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For
more definitions and frequently asked questions also see the
methodology and FAQ sections of our website
Last
Updated October 10, 2000
Acquisition
— The obtainment of control, possession or ownership of a private portfolio
company by an operating company or conglomerate.
Average
IRR — The arithmetic mean of the internal rates of return.
Acquisition for Expansion Financing — Funds provided to a firm to finance its acquisition of companies. A consolidator of companies in specific industries.
Balanced
— A venture fund investment strategy which includes investment in portfolio
companies at a variety of stages of development (Seed, Early Stage, Later
Stage).
Bridge
Financing — Mezzanine financing for a company expecting to go public
within six months to a year.
Buyout
and Mezzanine — Venture Economics uses the term to describe the universe
of buyout investing and mezzanine investing. It does not include venture
investing, fund of fund investing or secondaries. Angel investors or business
angels would also not be included in the definition.
Capital
Gains — Short or long-term profits from the sale of assets.
Capital
Under Management — The amount of capital available to a management
team for venture investments.
Capital
Weighted Average IRR — The average IRR weighted by fund size with
funds contributing to the average in proportion to their size.
Carried
Interest: also known as “carry” The percentage of profits
(generally 20-25%) that general partners receive out of the profits of
the investments made by the fund. For instance, a $100 million fund raised
from Limited Partners is invested into a portfolio of investments now
worth $500 million. Assume that there have been profits from proceeds
of $50 million. Limited partners would receive $40 million and the other
$10 million would accrue to the general partners as their carried interest.
The term originally came from the practice in the early days of VC where
general partners put up nothing in return for 20% of the profits and thus
the limited partners “carried the interest” of the general partners.
Nowadays, general partners typically put up about 1% of the funds commitments
and the limited parters put up the rest. Now “carried interest”
is synomous with profit split. Typically, carried interest is only paid
after limited partners receive their original investment back. (10-Oct-2000)
Commitment
— A limited partner’s obligation to provide a certain amount of capital
to a fund.
Company
Buy-Back — The redemption of private or restricted holdings by the
portfolio company itself.
D
(Distribution) — Cash or the value of stock disbursed to the limited
partners of a venture fund.
D/PI
(Distributions to Paid-in Capital) — The amount a partnership has
distributed to its investors relative to the total capital contribution
to the fund.
Disbursement
— Investments by funds into portfolio companies.
Due Diligence
— The investigation and evaluation of a management team’s characteristics,
investment philosophy, and terms and conditions prior to committing capital
to the fund.
ES
(Early Stage) — A fund investment strategy involving investment in
companies for product development and initial marketing, manufacturing
and sales activities.
Estimated Investment Amount
— In cases where individual fund contributions to an investment round are unknown, the unknown portion of the investment round is distributed evenly among those investors.
Exiting
Climates — The conditions which influence the viability and attractiveness
of various exit strategies.
Exiting
Strategy — A fund’s intended method for liquidating its holdings
while achieving the maximum return possible.
Financial Sponsor — see Management Firm.
Firm — see Management Firm.
First Stage — The First round of financing following a company’s startup phase that involves an institutional VC fund. The round is usually a step-up in valuation, total size (usually not less than $5 M) and per share price for companies’ whose product(s) are either in development or commercially available.
Fund — The investment vehicle , often a limited partnership, to which the limited partners commit capital.
Fund Age
— The age of a fund (in years) from its first takedown to the time an
IRR is calculated.
Fund
Capitalization — The total amount of capital committed to a fund
by the LPs or investors.
Fund
Focus (Investment Stage) — The indicated area of specialization of
a venture capital fund usually expressed as B (Balanced), S/E (Seed and
Early Stage), LS (Later Stage) or LBO (Leveraged Buyout)
Fund of Funds
— a fund which takes minority equity positions in other funds. If the focus is primarily investing in new funds this is a Primary or Primaries fund of funds and if focusing on investing in existing funds this is referred to as a Secondary fund of funds.
Fund
Size — The total amount of capital committed by the limited and general
partners of a fund.
Fund
Size Ranges — In the venture universe the fund size ranges termed
small, medium, large and mega correspond to capitalization amounts as
follows:
Venture
Small 0-25 $Mill
Medium 25-50 $Mill
Large 50-100 $Mill
Mega 100 $Mill+
Private
Equity
Small
0-250 $Mill
Medium 250-500 $Mill
Large 500-1,000 $Mill
Mega 1,000 $Mill+
General Partner — see Management Firm.
Holding
Period — The amount of time an investment remains in a portfolio.
Horizon Return — An IRR calculation between points in time where the beginning point is variable and the end point is fixed. An example would be the 3, 5, and 10 year returns ending 12/31/99, with 12/31/99 as the end point.
IBR
Sample — The group of funds analyzed for performance in this study.
Inception — The starting point at which IRR calculations for a fund would be calculated; generally, the vintage year or date of first capital takedown.
Investment
Philosophy — The stated investment approach or focus of a management
team.
IRR (Internal
Rate of Return) — The discount rate that equates the net present
value (NPV) of an investment’s cash inflows with its cash outflows (See
Methodology)
IPO (Initial
Public Offering) — The sale or distribution of a stock of a portfolio
company to the public for the first time.
LBO
(Leveraged Buyout) — A fund investment strategy involving the acquisition
of a product or business, from either a public or private company, utilizing
a significant amount of debt and little or no equity (usually a ratio
of 90% debt to 10% equity).
Limited Partners
— the investors in a limited partnership.
Limited Partnerships
— the legal structure used by most venture and private equity funds. Usually fixed life investment vehicles. The general partner or management firm manages the partnership using policy laid down in a Partnership Agreement. The Agreement also covers, terms, fees, structures and other items agreed between the limited partners and the general partner.
Liquidation
— The sale of the assets of a portfolio company to one or more acquirors
when venture capital investors receive some of the proceeds of the sale.
Lower
Quartile — The point at which 75% of all returns in a group are greater
and 25% are lower.
LP
— see Limited partners and Limited Partnerships.
LS (Later
Stage) — A fund investment strategy involving financing for the expansion
of a company which is producing, shipping and increasing its sales volume.
Mainstream
— With respect to fund type, excluding foreign-only investing, hybrid
public market purchase funds, LBO and funds of funds.
Mainstreamers
— With respect to fund size, $50 to $99 million; also known as Large
funds.
Management
Fee — Compensation for the management of a venture fund’s activities,
generally paid quarterly from the fund to the general partner or management
company.
Management
Team — The general partners that oversee the activities of the venture
capital fund.
Management Firm
— The manager of a specific fund or funds. Where the fund is a limited partnership the management firm is the General Partner.
Mature
Funds — Funds which have been investing for at least five years.
Maximum
— The highest return level for a group of funds.
Median
— The mid-point of a distribution, with half of the sample less than
or equal to the median, and half of the sample greater than or equal to
the median.
Mega-Funds
— Fund size > $100 million.
Mezzanine
— A fund investment strategy involving subordinated debt (the level of
financing senior to equity and below senior debt).
Minimum
— The lowest return level for a group of funds.
North
American Region —
Alaska/Hawaii
Alaska, Hawaii
Canada
Alberta,(CA), British Columbia,(CA), Prince Edward Island,(CA), Newfoundland,(CA),
Manitoba,(CA), Yukon,(CA), Saskatchewan,(CA), New Brunswick,(CA), Quebec,(CA),
Nova Scotia,(CA), Ontario,(CA)
Great Lakes
Illinois, Indiana, Wisconsin, Michigan
Great Plains
Iowa, North Dakota, Kansas, South Dakota, Minnesota, Missouri, Nebraska
Greater New York
Connecticut, New Jersey, New York
Mid-Atlantic
D. of Columbia, Virginia, Delaware, Maryland
N. California
California (area codes: 415, 559, 916, 650, 510, 925, 209, 831, 408, 707,
530)
New England
Massachusetts, Vermont, Rhode Island, New Hampshire, Maine
Non-US
New Territories,(AU), Queensland,(AU), Western Australia,(AU), Northern
Territory,(AU), Tasmania,(AU), South Australia,(AU), Non-US, ACT,(AU),
New South Wales,(AU), Victoria,(AU)
Northwest
Washington, Oregon
Ohio Valley
Ohio, West Virginia, Pennsylvania
Rocky Mountains
Idaho, Colorado, Wyoming, Montana, Utah
S.
California
California (area codes: 213, 619, 858, 949, 626, 909, 714, 323, 805, 562,
661, 760, 818, 310)
South
Alabama, Kentucky, Tennessee, Arkansas, Louisiana, Mississippi
Southeast
Georgia, South Carolina, North Carolina, Florida
Southwest
Nevada, Oklahoma, Texas, Arizona, New Mexico
US Territories
American Samoa,(UT), Virgin Islands,(UT), Puerto Rico, Guam,(UT)
Unknown
Unknown,()
PI
(Paid-in Capital) — The amount of committed capital a limited partner
has actually transferred to a venture fund. Also known as the cumulative
takedown amount.
Pooled
IRR — A method of calculating an aggregate IRR by summing cash flows
together to create a portfolio cashflow and calculate IRR on portfolio
cashflow.
Portfolio company
— the company or entity into which a fund invests directly.
Post
Venture Capital Index (PVCI) — In 1995, Thomson Financial Venture
Economics and Warburg Pincus Counsellors developed a more comprehensive
index of post-venture capital public market performance by creating an
index that included all public venture-backed companies called the Warburg
Pincus/Venture Economics Post Venture Capital Index, or PVCI. This index
is a true market weighted index with January 31, 1986 = 100. The index
composition increases as companies go public and decreases as companies
are dropped out due to merger, acquisition, delisting, etc. Companies
remain in the index for 10 years after going public and are then dropped
from the index. For purposes of the PVCI research, venture-backed companies
include both traditional start up and early stage venture-backed companies
as well as later stage venture and private equity-backed public companies,
or reverse LBOs. We thus use the least stringent of our three venture-backed
categories for this index in order to capture the gamut of the venture
investing process and the value that venture capitalists bring to public
companies. he company or entity into which a fund invests directly.
Primary fund
of funds — see fund of funds.
Private
Equity — Ventures Economics uses the term to describe the universe
of all venture investing, buyout investing and mezzanine investing. Fund
of fund investing and secondaries are also included in this broadest term.
VE is not using the term to include angel investors or business angels,
real estate investments or other investing scenarios outside of the public
market.
Quartile
— Segment of a sample representing a sequential quarter (25%) of the
group. (First 10 out of 40 funds – first quartile, etc.)
Range
of IRRs — Presents the low and high internal rates of return for
a given year.
Realization
Ratio — The ratio of cumulative distributions to paid-in capital
(D/PI).
Realized
Gain Multiple — The average of the ratios of total gain/(loss) to
cost divided by the number of years each investment is held.
Residual
Value — The remaining equity which a limited partner has in a fund.
Rest,
The — With respect to fund size, < $50 million.
Restricted
Securities — Public securities which are not freely tradable due
to SEC regulations.
Second Stage — Working capital for the initial expansion of a company which is producing and shipping and has growing accounts receivable and inventories. Although the company has clearly made progress, it may not yet be showing a profit.
Secondary fund of funds — see Fund of funds.
Secondary
Sale — The sale of private or restricted holdings in a portfolio
company to other investors.
Seed
Stage — An investment strategy involving portfolio companies which
have not yet fully established commercial operations, and may also involve
continued research and product development.
Sequence
— This refers to classification by New versus Follow-on funds. New funds
are defined as the first fund a management group raises together, regardless
of the experience level of individual professionals in that group. Follow-On
funds refer to subsequent funds (II, III, IV, etc.) raised by the same
management group.
Sponsor — see Management firm.
Standard
Deviation — A measure of the dispersion of the frequency distribution.
Takedown
Schedule — The plan stated in the offering memorandum providing for
the actual transfer of funds from the limited partners’ to the general
partners’ control.
Terms
and Conditions — The financial and management conditions under which
venture capital limited partnerships are structured.
Third Stage
— Funds provided for the major growth expansion of a company whose sales volume is increasing and which is breaking even or profitable. These funds are utilized for further expansion, marketing, and working capital or development of an improved product
Turnaround
— Financing provided to a company at a time of operational or financial
difficulty with the intention of improving the company’s performance.
Universe
— The universe of all known private venture capital partnerships in the
U.S. Funds excluded were: those funds making substantial foreign investments;
hybrid funds primarily making public market purchases; funds doing solely
leveraged buyouts; and funds of funds. The Universe also excluded funds
with a single corporate partner, funds formed to acquire an existing venture
capital firm’s portfolio, wholly-owned venture capital subsidiaries of
financial or non financial corporations, Small Business Investment Companies
(SBICs) and family funds.
Upper
Quartile — The point at which 25% of all returns in a group are greater
and 75% are lower.
Valuation
Method — The policy guidelines a management team uses to value the
holdings in the fund’s portfolio.
Venture
Capital — Venture Economics uses the term to describe the universe
of venture investing (see Private Equity). It does not include buyout
investing, mezzanine investing, fund of fund investing or secondaries.
Angel investors or business angels would also not be included in the definition.
Vintage
— The year of fund formation and first takedown of capital.
Vintage
Group — The range of years in which a group of funds were found and
executed the first takedown of capital.
World
Region—
Africa
Algeria, Angola, Burundi, Botswana, Chad, Benin, Burkina Faso, C. African
Rep, Cameroon, Congo, Gabon, Ethiopia, Eritrea, Equator Guinea, Egypt,
Djibouti, Congo, Dem Rep, Cape Verde, Libya, Lesotho, Liberia, Kenya,
Ivory Coast, Guinea, Gambia, Ghana, Zambia, Uganda, Tanzania, Tunisia,
Togo, Sierra Leone, Sao Tome, Sudan, Zaire, Zimbabwe, Swaziland, Somalia,
Senegal, Seychelles, South Africa, Rwanda, Niger, Namibia, Nigeria, Mozambique,
Mali, Mauritius, Mauritania, Morocco, Malawi, Madagascar, Western Sahara,
Guinae-Bussau, Comoros
Americas
Canada, Aruba, Antigua, Cayman Islands, Dominica, Grenada, Haiti, Grenadines,
El Salvador, Costa Rica, Trinidad/Tob., St Lucia, Puerto Rico, St Kitts/Nevis,
Neth. Antilles, Martinque, Bolivia, Argentina, Mexico, Belize, Panama,
Nicaragua, Honduras, Guatemala, Turks/Caicos, Am. Virgin Is., Monserrat,
Guadeloupe, French Guiana, United States, Venezuela, Uruguay, Surinam,
Paraguay, Peru, Guyana, Ecuador, Colombia, Chile, Brazil, Jamaica, Dominican
Rep., Cuba, Br. Virgin I., Bermuda, Barbados, Bahamas
Asia
Armenia, Malaysia, Indonesia, Brunei, Vietnam, Laos, Cambodia, Taiwan,
South Korea, Yemen, Utd. Arab Em., Syria, Saudi Arabia, Qatar, Oman, Maldives,
Lebanon, Kuwait, Jordan, Israel, Iraq, Iran, Bahrain, Afghanistan, Sri
Lanka, Pakistan, Nepal, India, Bhutan, Bangladesh, Thailand, Singapore,
Philippines, North Korea, Mongolia, Macau, Japan, Hong Kong, China, Burma,
Belarus, Kyrgyzstan, Georgia, Azerbaijan, Kazakhstan, Tajikistan, Ukraine,
Turkmenistan, Uzbekistan, Moldova
Europe
Bosnia/Herz., Bulgaria, Czech Republic, Hungary, Estonia, Slovenia, Turkey,
Cyprus, Italy, Ireland, Iceland, Greece, Greenland, Gibraltar, France,
Finland, Germany, United Kingdom, Switzerland, Sweden, Spain, Portugal,
Netherlands, Norway, Malta, Monaco, Luxembourg, Liechtenstein, Faroe Islands,
Denmark, Croatia, Belgium, Austria, Andorra, Russia, Lithuania, Latvia,
Macedonia, Poland, Romania, Slovakia, Yugoslavia, Albania
Oceania/Australasia
Australia, Cook Islands, Fiji, Fr Polynesia, Micronesia, Marshall Is.,
Nauru, New Zealand, Tuvalu, Palau, Papua N Guinea, Somoa, Solomon Isl.,
Tonga, Vanuatu, Kiribati
World
Sub-Region —
Carribean
Aruba, Antigua, Bahamas, Bermuda, Barbados, Br. Virgin I., Cuba, Dominican
Rep., Grenadines, Grenada, Guadeloupe, Trinidad/Tob., St Lucia, Puerto
Rico, St Kitts/Nevis, Neth. Antilles, Martinque, Jamaica, Turks/Caicos,
Am. Virgin Is., Monserrat, Haiti, Dominica, Cayman Islands
Central Africa
Angola, Congo, Dem Rep, Gabon, Zambia, Sao Tome, Zaire, Equator Guinea,
Congo, C. African Rep
Central America
Costa Rica, Honduras, Panama, Belize, Nicaragua, Guatemala, El Salvador
Central Asia
Armenia, Azerbaijan, Belarus, Kazakhstan, Tajikistan, Ukraine, Uzbekistan,
Turkmenistan, Moldova, Kyrgyzstan, Georgia
East Asia
China, Macau, Mongolia, North Korea, Taiwan, South Korea, Japan, Hong
Kong
Eastern Africa
Burundi, Uganda, Tanzania, Kenya, Malawi, Rwanda, Somalia, Seychelles,
Ethiopia, Djibouti
Eastern Europe
Czech Republic, Russia, Lithuania, Estonia, Hungary, Latvia, Poland, Slovakia
Middle East
Bahrain, Yemen, Utd. Arab Em., Syria, Saudi Arabia, Qatar, Israel, Jordan,
Kuwait, Oman, Lebanon, Iraq, Iran
North America
Canada, United States, Mexico
Northern Africa
Algeria, Eritrea, Libya, Egypt, Morocco, Tunisia, Sudan
Northern Europe
Denmark, Finland, Iceland, Faroe Islands, Norway, Sweden
Oceania/Australasia
Australia, Fiji, Marshall Is., New Zealand, Somoa, Tonga, Kiribati, Vanuatu,
Tuvalu, Palau, Solomon Isl., Papua N Guinea, Micronesia, Fr Polynesia,
Cook Islands, Nauru
South America
Argentina, Bolivia, Chile, Ecuador, Peru, Surinam, Venezuela, Uruguay,
French Guiana, Paraguay, Guyana, Colombia, Brazil
SouthEast Asia
Burma, Cambodia, Brunei, Malaysia, Thailand, Singapore, Vietnam, Laos,
Philippines, Indonesia
Southern Africa
Botswana, Lesotho, Comoros, Madagascar, Mozambique, South Africa, Zimbabwe,
Swaziland, Namibia, Mauritius
Southern Asia
Bangladesh, Bhutan, India, Pakistan, Afghanistan, Maldives, Sri Lanka,
Nepal
Southern Europe
Bosnia/Herz., Albania, Yugoslavia, Romania, Andorra, Turkey, Cyprus, Spain,
Portugal, Malta, Italy, Greece, Croatia, Bulgaria, Slovenia, Macedonia
Western Africa
Burkina Faso, Benin, Cameroon, Ghana, Guinea, Liberia, Mali, Mauritania,
Western Sahara, Guinae-Bussau, Togo, Sierra Leone, Senegal, Niger, Nigeria,
Ivory Coast, Gambia, Cape Verde, Chad
Western Europe
Austria, Monaco, Luxembourg, Germany, United Kingdom, Switzerland, Netherlands,
France, Gibraltar, Ireland, Liechtenstein, Greenland, Belgium
Write-down
— A reduction in the value of an investment.
Write-off
— The write-down of a portfolio company’s holdings to a valuation of
zero and the venture capital investors receive no proceeds from their
investment.
Write-up
— An increase in the value of an investment.