Financial Analysis. Lesson 38. Venture Capital and Private Equity Investments
Financial Analysis. Lesson 38. Venture Capital and Private Equity Investments
Venture capital (VC) provides funding to early-stage, high-growth companies.
Private equity (PE) involves investment in privately held companies for profit.
Seed funding is initial capital to support early company development.
Series A funding provides capital for scaling after initial market validation.
Series B funding supports business growth, expansion, and increased market reach.
Leveraged buyout (LBO) uses debt to acquire a company and increase returns.
Management buyout (MBO) allows company management to purchase ownership stakes.
Equity stake is the ownership interest an investor has in a company.
Convertible preferred stock can be converted into common stock at a set price.
Carried interest is a share of profits received by fund managers.
Limited partner (LP) provides capital but lacks active management involvement.
General partner (GP) manages the fund and makes investment decisions.
Capital call requires limited partners to provide committed capital to the fund.
Fundraising gathers capital commitments from investors to establish a fund.
Exit strategy outlines the method for cashing out investments profitably.
Initial public offering (IPO) allows private firms to sell shares publicly.
Secondary buyout involves selling a PE investment to another PE firm.
Growth capital funds expansion of companies already generating revenue.
Buy-and-build strategy acquires smaller companies to strengthen the main business.
Distressed investing involves buying troubled companies and restructuring them.
Due diligence thoroughly examines a target company's financial health.
Valuation estimates a company's worth to determine fair investment pricing.
Term sheet outlines key terms and conditions for investment agreements.
Drag-along rights allow majority owners to force minority to sell shares.
Tag-along rights give minority owners the right to sell shares if majority sells.
Post-money valuation is a company’s value after receiving new investment.
Pre-money valuation is the company’s value before a new investment.
Venture debt provides loans to startups alongside venture capital.
Mezzanine financing combines debt and equity, often for late-stage funding.
Clawback provision allows investors to reclaim portions of distributed profits.
Technical Examples:
Carried interest incentivizes fund managers by giving them a share of profits.
Convertible preferred stock gives VC investors flexibility to convert to equity.
Term sheet defines investment terms and expectations for venture deals.