Glossary

ADDED VALUE
In VC-speak, this means the increase in value which is achieved by the bringing in of managerial know-how and servicing by the holding company.

AMBER LIGHT
Warning signal, pointing to problems in (potential) investments. ("Red Flag")

ASSET SALES DEALS
Takeover transactions in which a large part of the purchase price is realized by the sale of assets belonging to the company taken over. The sale of assets not required for business purposes results in a reduction of the cost of servicing the debt.

ASSET STRIPPING
Breakup of an enterprise which has been taken over by the selling off of sections or assets.

BENCHMARK
Also "milestone", prominent points in the development of the enterprise, which when reached may, for example, trigger a further injection of capital.

BREAK-EVEN-POINT
Gives the volume of sales at which the earnings just cover the fixed and variable costs, i.e. where a company is operating neither at a profit nor at a loss.

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BRIDGE FINANCING
Financial funding made available to an enterprise to prepare for listing on the stock market, with the principal aim of improving the equity ratio.

BUFFER
Term for unused credit lines or cash reserves.

BURN-OUT TURNAROUND
Also referred to as "restart".
Drastic reorganization or restructuring of an enterprise which is in serious economic difficulty. It means that new capital stock will be injected by third parties; the holdings of the original stockholders will be diluted.

BURN RATE
The period of time it takes for an enterprise to use up the capital available to it.

BUSINESS ANGEL
Wealthy private individuals who finance research or inventions. In the US and Great Britain, incoming funds are distributed as SEED FINANCING.

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BUSINESS PLAN
The corporate plan of an enterprise, in which are listed and quantified its intentions and goals, and the methods of achieving these.

BUY BACK
Exit option in which the stock is repurchased by the original stockholders.

CAPITAL GAIN
Disposal profit from the sale of corporate holdings.

CAPTIVE FUND
Designates a fund which is part of a larger financial institution, or which belongs to it.
Opposite INDEPENDENT FUND.

CARRIED INTEREST
Participation in the profits of managed funds by the management company and its managers; e.g. 20% for the management company and 80% for investors. In most cases, a HURDLE RATE is built in.

CASE SCENARIOS
As part of the examination of a potential investment a number of case studies are carried out: a "pessimistic case scenario" for a negative development, an "optimistic case scenario" for the most favorable development and a "most likely scenario" for the most likely development.

Traditional form of MBO, largely financed on the basis of the liquid funds generated by an enterprise. The key element is the cash flow, out of which the third-party capital financing has to be repaid and the interest serviced to finance a buyout.

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CHINESE WALLS
Information barriers which exist in a financial institution so that different departments know nothing about the activities of other departments, or which are set up, for example, to prevent conflicts of interest.

CORPORATE VENTURING
Venture capital financing by industrial concerns or their own venture capital companies, which primarily pursue strategic group interests.

CO-VENTURING Investment in an enterprise by several investors, one of whom acts as the LEAD INVESTOR.
DEAL FLOW Investment opportunities which are offered to a venture capital company.
DEVELOPMENT CAPITAL Capital to finance the business development of more mature small and medium-sized enterprises. EXPANSION FINANCING.
DUE DILIGENCE The detailed investigation, examination and evaluation of a potential investment as a basis for the investment decision.
EARLY STAGE FINANCING Financing of the early-phase development of an enterprise, beginning with the financing of the conception through the start of production and marketing.
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EQUITY KICKER Opportunity for third-party capital providers to purchase shares in the partnership or stock corporation to be financed, often on special terms.
EXIT Divestment of an investment by investors who dispose of their holdings by means of:
buy Back trade Sale	secondary Purchase going public
EXPANSION FINANCING Growth financing. The enterprise concerned has reached the break-even point or is generating profits. The funds are used to finance additional production capacities, product diversification or market expansion and/or as additional working capital.
FEASIBILITY STUDY Analysis of the technical and commercial viability of a project.

FLOP
Total failure of an investment.Opposite to HIGH FLYER.

FUNDRAISING
"Canvassing" for "funds".
The startup phase of a venture capital fund, when it looks for institutional, industrial or private investors to subscribe for shares in the fund.

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HANDS OFF
Once equity capital is provided, the enterprise is left to carry on its business without any direct intervention until the exit. The involvement is more passive, including participation on advisory boards, supervisory boards, etc.

HANDS ON
Active involvement.
The investor aims to increase the value of the investment by actively supporting the management.
ADDED VALUE
(Activities additional to participation on advisory boards, supervisory boards etc.).

HIGH FLYER
Terms used for stocks or holdings showing an extreme increase in value and a much lower than average price/earnings ratio.
Opposite to FLOP.

HURDLE RATE
Before the right of the management company or its managers to share in the profits comes into effect ( CARRIED INTEREST ) the investors first receive a basic payment.

INDEPENDENT FUND
Autonomous fund or VC company which is not controlled by a specific finance group.
Opposite to CAPTIVE FUND.

IPO
Initial public offering
In the US and Great Britain, this is the term used for the first offering of new and small and medium-sized enterprises to the public.

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IRR
Internal rate of return.
Method of calculating the return on an investment using investment mathematics.

LATER STAGE FINANCING
Late phase financing.
Financing of expansions, takeovers, bridging etc. by established small and medium-sized enterprises.

LEAD INVESTOR In a syndicate of VC companies, generally the investor with the largest holding, who takes over both the organization of the financing as well as the HANDS ON involvement.
LBO Leveraged Buy-Out. Takeover of an enterprise mainly using third-party capital financing.
MBI Management buy-in. Takeover of an enterprise by an external management.
MBO Management buyout. Takeover of an enterprise by the existing management.
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MEZZANINE MONEY Funds used to fill the gap in financing between third-party and equity capital in the capital structure, in particular with MBO / MBI. In Germany, the usual forms are
parent company loan stockholder loan preference stock	certificate of beneficial interest dormant equity holding SELLER'S NOTES
PAY BACK Invested amount plus CAPITAL GAIN, realized on EXIT.
RATCHET / SLIDING SCALE "Bonus" and/or "malus" agreement, where depending whether the enterprise achieves its targets, equity holdings can be purchased at preferential terms by the seller ("bonus") or buyer ("malus").
REPLACEMENT CAPITAL Purchase of company holdings from stockholders who wish to leave the company.
RESTART Because of the poor state of an enterprise, a new business concept is drawn up. The enterprise may also if necessary be restarted with new management and a different range of products. TURNAROUND

ROI
Return on Investment, IRR.
Profit from dividends and from the disposal of an investment.

SECOND ROUND FINANCING
Second round of financing for an enterprise which has already received venture capital in a first round.

SECONDARY PURCHASE
Exit option.
A VC company sells its holdings in an enterprise to another VC company or to a partner interested in financing the enterprise.

SEED CAPITAL
Financing the gestation and conversion of an idea into realizable results, through to the prototype, on which basis a business plan is drawn up for an enterprise to be incorporated.

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SELLER'S NOTES
Purchase price deferrals.
Purchase price claims "left untouched" by the seller, in effect a seller's loan (which may be tied to a target level being reached).

SHARE DEAL
Takeover of a company by the purchase of its stock.

SPIN-OFF
Hiving off a division or part of an enterprise from a company or group and making it independent.

START-UP FINANCING
The enterprise concerned is in the setup stage, in development or has only been in business for a short time, and has not yet placed its products on the market, or only to a limited extent.

SUBORDINATED DEBT
The subordination refers to the rankings of the third-party lenders, in particular in the event of composition or liquidation.

SYNDICATION
Co-investments.
In order to finance larger, high-risk investments, several investment companies join together.

TRACK RECORD
Earnings and performance history of an investment company or of an enterprise, or even of a manager or entrepreneur.

TRADE SALE
Disposal of company holdings to an industrial investor.

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TURNAROUND FINANCING
Financing of an enterprise which is seeking to build up its business again after overcoming difficulties (e.g. sales problems).

"VULTURE" CAPITALIST
Ironic-satirical term used for financial investors whose aim is to make a "fast buck" by using underhand methods.

WINDOW ON TECHNOLOGY
Preferential interest of a CORPORATE VENTURE FUNDS in an industrial concern, which will provide access to new technologies via venture capital investments.