Resources

Private Equity and Entrepreneurship Glossary

Management buyout (MBO)

A leveraged buyout controlled by the members of the management team of a company or a division. Often an MBO is conducted in partnership with a buyout fund.

Management fee

A fee charged to the limited partners in a fund by the general partner. Management fees in a private equity fund usually range from 0.75% to 3% of capital under management, depending on the type and size of fund. For venture capital funds, 2% is typical.

Management rights

The rights often required by a venture capitalist as part of the agreement to invest in a company. The venture capitalist has the right to consult with management on key operational issues, attend board meetings and review information about the company’s financial situation.

Market capitalization

The value of a publicly traded company as determined by multiplying the number of shares outstanding by the current price per share.

Memorandum of understanding (MOU)

See Letter of intent.

Mezzanine

A layer of financing that has intermediate priority (seniority) in the capital structure of a company. For example, mezzanine debt has lower priority than senior debt but usually has a higher interest rate and often includes warrants. In venture capital, a mezzanine round is generally the round of financing that is designed to help a company have enough resources to reach an IPO. See Bridge financing.

Middle stage

The state of a company when it has received one or more rounds of financing and is generating revenue from its product or service. Also known as Growth stage.

Milestones

Operational or financial goals of a company that are often used to determine whether a company will receive additional financing or whether management will receive additional compensation.

MOU

See Memorandum of understanding.

Multiples

A valuation methodology that compares public and private companies in terms of a ratio of value to an operations figure such as revenue or net income. This includes both comparable quoted multiples (where a publicly traded company with similar characteristics is used as a valuation benchmark) and comparable transaction multiples (where historic transactions for entire publicly traded or private companies are used as a valuation benchmark). For example, if several publicly traded computer hardware companies are valued at approximately 2 times revenues, then it is reasonable to assume that a startup computer hardware company that is growing fast has the potential to achieve a valuation of 2 times its revenues.