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Financing Terms


Here are some of the most widely-used financial terms in the high-tech industry, all of which are frequently referenced on the IVC website. The Keyword Glossary provides a wealth of terms and definitions to help you gain a better understanding of the global VC and PE world and to make your searches more efficient.

Exits

Acquisition (Takeover)

Acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly.

Initial Public Offering (IPO)

The first sale of stock by a company on the public market.

Merger

The combining of two or more entities into one, through a purchase acquisition or a pooling of interests. Differs from a consolidation in that no new entity is created from a merger.


Venture Capital Terms

Due Diligence

The process of investigation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.

Employee Stock Ownership Plan (ESOP)

A trust established by a corporation for the allocation of some of its stock to its employees over time, intended to motivate employees, and often providing tax benefits to the company. Also called stock purchase plan.

Extended Round

Additional funds put in a company, by either a new shareholder or an existing one, received in a separate or later tranche within the frame of a single series or round of investment. In many cases, the original round deadline is extended to a later date, allowing new shareholders to invest in the company under the same terms as investors in the earlier round.

Fully Invested

An investment entity that has no cash or cash equivalents for new investments. It makes follow-on investments only.

Internal Round

A round of investment in a company that includes only current shareholders (all or some) to provide the company with additional funding, usually without changing the terms the shareholders enjoyed prior to the round.

Lead Investor

A company's principal provider of capital, such as the entity, which originates and structures a syndicated deal.

Option

The right, but not obligation, to buy (call option) or sell (put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (strike price) during a specified period of time. For public companies stock options, the amount is usually 100 shares. Also called option contract.

Seed Capital

Money used for the initial investment in a project or startup company, for proof-of-concept, market research, or initial product development. Also called seed financing or seed money.

Term Sheet

In venture capital, a document summarizing the details of a potential venture capital investment, which serves as the basis for a final business agreement.

Venture Leasing

A financing vehicle for infrastructure and equipment needs, in cases when a company doesn't qualify for bank or traditional leasing financing or when additional venture capital may either be unavailable or trigger unwanted penalties in the original venture-capital agreement.

Venture Lending

A middle ground of financing for firms that need equity capital, don't want or can't get sufficient bank financing, but that are not yet ready to go public with their products or services.

Warrant

A certificate, usually issued along with a bond or preferred stock, entitling the holder to buy a specific amount of securities at a specific price, usually above the current market price at the time of issuance, for an extended period, of several years or for an unlimited period. Also called subscription warrant.

Write-Off

To charge an asset amount to expense or loss, in order to reduce the asset value.


PE Terms

Bridge Loan

Short-term financing which is expected to be paid back relatively quickly, such as by a subsequent longer-term loan. Also called bridge financing. Usually convertible to equity.

Equity Financing

Financing by selling common stock or preferred stock to investors.

Leveraged Buyout (LBO)

Takeover of a company or controlling interest in a company, using a significant amount of borrowed money.

Management Buyout

Takeover of a company through management's purchase of all outstanding shares.

Mezzanine Financing

Late-stage venture capital, usually the final round of financing prior to an IPO.

Private Investment in Public Entity (PIPE)

A transaction in which accredited investors are allowed to purchase stock in a public company, usually below the market price. The stock is registered with the SEC so that it may later be resold to the public.

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