Glossary   

Angel
Individual active in the venture capital industry and who invests in companies particularly during their start-up phase.

Assets under management
Includes the assets administered and under management on behalf of shareholders.

Authorized investment
Investment in a company to be made at a future date, which is yet to be disbursed. Also referred to as “committed funds.”

Call
Option enabling the holder to purchase the shares of someone who is required to sell them to him or her.

Capitalization (or invested capital)
Total amount of capital received, including invested and available funds.

Closing date
Date on which the legal documents will be ready and signed; the investment transaction officially takes place and the cheque is issued for the investment.

Common shares
Ownership shares in a company entitling holders to vote, to receive financial statements and, depending on the number of shares, to sit on the board of directors. Shareholders participate in profits via dividends (rarely) or share appreciation.

Convertible debenture
Unsecured loan that is convertible to stock.

Corporate development stage
Financed corporations can be at various development stages: pre-start-up, start-up, development, expansion, turnaround and acquisition.

Debenture
Unsecured loan.

Director
Member of a corporation’s board of directors elected by the common shareholders at the Annual General Meeting to steer the company’s general policies.

Disbursed investment
Investment in a company when funds have been partially or fully disbursed by the date the investment statements are prepared.

Disbursement
Amount of money paid to a company in connection with an investment transaction.

Disinvestment (or divestiture)
Method used by venture capital firms to dispose of their holdings in a company to obtain the optimal return.

Distribution of returns
Depends on the type of financing (see financial instruments). Three most common distribution methods: interest, dividends and capital gains (appreciation).

Due diligence
Process of assessing the business factors and financial soundness of a company in which a venture capital firm is considering investing.

Fair value
Exchange amount agreed upon in an open and unrestricted market between knowledgeable, willing parties who are under no compulsion to act.

Financial instruments
Common and preferred shares, and unsecured debt that is convertible into the company’s common stock are instruments venture capital firms can use for company financing.

Investment horizon
Capital invested in the form of share capital and sometimes debt; considered to be patient capital, which means the funds are invested over the long term. Investment horizons are usually five to eight years, with a preference for seven-year terms.

IPO
Initial public offering; first sale of stock by a private company to the public.

Letter of intention
Letter issued by the venture capital firm to indicate its interest in investing in the company; sets out the investment’s terms and conditions.

Letter of offer
Letter issued by the venture capital firm that confirms the investment’s approval by the firm’s Investment Committee and sets out the investment’s terms and conditions.

Level of ownership
For investing in companies, venture capital firms can set a minimum or maximum equity ownership level.

Leveraged buyout
Action of acquiring a company using a significant amount of borrowed funds.

Low-risk investment
Investment in risk-free financial products, such as government T-bills or term deposits. Temporary in nature; to be reinvested in companies when the financing is granted.

Management buyout
Acquisition of the company by the management team.

Mezzanine financing
Financial instrument combining the features of loan and equity financing. Sits between senior debt and equity in a company’s financial structure (also known as “subordinated financing” or “quasi-equity”).

Participating debenture
Unsecured loan with a floating interest rate linked to company performance.

Portfolio company
Business entity that has secured at least one financing round from one or more investment partners.

Preferred shares
Ownership shares through which voting rights are swapped for a preferred dividend; rank prior to common shares.

Provision
Cash reserve made by a venture capital firm with a view to offsetting potential reductions in value.

Put
Option enabling the holder to sell shares to someone who is obligated to buy them.

Relative return
Spread between a portfolio’s absolute return and the return of its benchmark index. Often referred to as “added value.”

Right of first refusal
Right of shareholders to buy shares from another shareholder wishing to sell them before they are offered elsewhere.

Selection criteria
Criteria used by the fund or the company to determine whether to invest in a company, including expected profitability.

Syndication
Association of investors to carry out a financing transaction in a company.