A corporation that limits its ownership structure to 100 shareholders and disallows certain types of shareholders [e.g. partnerships cannot hold shares in an S corporation.] An S corporation does not pay taxes, rather, similar to a partnership, its owners pay taxes on their proportion of the corporation's profits at their individual tax rates.

Source: ILPA

The buyer of the portfolio company is a private equity firm.

Source: Invest Europe

A financial institution is an entity that provides financial services for its clients:
- Depositary Institutions: deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies
- Contractual Institutions : Insurance companies and pension funds
- Investment Institutes other than direct private equity firms.

Source: Invest Europe

The costs associated with buying or selling shares of a pooled fund. These costs may also be known as subscription and redemption costs or as entry and exit fees.

Source: GIPS

Small Business Investment Company. A company licensed by the Small Business Administration to receive government leverage in order to raise capital to use in venture investing.

Source: ILPA

Small Business Innovation Research Program. See Small Business Innovation Development Act of 1982.

Source: ILPA

esma: Securities and Exchange Commission

ILPA: The SEC is an independent, nonpartisan, quasi-judicial regulatory agency that is responsible for administering the federal securities laws. These laws protect investors in securities markets and ensure that investors have access to all material information concerning publicly traded securities. Additionally, the SEC regulates firms that trade securities, people who provide investment advice, and investment companies.

Source: esma, ILPA

The market for the sale of partnership interests in private equity funds. Sometimes limited partners chose to sell their interest in a partnership, typically to raise cash or because they cannot meet their obligation to invest more capital according to the takedown schedule. Certain investment companies specialize in buying these partnership interests at a discount.

Source: ILPA

The sale of private or restricted holdings in a portfolio company by one investor to another.

Source: ILPA

The sale of private or restricted holdings in a portfolio company to other investors. See secondary market definition.

Source: ILPA

A Secondary Transaction refers to a transaction that occurs when a holder of an unquoted or illiquid interest in a Fund trades their interest to another party.

Source: IPEV

The federal law covering new issues of securities. It provides for full disclosure of pertinent information relating to the new issue and also contains antifraud provisions.

Source: ILPA

The federal law that established the Securities and Exchange Commission. The act outlaws misrepresentation, manipulation and other abusive practices in the issuance of securities.

Source: ILPA

Funding provided before the investee company has started mass production/distribution with the aim to complete research, product definition or product design, also including market tests and creating prototypes. This funding will not be used to start mass production/distribution.

Source: Invest Europe

Capital provided to facilitate commercialization of new product concepts, often from laboratories, research centres or entrepreneurs. If successful, a seed financing may result in a Start-up.

Source: ILPA

The first round of capital for a start-up business. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides startup companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money.

Source: ILPA

An initial state of a company's growth characterized by a founding management team, business plan development, prototype development, and beta testing.
Series A - first round of institutional investment capital.
Series B - second round of institutional investment capital.
Series C - third round of institutional investment capital.

Source: ILPA

A portfolio owned by a single client.

Source: GIPS

Securities that have a preferential claim over common stock on a company's earnings and in the case of liquidation. Generally, preferred stock and bonds are considered senior securities.

Source: ILPA

The first round of stock offered during the seed or early stage round by a portfolio company to the venture investor or fund. This stock is convertible into common stock in certain cases such as an IPO or the sale of the company. Later rounds of preferred stock in a private company are called Series B, Series C and so on.

Source: ILPA

A corporation with no assets and no business. Typically, shell corporations are designed for the purpose of going public and later acquiring existing businesses. Also known as Specified Purpose Acquisition Companies (SPACs).

Source: ILPA

It is possible to make a profit from a fall in the price of a particular company’s shares or in a generally falling market. When a trader expects a company's shares to fall, they can borrow these shares for a fee from its shareholders, sell them and then purchase them back in order to return them to the original shareholders. Provided the price has fallen between the selling and re-purchase the trader would make a profit. On the other hand a loss is incurred if the price of the shares rises. Short selling is useful in providing liquidity in the market (i.e. making sure shares are available for sale to investors who want them) and also has a corrective function in adjusting the share price of a company which may be overvalued. The mechanics behind short selling result in some unique risks, theoretically including infinite losses, and have sometimes been associated with concerted efforts to drive down share prices to levels which do not reflect a company's true value. For these reasons this practice is regulated and at times prohibitions have been imposed on short selling securities of a specific company or sector. Regulation however varies between countries.

Source: europarl

A provision, task, or action that is recommended to be followed or performed and is considered to be best practice but is not required.

Source: GIPS

A task or action that is recommended not to be followed or performed and is considered best practice not to do so.

Source: GIPS

A type of account used mainly in alternative investment pooled funds to separate illiquid investments or distressed assets from other, more liquid investments or to segregate investments held for a special purpose from other investments. Side pockets are typically not available for investing for new pooled fund investors that invest after the side pocket was created.

Source: GIPS

The level at which the firm determines that one or more client-directed external cash flows may temporarily prevent the firm from implementing the composite strategy. The cash flow may be defined by the firm as a single flow or an aggregate of a number of flows within a stated period. The measure of significance must be determined as either a specific monetary amount (e.g., €50,000,000) or a percentage of portfolio assets (based on the most recent valuation), and no other criteria, such as the effect of the cash flow or the number of portfolios in the composite, may be considered. Transfers of assets between asset classes within a portfolio or firm-initiated cash flows must not be considered significant cash flows.

Source: GIPS

ILPA: The time period from the fund's formation date to the current period.

GIPS: For composites, from the composite inception date. For pooled funds, from the pooled fund inception date.

Source: ILPA, GIPS

Transactions defined according to their respective sizes. In the venture capital realm, there are four categories of deal size.
Very small deals: Less than $500,000.
Small deals: Less than $1 million.
Mid-sized deals: Between $1 million and $5 million.
Large deals: Greater than $5 million.

Source: ILPA

Securities Law Directive

Source: esma

Provides loans to small business investment companies (SBICs) that supply venture capital and financing to small businesses.

Source: ILPA

The Small Business Innovation Research (SBIR) program is a set-aside program (2.5% of an agency's extramural budget) for domestic small business concerns to engage in Research/Research and Development (R/R&D) that has the potential for commercialization. The SBIR program was established under the Small Business Innovation Development Act of 1982 (P.L. 97-219), reauthorized until September 30, 2000 by the Small Business Research and Development Enhancement Act (P.L. 102-564), and reauthorized again until September 30, 2008 by the Small Business Reauthorization Act of 2000 (P.L. 106-554).

Source: ILPA

Securities Markets Stakeholder Group

Source: esma

State-owned investment funds investing in foreign direct private equity funds to diversify their portfolio.

Source: Invest Europe

A special company, usually outside the United States, established by a company to meet a specific financial problem, often to pay lower taxes (e.g., a re-invoicing subsidiary or offshore insurance company).

Source: ILPA

A private equity fund strategy whereby the focus in on specific investment targets (e.g., sectors, stages of development), as distinct from a Balanced Fund.

Source: ILPA

A division or subsidiary of a company that becomes an independent business. Typically, private equity investors will provide the necessary capital to allow the division to "spin out" on its own; the parent company may retain a minority stake.

Source: ILPA

Single Supervisory Mechanism

Source: esma

Critical points on the growth continuum for firms assisted by venture capital and other types of private equity. Typically, a venture-backed company receives cumulative rounds of financing to facilitate its progression from one stage of development to the next.

Source: ILPA

The private equity industry has a range of stakeholders. In addition to GPs and LPs, this includes (and is not limited to) portfolio companies, their employees, trade unions, customers, suppliers, regulators, and the wider community.

Source: Invest Europe

A measure of the variability of returns. As a measure of internal dispersion, standard deviation quantifies the distribution of the individual portfolios’ returns within the composite. As a measure of historical risk, standard deviation quantifies the variability of the composite, pooled fund, or benchmark returns over time. Also referred to as “external standard deviation.”

Source: GIPS

Funding provided to companies, once the product or service is fully developed, to start mass production/distribution and to cover initial marketing. Companies may be in the process of being set up or may have been in business for a shorter time, but have not sold their product commercially yet. The destination of the capital would be mostly to cover capital expenditures and initial working capital.

This stage contains also the investments reported as “Other early stage” which represents funding provided to companies that have initiated commercial manufacturing but require further funds to cover additional capital expenditures and working capital before they reach the break-even point. They will not be generating a profit yet.

Source: Invest Europe

Capital provided to facilitate the first-time establishment of a legal company structure around a marketable product concept.

Source: ILPA

A method of voting for members of the Board of Directors of a corporation. Under this method, a shareholder receives one vote for each share and may cast those votes for each of the directorships. For example: An individual owning 100 shares of stock of a corporation that is electing six directors could cast 100 votes for each of the six candidates. This method tends to favor the larger shareholders. Compare Cumulative Voting.

Source: ILPA

1) The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies.
2) A widely used form of employee incentive and compensation. The employee is given an option to purchase its shares at a certain price (at or below the market price at the time the option is granted) for a specified period of years.

Source: ILPA

Corporate or individual investors that add value to investments they make through industry and personal ties that can assist companies in raising additional capital as well as provide assistance in the marketing and sales process.

Source: ILPA

A third-party investment manager hired by the firm to manage some or all of the assets for which a firm has investment management responsibility. May also be referred to as a sub-manager or third-party investment manager.

Source: GIPS

This body (typically a bank) would act as an agent to the main depositary with regard to custodial functions in a country where the depositary is not represented (usually a country outside the EU in the case of this directive). The main task would therefore be the safeguarding of a fund's financial assets. The control over the fund's operation cannot be delegated to a sub-depositary or sub-custodian.

Source: europarl

Debt with inferior liquidation privileges to senior debt in case of a bankruptcy; sub debt will carry higher interest rates than senior debt, to which it is subordinated, to compensate for the added risk, and will typically have attached warrants or equity conversion features.

Source: ILPA

The application submitted by an investor wishing to join a limited partnership. All prospective investors must be approved by the General Partner prior to admission as a partner.

Source: ILPA

A loan facility that is put in place to facilitate administration when the firm is calling for funds from investors. Alternatively, it can be used in lieu of calling funds from investors.

Source: GIPS

The basis for transfer of business ownership from one generation of managers to the next, often with the assistance of private equity.

Source: ILPA

Any performance-related information included as part of a gips composite report or gips pooled fund report that supplements or enhances the requirements and/or recommendations of the GIPS standards.

Source: GIPS

Ownership of shares in a company resulting from work rather than investment of capital--usually founders receive "sweat equity".

Source: ILPA

Underwriters or broker/dealers who sell a security as a group. (See Allocation)

Source: ILPA

A number of investors offering funds together as a group on a particular deal. A lead investor often coordinates such deals and represents the group's members. Within the last few years, syndication among angel investors (an angel alliance) has become more common, enabling them to fund larger deals closer to those typifying a small venture capital fund. Also see: Co-investment.

Source: ILPA