FAQ

A - E

Accelerator
Institution helping young companies to develop faster through intensive coaching.

Added Value
The increase in value which is achieved by bringing in of managerial know-how and servicing by the investor.

Agio
Premium paid by the investor on the nominal value of the purchased shares of a company.

Amber Light
Warning Signal, pointing to problems in (potential) investments ("Red Flag").

Asset Deal
Purchase of the assets of a company and not the company itself; does not give the acquirer universal succession rights.

Asset Stripping
Break-up of a company through the sale of its assets.

Balanced Fund
Fund without any special focus.

Beauty Contest
Selection procedure to choose an investment bank for advisory services or underwriting of securities.

Benchmark
Also "Milestone", key points in the development of a company, which when reached may, for example, trigger a further injection of capital.

Blue Chips
Stock of large-cap companies with a record of stable earnings and/or dividend growth.

Bookbuilding
Soliciting offers from potential buyers, the seller of securities builds an order book and derives an issue price from that order book.

Break-Even-Point
The point at which a company is able to cover its costs.

Bridge Financing
Financing made available to bridge the funding needs until a security is issued or an asset disposed of.

Burn Rate
The period of time it takes a company to use up the capital available to it.

Business Angel
Private Investor, usually very experienced businessman, who provides personal funds and know how to an early stage business.

Businessplan
Outlines the company's history, its operations, strategy and financial plans.

Buy Back
Purchase of the shares of a company by the company itself.

Buy-And-Build-Strategy
Acquisition of companies in order to build a bigger group.

Capital Gain
The difference between the price paid for shares and the price at which they are sold.

Capital Under Management
Total volume of all funds managed by a private equity company.

Captive Fonds
Venture capital fund which is part of a larger financial institution. Opposite: Independent Fund.

Carried Interest ("Carry")
Management company's share of the profits of a fund. In most cases a hurdle rate is built in.

Case Szenarios
As part of the examination of a potential investment, a number of cases are established: a "pessimistic case scenario" for a negative development, an "optimistic case scenario" for the most favourable development and a "most likely scenario" for the most likely development.

Cash-Flow (CF)
Cash generated during a period. The CF is calculated from the data of the annual accounts, especially the income statement.

Chinese Walls
Information barriers which exist in a financial institution so that different departments know nothing about the activities of other departments, in order to prevent conflicts of interest.

Co-financing
Several investors invest in a company, one of them acts as "Lead-Investor".

Commitment
Obligation of an investor to pay in an agreed amount.

Competition Analysis
Analysis of competing companies in the same market in order to understand the dynamics of the market.

Convertible Debt
Security which can be exchanged for a specified amount of another, related security, at the option of the issuer and/or holder, also called convertible.

Corperate Venturing
Venture capital financing by industrial groups or their own venture capital companies, which primarily pursue strategic group interests.

Deal Flow
Investment opportunities offered to a venture capital firm.

Deinvestment through write-off
Comparable to a total loss.

Development Capital
Capital to finance the business development of more mature small and medium-sized businesses.

Dilution
Loss of value of the old shareholders' shares due to the issue of new ones.

Dingo
Don't invest - no growth opportunity!

Dormant partnership
Silent partnership of a natural or legal person not registered in the commercial register.

Due Diligence
Before venture capitalists make an investment in a company, they will make detailed investigations about its market, competitors, management, track record, financial and legal status.

EBIT
Earnings Before Interest and Taxes.

Equity Kicker
Opportunity for third-party capital providers to purchase shares in a company on special terms.

EVCA
European Venture Capital Association

Exit
The realisation of an investment by way of selling of the stake.

Exit Strategy
The plan to realize returns on the venture capital invested.

Expansion Financing
The company has reached the break even point or is generating profit. The funds are used to increase production capacity, product diversification or for market expansion.

F - I

First Round Financing
The first investment in a company made by external investors.

Flip
Short term investment, where the exit is predetermined before the closing of the transaction.

Fund Raising
The start up phase of a venture capital fund; the fund it looks for institutional, industrial or private investors to subscribe for shares in the fund.

Gantt-Chart
A Gant chart is a horizontal bar chart that provides a graphical illustration of a schedule that helps to plan, coordinate and track specific tasks in a project.

Going private
The purchase of all of a company's outstanding stock by an investor. As a result of such an initiative, the company stops being publicly traded.

Going public
Performing an initial public offering.

Greenshoe
A provision in an underwriting agreement which allows the members of the underwriting syndicate to purchase additional shares.

Growth Capital
Expansion capital

Hands Off
Once equity capital is provided, the investor does not directly intervene in the day-to-day running of the company until the sale of the stake. The involvement is more passive, including participation on advisory boards, supervisory boards, etc.

Hands On
The investor aims to increase the value of his investment by actively supporting the management.

Hard Money
Capital that has to achieve a certain return on an investment, i.e. Venture capital.

Holding Period
Period the investment remains in the portfolio.

Hurdle Rate
Internal Rate of Return that has to be achieved in order to make an investment interesting (in case of Venture capital: 30-40%).

Incubator
A group or organization that provides infrastructure, services, business guidance and funding to start-up companies.

Independent Fund
Autonomous fund or VC-company which is not controlled by a specific financial group. Opposite: Captive Fund.

Initial Public Offering (IPO)
The first sale of stock by a privately-held company to the general public

Internal Rate of Return (IRR)
Internal rate of interest, method to calculate the return on an investment.

Issuer
The issuer of a security offers the paper for sale to the market.

J - M

Joint Venture
A contractual agreement joining together two or more parties for the purpose of a particular business undertaking.

Junk Bonds
Colloquial for a high-risk debt security (rated below BBB-) that has received low ratings and thus produces high yields as long as it doesn't go into default.

Later-Stage-Financing
Investment at a later stage, financing of expansions, takeovers, bridging, etc. by established small and medium-sized companies.

Leadinvestor
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.

Letter of intent
"LOI", a document that clearly states a future course of action or intent to generate a formal agreement but is not by itself a binding contract. A preliminary agreement that is finalized after negotiations and the performance of due diligence.

Leverage
The total borrowings of a company expressed as a multiple of EBITDA or as a percentage of total equity.

Listing
When a company trades its shares on a stock market it is said to be "listed".

Lock-Up-Period
The period of time (typically 180 days) after an IPO during which old shareholders, in particular the company's management are restricted from selling shares.

Make or Buy
Decision, whether a product or service will be made or bought.

Management Buy-In (MBI)
Takeover of a company by external management. The management generally holds a substantial stake in the company.

Management Buy-Out (MBO)
Takeover of a company by the existing management. The management generally holds a substantial stake in the company.

Market Capitalisation
The market value of a company's equity, computed by multiplying the number of shares by the current market price.

Mezzanine Money
Funds used to fill the gap in financing between debt and equity capital In Germany, the usual forms are:

Subordinated debt
Preferred stock
Certificate of beneficial interest
Silent partnership
Vendor's notes
Shareholder loan

Milestones
Preset targets, which when reached may, for example, trigger a further injection of capital.

N - R

NASDAQ
National Association of Securities Dealers Automated Quotation. US high-tech stock market for young, fast growing companies.

Net Present Value (NPV)
The current value of future cash flows discounted back to today's date using a stated discount rate.

Newco
Company set up for purposes of purchasing another company.

Open investment
Direct investment through purchase of company shares.

Pay Back
Investierter Betrag plus Capital Gain, realisiert beim Exit.

Post-Money-Valuation
A company's valuation just after a capital increase.

Pre-IPO
Company that aims to go public in 2-3 years.

Preferential right
Right for a certain participation in the net profit or the proceeds of a liquidation.

Preferential right capital
Equity with guaranteed preferential rights.

Private Equity
Beteiligungskapital im weitesten Sinne.

Private Placement
Private placing of shares without involving the stock market. Opposite: going public.

Prospectus liability
Liability of the issuer and underwriter of an IPO for incorrect or misleading information in the IPO prospectus.

Ratchet / Sliding Scale
"Bonus" and/or "malus" agreement, where depending whether the company 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
Turnaround; 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.

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

S - Z

Second-Round-Financing
Second round of financing for a company which has already received venture capital in a first round.

Secondary Purchase
A VC company sells its holdings in a company to another VC or to a partner interested in financing the company.

Seed-Financing
Financing of the initial start-up phase of a company.

Serial Entrepreneur
Entrepreneur who already founded, established and sold one or more enterprises.

Share Deal
Takeover of a company through the purchase of its stock.

Soft Money
Capital with no defined return targets usually from family, state or foundations.

Spin-off
Selling off a division or part of a company or group.

Spread
Difference between two related prices or interest rates.

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

Stille Gesellschaft
Stille Beteiligung. Nach außen nicht in Erscheinung tretende und nicht in das Handelsregister eingetragene Beteiligung einer natürlichen oder juristischen Person (typisch stille Beteiligung).

Stock Options
Gives the holder the right to buy (call) or sell (put) stock, at a specific price, by a specific date.

Subordinated Debt
Debt that is either unsecured or has a lower ranking than that of another debt claim on the same asset or property.

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

Track Record
Earnings and performance history of a private equity fund or of a company.

Trade Sale
Sale of a company to an industrial buyer.

Turnaround
Auch als Re-Start bezeichnet. Drastische Umgestaltung bzw. Restrukturierung eines Unternehmens, das wirtschaftliche Probleme hat.

Turnaround Financing
Financing of a company which is seeking to build up its business again after overcoming difficulties.

Unique Selling Proposition (USP)
Marketing term, convincing sales argument or special characteristics, which give a product or service a unique costumer benefit.

US-GAAP
Damit die Vergleichbarkeit zwischen mehreren Geschäftsberichten und ihren vorhandenen Ertragszahlen gewährt bleibt, müssen alle Quartals- und Jahresberichte bestimmten rechtlichen Grundlagen genügen, die strengstens kontrolliert werden. Insgesamt gibt es drei Standards, die in Deutschland, Amerika und auch in Europa eine große Rolle spielen:

• IAS (International Accounting Standards),

• US-Gaap (Generally accepted, accounting principles) und

• HGB (Handelsgesetzbuch).

US-GAAP ist verbreitete Rechnungslegungs-
methode in den USA. IAS und US-GAAP ähneln sich vom Aufbau und der Struktur her sehr. Die HGB-Methode weicht jedoch von diesen beiden Standards deutlich ab.

Velocity
Geschwindigkeit der Umsetzung des Businessplans: "High Velocity" schafft einen Vorsprung zur Konkurrenz.

Vender' s Note
Subordinated loan given to the buyer of a company by the seller; results in part of the purchase price being deferred.

Vendor
Who sells a company or parts of a company.

Venture Capital
Risk capital invested in a new company with exceptional growth potential. In the US it includes the Early-Stage-, Expansion- and Later-Stage-Phase, but not Buy-outs and Mezzanine.

Venture-Capital-Fund
Fonds, aus dem der professionelle Venture-Capitalist seine Investition finanziert.

Verwässerung
Wertverlust von Beteiligungen der Altgesellschafter durch die Ausgabe weiterer Anteile.

Vulture Capitalists
Ironical term for investors who want fast money using dubious methods.

Win-Win-Situation
An arrangement in which all parties benefit.

Window On Technology
Bevorzugtes Interesse eines Corporate Venture Funds eines Industriekonzerns, der sich über Venture-Capital-Beteiligungen Zugang zu neuen Technologien verschaffen will.

Worst Case
Business scenario assuming the worst possible outcomes.

Write Off
Totalverlust eines Investments, d. h. totales Abschreiben der investierten Mittel.

Yield
Rate of Return on bonds/result of a capital investment.

Zero Bonds
Bond without a coupon. Interest results from the difference between purchase price and amount repayable.