PitchBook July 10, 2017
From angels to zombie funds—we explained some of the most common terms used in the private markets to help you learn more about the industry. Take a look at the definitions—then see what you can do with data on the entire venture capital, private equity and M&A landscape.
Any form of lending to a business that is collateralized or secured by a balance sheet asset. Pledged assets may include inventory, equipment or accounts receivable that will be redeemed in the event of default by the debtor.
When the assets of a company are acquired instead of shares.
The section of the US Bankruptcy Code that outlines the process for asset reorganization.
The section of the US Bankruptcy Code that outlines the process for asset liquidation.
A fund that is finished taking commitments from limited partners and is ready to make investments.
An account that helps determine the net debt and working capital that will be used to establish the final price of an M&A deal according to the agreed price formula.
A document that establishes the final settlement between all parties involved in an M&A deal and results in the transfer of ownership from, and payment to, the target company.
When a limited partner invests directly in a company alongside a general partner, instead of through a general partner.
A condition for closing a negotiated agreement such as securing approval from regulators.
Debt that can be converted to equity when certain conditions are met, like a specific valuation or date.
When a corporation purchases another company for strategic purposes.
Corporate venture capital:
When a corporation has a venture capital team that invests in early-stage companies that align with the corporation’s goals.
The process of raising small amounts of capital from many people to fund a venture.
When the acquisition debt is transferred to the operating company rather than the company that generates the operating cash flow, if such a distinction exists.
The capital investors give to companies.
An investment made into a company experiencing liquidity, capitalization and/or underperformance issues.
Distributed to paid in (DPI):
The value of all distributions divided by the amount limited partners have contributed to the fund.
The capital limited partners receive from general partners after they exit an investment.
The speed at which a general partner calls down the capital committed by its limited partners.
The vetting, analyzing and assessing of individuals, companies and investors before engaging in a transaction.
Herfindahl-Hirschman index (HHI):
A commonly accepted way to measure concentration within an industry, which the US Department of Justice uses to review deals for anti-trust considerations. It is calculated by finding the square of the market share for each firm competing in a market and adding up the results, which can range from near zero to 10,000.
There is no universal definition of net debt, which makes its definition in a LOI and SPA paramount. Typically, net debt includes cash less financial liabilities (loans, bills of exchange, repayable subsidies, pensions and other long-term commitments to staff, commissions giving rise to cash outflows within the foreseeable future, off-balance sheet commitments that can be considered equivalent to debt and certain leasing debts).
Non-disclosure agreement (NDA):
A pact between the parties involved in a deal that confirms they will not misuse the information exchanged during negotiations.
Normalized working capital:
An analysis of a target company that accounts for all one-off or non-recurring items to determine how working capital normally operates.
A pre-arranged financing package offered to potential acquirers that includes all the details of a lending package. The name comes from the fact that the financing details are stapled to the back of the acquisition term sheet.
The difference between the post-valuation of a company's previous VC round and the pre-money valuation of its new round.
When a corporation acquirers a company for its technology, products or services.
Loans that have a lower priority than senior debt in the event of liquidation.
The entity purchased by an acquirer.
Target working capital:
An amount recorded during negotiations to reflect a historical analysis of the working capital requirements of a target company. It reflects closing accounts as well as an increased or decreased price if a target company has more or less working capital than the target capital on the date of the closing accounts.
Total value to paid in (TVPI):
The value of all remaining investments in a fund plus the value of all distributions relative to the amount limited partners have contributed to the fund.
A portion of an investment dependent on a company hitting certain milestones. Every tranche of a round is part of the same round.
The amount private equity firms charge the companies they acquire (typically between 1% and 2%).
The customers, suppliers, inventories and other assets and liabilities required for day-to-day operations of a target company.Z