Venture capital: A type of private equity that provides capital to early-stage, high-risk companies with the potential for high returns.
Committed capital: This refers to the amount of money that investors have agreed to invest in the venture capital fund. It’s a
capital that the fund can count on, and use for its investments.
Organizational fees: These are fees paid by the fund to cover the costs of setting up the fund, such as legal and accounting fees.
Operational fees: These are ongoing expenses of the fund, such as rent, office expenses, and other miscellaneous expenses that are required to operate the fund.
Management fees: These are fees paid by the limited partners to the general partner for managing the fund. They are typically a percentage of the committed capital and are used to cover the general partner’s expenses.
Recycled management fees: This refers to a practice in venture capital in which a percentage of the management fees charged to the limited partners are invested back into the portfolio companies, this allows the venture capital firm to maintain its investment in its portfolio companies without having to raise additional capital.
Limited partner: An investor in a venture capital fund who provides capital but does not actively manage the fund.
General partner: The manager of a venture capital fund who makes investment decisions and manages the fund on behalf of the limited partners.
Portfolio company: A company in which a venture capital fund has invested.
Seed capital: Early-stage funding provided to startups to help them develop and launch their products or services.
Series A: The first round of venture capital funding for a startup company, typically used to scale the business.
Series B: The second round of venture capital funding for a startup company, typically used to expand the business and prepare for an IPO.
Mezzanine financing: A later-stage of funding, typically used to provide capital for acquisitions or to prepare for an IPO.
Exit strategy: The plan for realizing returns on a venture capital investment, such as through acquisitions or initial public offerings.
Angel investor: An individual who provides capital to startups in exchange for equity.
Pre-seed: Early-stage funding provided to startups before seed funding.
Bridge financing: A short-term funding used to cover a company’s expenses until it secures additional funding.
Follow-on capital: Additional investments made by a venture capital firm into a portfolio company after an initial investment.
Reserve ratio: A percentage of a venture capital fund’s assets that is set aside and not invested in portfolio companies.
Management fee: A fee paid by the limited partners to the general partner for managing the fund.
Carried interest: A percentage of the returns generated by the fund above the preferred return that is paid to the general partner as a performance incentive.
Dry powder: Uninvested capital in a venture fund that can be used for new investments.
Term sheet: A document outlining the terms of an investment, including the amount of funding, the ownership stake, and the rights and responsibilities of the investors and the company.
Valuation: The process of determining the worth of a company, typically used to set the price of the shares in a funding round.
Due Diligence: The process of examining a company’s financials, management, and business operations before making an investment.
ROI (Return on Investment): The return on investment, typically expressed as a percentage, that a venture fund or investor expects to receive on their investment.
IRR (Internal Rate of Return): A metric used to measure the profitability of an investment, typically expressed as a percentage.
LPs (Limited Partners): Investors in a venture capital fund who provide capital but do not actively manage the fund.
GP (General Partner): The manager of a venture capital fund who makes investment decisions and manages the fund on behalf of the limited partners.
Pre-money valuation: The valuation of a company before an investment is made.
Post-money valuation: The valuation of a company after an investment is made.
Down round: A funding round in which a company raises capital at a lower valuation than in its previous round.
Up round: A funding round in which a company raises capital at a higher valuation than in its previous round.
Convertible note: A type of debt that can be converted into equity at a later date, typically at the next funding round or upon the occurrence of a specific event.
SAFE (Simple Agreement for Future Equity): A type of convertible note that is designed for early-stage companies and allows investors to convert their investment into equity at a later date.
Cap table: A table that shows the ownership structure of a company, including the number of shares outstanding and the percentage ownership of each shareholder.
Waterfall: A method for distributing returns to investors in a venture capital fund, in which the limited partners receive a preferred return before the general partner receives carried interest.
LBO (Leveraged Buyout): The acquisition of a company using a significant amount of debt.
SPV (Special Purpose Vehicle): A legal entity created to hold assets or conduct a specific business activity, often used in venture capital and private equity transactions.
Fund of funds: A venture capital fund that invests in other venture capital funds.
Incubator: A program or facility that provides support and resources to early-stage companies, including office space, mentorship, and networking opportunities.
Accelerator: A program that provides intensive mentorship and resources to early-stage companies, often with a specific focus or industry.
Bootstrapping: A method of starting and growing a business without external funding, relying on the founder’s own resources and revenue generated by the business.
Crowdfunding: A method of raising capital by soliciting small investments from a large number of people, typically through an online platform.
Secondary market: A marketplace where investors can buy and sell shares in private companies.
Unicorn: A privately held startup company valued at over $1 billion.
Micro-VC: A venture capital firm that makes small investments, typically in the range of $250,000 to $2 million.
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