Resources

Private Equity and Entrepreneurship Glossary

Balloon payment

A relatively large principal payment due at a specific time as required by a lender.

Basis point (“bp”)

One one-hundredth (1/100) of a percentage unit. For example, 50 basis points equals one half of one percent. Banks quote variable loan rates in terms of an index plus a margin and the margin is often described in basis points, such as LIBOR plus 400 basis points (or, as the experts say, “beeps”).

Best efforts offering

A commitment by a syndicate of investment banks to use best efforts to ensure the sale to investors of a company’s offering of securities. In a best efforts offering, the syndicate avoids any firm commitment for a specific number of shares or bonds.

Beta

A measure of volatility of a public stock relative to an index or a composite of all stocks in a market or geographical region. A beta of more than one indicates the stock has higher volatility than the index (or composite) and a beta of one indicates volatility equivalent to the index (or composite). For example, the price of a stock with a beta of 1.5 will change by 1.5% if the index value changes by 1%. Typically, the S&P 500 index is used in calculating the beta of a stock.

Beta product

A product that is being tested by potential customers prior to being formally launched into the marketplace.

Blue sky

Regulations in individual states regarding the sale of securities and mutual funds. These laws are intended to protect investors from purposely fraudulent transactions.

Board of directors

A group of individuals, typically composed of managers, investors and experts who have a fiduciary responsibility for the well being and proper guidance of a corporation. The board is elected by the shareholders.

Boat anchor

A person, project or activity that hinders the growth of a company.

Book runner

The lead bank that manages the transaction process for an equity or debt financing, including documentation, syndication, pricing, allocation and closing.

Book value

The book value of a company is the value of the common stock as shown on its balance sheet. This is defined as total assets minus liabilities minus preferred stock minus intangible assets. The book value of an asset of a company is typically based on its original cost minus accumulated depreciation.

Bootstrapping

The actions of a startup to minimize expenses and build cash flow, thereby reducing or eliminating the need for outside investors.

Breach of covenant

Any failure to adhere to the terms of an agreed covenant included in a financing or other contract. See Default.

Bridge financing

Temporary funding that will eventually be replaced by permanent capital from equity investors or debt lenders. In venture capital, a bridge is usually a short term note (6 to 12 months) that converts to preferred stock. Typically, the bridge lender has the right to convert the note to preferred stock at a price that is a 20% to 25% discount from the price of the preferred stock in the next financing round. See Mezzanine and Wipeout bridge.

Broad-based weighted average anti-dilution

A weighted average anti-dilution method adjusts downward the price per share of the preferred stock of investor A due to the issuance of new preferred shares to new investor B at a price lower than the price investor A originally received. Investor A’s preferred stock is repriced to a weighted average of investor A’s price and investor B’s price. A broad-based anti-dilution method uses all common stock outstanding on a fully diluted basis (including all convertible securities, warrants and options) in the denominator of the formula for determining the new weighted average price. See Narrow-based weighted average anti-dilution.

“B” round

A financing event whereby investors such as venture capitalists and organized angel groups are sufficiently interested in a company to provide additional funds after the “A” round of financing. Subsequent rounds are called “C”, “D” and so on.

Bullet payment

A payment of all principal due at a time specified by a bank or a bond issuer.

Burn rate

The rate at which a startup with little or no revenue uses available cash to cover expenses. Usually expressed on a monthly or weekly basis.

Business Development Company (BDC)

A publicly traded company that invests in private companies and is required by law to provide meaningful support and assistance to its portfolio companies.

Business plan

A document that describes a new concept for a business opportunity. A business plan typically includes the following sections: executive summary, market need, solution, technology, competition, marketing, management, operations, exit strategy, and financials (including cash flow projections). For most venture capital funds fewer than 10 of every 100 business plans received eventually receive funding.

Buyout

A sector of the private equity industry. Also, the purchase of a controlling interest of a company by an outside investor (in a leveraged buyout) or a management team (in a management buyout).

Buy-sell agreement

A contract that sets forth the conditions under which a shareholder must first offer his or her shares for sale to the other shareholders before being allowed to sell to entities outside the company.

BVCA

British Venture Capital Association, the trade association for private equity in the UK, including both venture capital and buyout activity.