Chapter 23

  1. 20-bagger
    The terminology 20-bagger indicates a company that appreciates in value 20-fold compared to the cost of the VC investment.
  2. angel investing
    Angel investing refers to the earliest stage of venture capital, in which investors fund the first cash needs of an entrepreneurial idea.
  3. auction process
    An auction process involves bidding among several private equity firms, with the deal going to the highest bidder.
  4. business plan
    The business plan should clearly state the business strategy, identify the niche that the new company will fill, and describe the resources needed to fill that niche, including the expenses, personnel, and assets.
  5. buy-and-build strategy
    A buy-and-build strategy is an LBO value-creation strategy involving the synergistic combination of several operating companies or divisions through additional buyouts.
  6. buy-in management buyout
    A buy-in management buyout is a hybrid between an MBI and an MBO in which the new management team is a combination of new managers and incumbent managers.
  7. buyout-to-buyout deal
    A buyout-to-buyout deal takes place when a private equity firm sells one of its portfolio companies to another buyout firm.
  8. capital calls
    Capital calls are options for the manager to demand, according to the subscription agreement, that investors contribute additional capital.
  9. club deal
    In a club deal, two or more LBO firms work together to share costs, present a business plan, and contribute capital to the deal.
  10. committed capital
    Committed capital is the cash investment that has been promised by an investor but not yet delivered to the fund.
  11. compound option
    A compound option is an option on an option. In other words, a compound option allows its owner the right but not the obligation to pay additional money at some point in the future to obtain an option.
  12. conglomerates
    Conglomerates have many different divisions or subsidiaries, often operating in completely different industries.
  13. early-stage venture capital
    First or early-stage venture capital denotes the funding after seed capital but before commercial viability has been established.
  14. efficiency buyouts
    Efficiency buyouts are LBOs that improve operating efficiency.
  15. entrepreneurship stimulators
    Entrepreneurship stimulators are LBOs that create value by helping to free management to concentrate on innovations.
  16. escrow agreement
    There is often an escrow agreement, in which a portion of the manager's incentive fee are held in a segregated account until the entire fund is liquidated.
  17. exit plan
    The exit plan describes how venture capitalists can liquidate their investment in the start-up company to realize a gain for themselves and their investors.
  18. expansion stage venture capital
    Expansion stage (i.e., Second or late-stage) venture capital fills the cash flow deficiency once commercial viability is established.
  19. first stage venture capital
    First or early-stage venture capital denotes the funding after seed capital but before commercial viability has been established.
  20. golden parachute
    A generous compensation scheme, known as a golden parachute, is often given to top managers whose careers are being negatively affected by a corporate reorganization.
  21. J-curve
    The J-curve is the classic illustration of the early losses and later likely profitability of venture capital.
  22. leveraged buyout (LBO)
    A leveraged buyout (LBO) is distinguished from a traditional investment by three primary aspects: (1) an LBO buys out control of the assets, (2) an LBO uses leverage, and (3) an LBO itself is not publicly traded.
  23. limited liability
    Limited liability is the protection of investors from losses that exceed their investment.
  24. management buy-in (MBI)
    A management buy-in (MBI) is a type of LBO in which theĀ  buyout is led by an outside management team.
  25. management buyout (MBO)
    A management buyout (MBO) is a buyout that is led by the target firm's current management.
  26. mezzanine venture capital
    Mezzanine venture capital, or pre-IPO financing, is the last funding stage before a start-up company goes public or is sold to a strategic buyer.
  27. milestone
    A milestone is a set of goals that must be met to complete a phase and usually denotes when the entrepreneur will be eligible for the next round of financing.
  28. second or late-stage venture capital
    Second or late-stage (i.e., expansion stage) venture capital fills the cash flow deficiency once commercial viability is established.
  29. secondary buyout
    In a secondary buyout, one private equity firm typically sells a private company to another private equity firm.
  30. seed capital stage
    The seed capital stage is the first stage where VC firms invest their capital into a venture and is typically prior to having established the viability of the product.
  31. sourcing investments
    Sourcing investments is the process of locating possible investments (i.e., generating deal flow), reading business plans, preparing intense due diligence on start-up companies, and determining the attractiveness of each start-up company.
  32. turnaround strategy
    A turnaround strategy is an approach used by LBO funds that look for underperforming companies with excessive leverage or poor management.
  33. venture capital fund
    A venture capital fund is a private equity fund that pools the capital of large sophisticated investors to fund new and start-up companies.
Card Set
Chapter 23
Equity Types of Private Equity