Business angel

A private investor who provides both finance and business expertise to an investee company.

Buyout

A transaction (e.g., LBO, MBI, MBO) in which a business, business unit or company is acquired from the current shareholders.

Capital under management

This is the total amount of funds available to fund managers for future investments plus the amount of funds already invested (at cost) and not yet divested.

Commitment

A limited partner's obligation to provide a certain amount of capital to a private equity fund when the general partner asks for capital.

Due diligence

In-depth analysis and assessment of the commercial, financial, legal and technical fundamentals of a business targeted for investment.

Early stage financing

Investment for the seed and start-up stages of a business.

Exit (Divestment)

The point at which the private equity fund ends its involvement in a business and realizes its investment. The most common methods of exiting an investment are: trade sale; sale by public offering (including IPO); write-off; repayment of preference shares or loans; sale to another venture capitalist; sale to a financial institution.

Expansion capital

Also called development capital. Financing provided for the growth and expansion of a company. The capital may be used to finance increased production capacity, develop and market the product, and provide additional working capital.

Fund

A private equity investment fund is a vehicle for enabling pooled investment by a number of investors in equity and equity-related securities of companies (investee companies). These are generally private companies whose shares are not quoted on any stock exchange. The fund can take the form either of a company or of an unincorporated entity such as a limited partnership.

Fund manager (Investment manager)

A person or organisation that is responsible for managing the investments in a fund. That includes researching and selecting markets, sectors and industries to invest in, deciding how much to invest in each sector, when to buy, when to sell, etc.

Fund of funds

A fund that takes equity positions in other funds. A fund of funds that primarily invests in new funds is a primary fund of funds; one that focuses on investing in existing funds is referred to as a secondary fund of funds.

Fundraising

The process by which venture capitalists raise money to create an investment fund. These funds are raised from private, corporate or institutional investors, who make commitments to the fund that are invested by the general partner.

Institutional investor

An investor, such as an investment company, mutual fund, insurance company, pension fund, or endowment fund, which generally has substantial assets and experience in investments.

IPO (initial public offering)

The sale or distribution of a company's shares to the public for the first time. An IPO of the investee company's shares is one of the ways in which a private equity fund can exit an investment.

Later stage financing

Investments made in established, viable businesses to finance strategic moves. Later stage financing can take the form of expansion capital, replacement capital and capital for buyouts.

LBO (leveraged buyout)

A buyout in which the NewCo's capital structure incorporates a particularly high level of debt, much of which is normally secured against the company's assets.

MBI (management buy-in)

A buyout in which external managers take over the company. Financing is provided to enable a manager or group of managers from outside the target company to buy into the company with the support of private equity investors.

MBO (management buyout)

A buyout in which the target company's management team acquires the business from the current shareholders, with the support of private equity investors.

Mezzanine finance

Loan finance that has elements of both equity and secured debt. It is usually unsecured and bears interest at a higher rate than secured loans. In addition, it often carries an option to give the lender a stake in the equity. A mezzanine fund is a fund that specializes in mezzanine financing.

Private equity

Private equity provides equity capital to enterprises not quoted on any stock market. Private equity can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to strengthen a company's balance sheet. It can also resolve ownership and management issues, such as succession in family-owned companies, or the buyout/buy-in of a business by experienced managers. Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made for the launch, early development, or expansion of a business.

Replacement capital (secondary purchase)

Purchase of existing shares in a company from another private equity investment organization, or from another shareholder or shareholders.

Rescue (or turnaround)

Financing made available to an existing business that has experienced trading difficulties, with a view to re-establishing prosperity.

Seed stage financing

Financing provided to research, assess and develop an initial concept before a business has reached the start-up phase.

Start-up financing

Financing provided to companies for product development and initial marketing. This applies to companies that are in the process of being set up or have been in business for a short time, but have not sold their product commercially.

Venture capital

Professional equity co-invested with the entrepreneur to fund an early stage (seed and start-up) or expansion venture. The investor's high risk is offset by the expectation of a higher than average return on the investment.

Write-down

A reduction in the value of an investment.

Write-off

The write-down of a portfolio company's value to zero, which happens if the investment ends in receivership. The value of the investment is eliminated and the return to investors is zero or negative.