If you are a startup or if you are getting into business of Private Equity or Venture Capital, its good to know following terms
Angel Investor: The first investor in any firm, capable of putting in money. Since they take most of the of the risk they are the one who make good volume of money with their exit.
Cash on Cash: Multiplier that is calculated at the time of exit, for example: Samantha’s CoC was 3 times the original investment.
Claw back: To mitigate risk there are some provisions made to get back cash that was initially taken, this can be through parallel contract documents.
Committed Capital: Sum of Investment capital, lifetime fees of the fund, establishment costs, is called Committed Capital. This is never provided in a single shot, it’s always need based. It’s termed as drawn down i.e. Portfolio team calls Limited Partners whenever they see investment opportunity and Limited Partner pay from his committed capital. The year in which the first drawn down was done is called Vintage year, and the sum paid at any point in time is called Total Capital Drawn.
Cumulative Distribution: Cumulative pay outs done by Limited partner, either in form of cash or stocks.
Deal Structure: Contains nitty-gritty of how entire deal will be performed, it has all details about party, syndicates, terms & conditions that would be required to execute PE investment.
Drag Along: Several VC firms ask for this right, as this allows them to drag other shareholders of firm to a deal of their wish, where they can force others to sell share along with them. There are self explanatory terms like rights for first exit, rights for last exits, Tag Along
Minority Interest: Generally stock holding which is less than 50%
PIC Ratio: Paid in Capital/Committed Capital
Preferred return: It is also called performance fees, it is nothing but the percentage amount that a General Partner would receive from Gross profit from a PE fund. This amount can be availed only after payments to the Limited Partners.
Residual Value: It is market value of remaining fund that a limited partner has.
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