Resources

Private Equity and Entrepreneurship Glossary

Accredited investor

A person or legal entity, such as a company or trust fund, that meets certain net worth and income qualifications and is considered to be sufficiently sophisticated to make investment decisions in private offerings. Regulation D of the Securities Act of 1933 exempts accredited investors from the protection of the Securities Act. The Securities and Exchange Commission has proposed revisions to the accredited investor qualifying rules, which may or may not result in changes for venture investors. The current criteria for a natural person are:  $1 million net worth or annual income exceeding $200,000 individually or $300,000 with a spouse. Directors, general partners and executive officers of the issuer are considered to be accredited investors.

AFIC

Association Francaise des Investisseurs en Capital, the French trade association for private equity professionals, including venture capital and buy-out firms.

Airball

A loan whose value exceeds the value of the collateral.

Alpha

A term derived from statistics and finance theory that is used to describe the return produced by a fund manager in excess of the return of a benchmark index. Manager returns and benchmark returns are measured net of the risk-free rate. In addition, manager returns are adjusted for the risk of the manager’s portfolio relative to the risk of the benchmark index. Alpha is a proxy for manager skill.

Alternative asset class

A class of investments that includes venture capital, leveraged buyouts, hedge funds, real estate, and oil and gas, but excludes publicly traded securities. Pension plans, college endowments, and other relatively large institutional investors typically allocate a certain percentage of their investments to alternative assets with the objective of diversifying their portfolios.

Angel

A wealthy individual that invests in companies in relatively early stages of development. Usually angels invest less than $1 million per startup.

Anti-dilution

A contract clause that protects an investor from a substantial reduction in percentage ownership in a company due to the issuance by the company of additional shares to other entities. The mechanism for making an adjustment that maintains the same percentage ownership is called a Full ratchet. The most commonly used adjustment provides partial protection and is called Weighted average anti-dilution.

ASC Topic 820

FASB Accounting Standards Codification (ASC) Topic 820 (formerly known as FAS 157) is the accounting standard which dictates how to measure and disclose fair value for financial reporting purposes. FASB ASC Topic 946 (Investment Companies) dictates that all investments should be reported at fair value.

Asset based lending (ABL)

A form of funding secured against assets of the business; typically, inventory, accounts receivable, and fixed assets. It can be a useful source of finance to bridge a funding gap in a proposed transaction, as well as an effective method of managing working capital. ABL includes invoice discounting and factoring.

Auction

A process run by the vendors of a company, or by an advisor on their behalf, to create optimal shareholder value by marketing the company widely. Such processes can have many interested parties and multiple rounds of bidding.