An accounting term that includes all items owned by the Issuer that can be converted into cash, both physical (real property) and intangible (patents, trademarks, etc.). Relates to Issuers.
The claw back clause is meant to ensure that the GP shares in the fund’s profits only after the LP receives back its contributed capital, fees and expenses are paid, and after the fund has achieved the performance hurdle rate.
Protects minority shareholders. This right enables Preferred Investors to sell their shares alongside certain other selling Shareholders (usually 5% or greater holders of the Issuer’s outstanding shares) in a potential private transaction to a third party, on the same terms, and in proportion to their relative ownership in the Issuer to the seller.
COLLABORATIVE FOR FRONTIER FINANCE
The Collaborative for Frontier Finance (“CFF”) is a multi-stakeholder initiative that aims to increase access to capital for small and growing business (“SGBs”) in emerging markets – a deficit estimated at $930 billion. CFF works with diverse stakeholders – including local capital providers, institutional investors, development agencies, philanthropic funders, and field builder organizations – to accelerate financing solutions that target SGBs. With a bias to action, CFF works in three ways: by building and empowering networks of these stakeholders, performing “actionable research” and undertaking market-based initiatives to address systemic barriers, with a view to fostering a peer-to-peer learning environment and providing a platform for collective action.
An equity security interest that represents the most junior form of ownership in a Company. Common stockholders or shareholders elect a Board of Directors (or Managers if an LLC and vote on Company policy matters) but typically have no extraordinary rights and are junior to Preferred Equity in the case of an Issuer’s liquidation. Pertains to equity.
Protects the Shareholders holding a majority of the Issuer’s equity. This enables the Issuer to pursue certain strategic transactions, such as a sale of the Company, if approved by a majority (or possibly super-majority) of all shareholders. Minority shareholders are forced to join the transaction on the same price and terms as other selling shareholders. The percent necessary to “trigger” Drag-Along Rights often is as high as 75% approval for the transaction in question
DRAWDOWNS OF CAPITAL
Funds typically draw down capital on an “as needed” basis
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
On a company’s balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). The term is also used to describe stock and membership interests issued by the company to founders, employees and Investors. Also referred to as “shareholders’ equity.”
A third-party bank account used to accumulate the minimum required amount of funding before its release to the Issuer. Escrow accounts are administered by a commercial bank and are required by SEC Rules when any contingency is in effect that affects the release of funds from an offering. This can pertain both to debt or equity offerings.
EVERGREEN FUNDS & OTHER PERMANENT CAPITAL FUNDS
Evergreen fund products do not have a fixed life. Structuring varies from product to product, but generally the vehicle is structured so that the sponsor can raise additional capital from time to time, e.g., by issuing further classes of interests during fixed buy-in periods or by having investors “roll over” their capital commitments (either in tranches or on a staggered/individualized basis). Other products may be structured as open-ended vehicles that continually reinvest investment returns, rather than distributing proceeds from each investment to Limited Partners. Evergreen and other permanent capital vehicles may be publicly-listed or private.
A typical Fund is structured as a fixed-life limited partnership (or series of parallel limited partnerships and/or feeder partnerships) whose partners (the investors) have agreed contractually to contribute capital to the Fund as and when needed by the Fund to make investments in portfolio companies.
The Fund Agreement is typically the most comprehensive (and most negotiated) governing Fund document
GENDER LENS INVESTING
Gender lens investing is the practice of investing for financial return while also considering the benefits to women, both through improving economic opportunities and social well being for girls and women.
Fund is controlled by its general partner which, subject to regulatory considerations, issues calls for capital from the Limited Partners and makes all final decisions concerning the purchase and sale of the Fund’s investments.
A GP will contribute somewhere between 1% and 2% of the fund’s capital. This permits carried interest distributions to the GP to be treated as capital gains rather than fee income.
The hurdle rate is a minimum threshold rate of return that LPs must receive prior to any distributions to the GP
Impact investing refers to investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return". Impact investments provide capital to address social and/or environmental issues.
This states the legal name and location of the Issuer, which all closing documents should reference exactly. It may also describe the Company’s primary activity and summarizes the demand for the product / service.
The outside investors generally are not involved in the Fund’s investment decisions or other day-to-day activities.
LIMITED PARTNERSHIP AGREEMENT
The terms that govern the relationship between the partners are set out in the Limited Partnership agreement of the fund
The Management Agreement sets out the terms on which the private equity fund appoints the manager of the fund and provides management services and investment advice to the fund and/or its general partner.
The Manager receives a Management Fee paid by the Fund
Mezzanine financing is a hybrid of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default, generally, after venture capital companies and other senior lenders are paid.
The monetary value of the Issuer used to determine share price offered to Investors. Pre-money share price is determined by dividing the pre-money valuation (a specific dollar amount) by the number of shares representing all equity and equity equivalents securities (e.g., options, warrants, convertible securities) of Issuer before additional equity investment has been received. Pertains to equity.
A contractual agreement between an Issuer and its Investors to offer a “first right of refusal” for a subsequent financing. A term found in debt or equity offerings.
A form of equity ownership carrying with it rights which must be met by the Issuer “in preference” to the common equity Investors. The specific rights of any preferred security are specified in the Issuer’s Articles of Incorporation (for a C Corporation) or Operating Agreement (for an LLC). Relates to equity.
Private equity (PE) is ownership or interest in an entity that is not publicly listed or traded.
The amount of funds raised through a securities offering. Pertains to both to debt and equity offerings.
A description of the type of securities being offered, e.g., Common or Preferred Membership Interests (if an LLC), type of Preferred (e.g., Convertible, redeemable or participating) and, for older companies, which Series is now being offered (typically lettered as A, B, C, etc.). Different Series of preferred can have different terms relative to each other which must be considered before making an investment in a new Series.
A side letter supplements and, where the fund takes contractual form (such as a partnership), can override the terms of the fund’s constitutional documents and is typically required where an investor has specific commercial, legal, regulatory, taxation or operational concerns with respect to its investment in the fund.
This is the document whereby an investor subscribes for its interest in, and makes its capital commitment to, the Fund
The amount of investment committed to and actually made by an Investor in the offering. The term pertains both to debt and equity transactions.
SUMMARY OF TERMS
A Summary of the principal terms established for a specific issuance of securities, such as security description, Investor rights, offering terms, etc. Also known as a Terms and Conditions or Term Sheet.
VENTURE CAPITAL FUNDS
Venture capital Funds invest primarily in early- or later-stage ventures. These funds typically make a significant number of high-risk, minority investments.