known as an investee firm. A Company in which a given fund has invested.

Invest EUROPE : A company or companies in which a fund has made an investment.

Source: ILPA, Invest EUROPE

A benchmark created using the benchmarks of the individual portfolios in the composite.

Source: GIPS

The valuation of a company immediately after the most recent round of financing. For example, a venture capitalist may invest $3.5 million in a company valued at $2 million "pre-money" (before the investment was made). As a result, the startup will have a post-money valuation of $5.5 million.

Source: ILPA

The amount of clawback payable to the General Partner if the fund is liquidated. A clawback obligation represents the General Partners' promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. When triggered, the clawback will require that the General Partner return to the fund's Limited Partners an amount equal to what is determined to be excess distributions.

Source: ILPA

The valuation of a company prior to a round of investment. This amount is determined by using various calculation models, such as discounted P/E ratios multiplied by periodic earnings or a multiple times a future cash flow discounted to a present cash value and a comparative analysis to comparable public and private companies.

Source: ILPA

A shareholder's right to acquire an amount of shares in a future offering at current prices per share paid by new investors, whereby his/her percentage ownership remains the same as before the offering.

Source: ILPA

Shares of a firm that encompass preferential rights over ordinary common shares, such as the first right to dividends and any capital payments.

Source: ILPA

A dividend ordinarily accruing on preferred shares payable where declared and superior in right of payment to common dividends.

Source: ILPA

A private equity fund's preferred scope for making investments. This varies by market segment, with many venture funds preferring ranges below $10 million and many buyout/mezzanine funds preferring ranges between $10 million and $50 million or higher.

Source: ILPA

The minimum return to investors to be achieved before a carry is permitted. A hurdle rate of 10% means that the private equity fund needs to achieve a return of at least 10% per annum before the profits are shared according to the carried interest arrangement.

Source: ILPA

A class of capital stock that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets. Many venture capital investments use preferred stock as their investment vehicle. This preferred stock is convertible into common stock at the time of an IPO.

Source: ILPA

An investment vehicle that makes direct investments rather than investing in other investment vehicles.

Source: GIPS

The market with the greatest volume and level of activity for the potential sale of an asset.

Source: IPEV

Investment activity involving early-stage ventures, management buyouts, management buyins, infrastructure, credit, and similar Investments.

Source: IPEV

ILPA: Equity securities of companies that have not ""gone public"" (are not listed on a public exchange). Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. In addition, there are many transfer restrictions on private securities. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a recapitalization.

Invest EUROPE: Private equity provides funding in equity form from funds to acquire a majority or minority stake in portfolio companies in different stages of development across a wide range of sectors. The term is widely used and, for the purposes of this Handbook, is used as a generic term to encompass venture capital (typically a minority stake invested in an early-stage or pre-profitable business), through to growth capital or larger ‘buyouts’ (a minority or majority stake invested in portfolio companies at critical points of their development), as well as infrastructure investments.

GIPS: Investment strategies include, but are not limited to, venture capital, leveraged buyouts, consolidations, mezzanine and distressed debt investments, and a variety of hybrids, such as venture leasing and venture factoring.

Source: ILPA, Invest EUROPE, GIPS

IPEV: A Private Capital fund that invests principally in the equity of private companies, or engages in buyouts of public companies, in order to achieve the delisting of public equity.

Europarl: This is a fund that invests specialised investors' money directly in private companies. The strategy of managers of a private equity fund is to use its investors' contributions to acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity funds generally receive a return on their investments by offering shares of the company to the public, selling the company for cash or exchanging it for shares in another company. They can also distribute funds to the investors by recuperating some of the company's profits or increasing the company's debt. A common way for private equity funds to acquire a significant stake in a company is through a leveraged buyout (LBO) whereby a significant percentage of the finance used to purchase the stake is obtained through borrowing (leverage). In this case most of the finances needed do not come from the fund's investors but from debt. The assets of the acquired company are used as collateral for the borrowed capital, with much of the debt ending up on the books of the company. Proponents of private equity investments argue that removing a company from the stock market enables its management to take a longer term view of the business’s interests, and that having debt on the company’s books acts as an incentive for managers to run their businesses more efficiently. Critics counter that the long-term viability of acquired companies can be put at risk by excessive debt and have compared some private equity deals to asset stripping.

Source: IPEV, Europarl

A body which has produces a set of advisory valuation guidelines in the USA.

Source: ILPA

Investments by a private equity fund in a publicly traded company, usually at a discount.

Source: ILPA

A transaction in which accredited investors are allowed to purchase stock in a public company through an exemption allowed by provincial securities regulation. As a result of the exemption, there is less disclosure required by these investors than for other more widely distributed issues, like IPOs and secondary offerings.

Source: ILPA

Includes real assets (e.g., real estate and infrastructure), private equity, and similar investments that are illiquid, not publicly traded, and not traded on an exchange.

Source: GIPS

ILPA: Also known as a Reg. D offering. The sale of a security (or in some cases, a bond) directly to a limited number of investors. Avoids the need for S.E.C. registration if the securities are purchased for investment as opposed to being resold. The size of the issue is not limited, but its sale is limited to a maximum of thirty-five non-accredited investors.

Europarl: Private placement (or non-public offering) is a way of raising capital through a sale (offering) of shares without an initial public offering, usually to a small number of chosen private investors. Purchasers are often institutional investors such as banks, insurance companies or pension funds. Such an offering is exempt from many of the reporting and information requirements necessary in the case of a public offering.

Source: ILPA, Europarl

Also known as an Offering Memorandum or "PPM". A document that outlines the terms of securities to be offered in a private placement. Resembles a business plan in content and structure. A formal description of an investment opportunity written to comply with various federal securities regulations. A properly prepared PPM is designed to provide specific information to the buyers in order to protect sellers from liabilities related to selling unregistered securities. Typically PPMs contain: a complete description of the security offered for sale, the terms of the sales, and fees; capital structure and historical financial statements; a description of the business; summary biographies of the management team; and the numerous risk factors associated with the investment. In practice, the PPM is not generally used in angel or venture capital deals, since most sophisticated investors perform thorough due diligence on their own and do not rely on the summary information provided by a typical PPM.

Source: ILPA

Private securities are securities that are not registered and do not trade on an exchange. The price per share is set through negotiation between the buyer and the seller or issuer.

Source: ILPA

A professionally managed private equity fund that raises capital from external sources of supply, such as institutional investors. Most private-independent funds utilize Limited Partnerships and related vehicles.

Source: ILPA

Investments owned by the firm, the firm’s management, and/or the firm’s parent company that are managed by the firm. General partner assets in a pooled fund are considered proprietary assets.

Source: GIPS

Any person or entity that has expressed interest in one of the firm’s composite strategies and qualifies to invest in the composite. Current clients may also qualify as prospective clients for any composite strategy that differs from their current investment strategy. Investment consultants and other third parties are included as prospective clients if they represent individuals or entities that qualify as prospective clients.

Source: GIPS

Any person or entity that has expressed interest in one of the firm’s pooled funds and qualifies to invest in the pooled fund. Current pooled fund investors may also qualify as prospective investors for any pooled fund that differs from their current pooled fund. Investment consultants and other third parties are included as prospective investors if they represent individuals or entities that qualify as prospective investors.

Source: GIPS

A formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Companies offering securities, mutual funds, and offerings of other investment companies including Business Development Companies are required to issue prospectuses describing their history, investment philosophy or objectives, risk factors and financial statements. Investors should carefully read them prior to investing.

Source: ILPA

A professionally managed private equity fund that raises capital on a retail basis from individual Canadians, with the assistance of provincial tax credits. At present, PVCCs operate according to some legislative specifications in British Columbia and Quebec.

Source: ILPA

The performance of a public market index expressed in terms of a money-weighted return (MWR), using the same cash flows and timing as those of the composite or pooled fund over the same period. A PME can be used as a benchmark by comparing the MWR of a composite or pooled fund with the PME of a public market index.

Source: GIPS

- First divestment following flotation (IPO): The sale or distribution of a private company’s shares to the public for the first time by listing the company on the stock exchange.
- Sale of quoted equity post flotation: It includes sale of quoted shares only if connected to a former private equity investment, e.g. sale of quoted shares after a lock-up period.

Source: Invest Europe

The return on investments that is not reduced by any transaction costs incurred during the period.

Source: GIPS

The right to sell a security at a given price (or range) within a given time period.

Source: ILPA