Commonly used terms in Private Equity (PE)
Angel investor: A person who invests in very early-stage businesses or start-ups.
Board seats: Venture firms often acquire positions on the board of their invested companies. A board seat provide channel of monitoring and managing invested.
Due diligence: A process of inspection that a venture capital or other private equity firm carries out before closing a deal.
Exit: The means by which a private equity firm realizes a return on its investment. This typically comes when an invested company goes public, or when it merged with or is acquired by another company.
Lead investor: The firm or individual that organizes a round of financing, and usually contributes the largest amount of capital to the deal.
Leveraged buyout (LBO): The acquisition of a company in which the purchase is leveraged through loan financing, rather than being paid for entirely with equity funding. The assets of the company being acquired are put up as collateral to secure the loan.
PIPE: An acronym for "private investing in public equities".
Private placement: This term is used to denote a private investment in a company that is publicly held. Private equity firms that invest in listed, sometimes use the acronym PIPE to describe the activity-private investing in public equities.
Seed-stage fund: A pool of money used to back companies which are very small to attract major venture firms.
Spin out: A division or subsidiary of a company that becomes an independent business. Typically, private equity investors provide the necessary capital to allow the division to "spin out" on its own; and the parent company may retain a minority stake.
Strategic investment: An investment that a company makes in a smaller company which offers to bring something of value to the investment company. The aim may be to gain access to a particular product or technology that the smaller company is developing. Strategic investors typically are sometimes distinguished from financial investors who invest primarily with the aim of generating a return on their investment.
Venture capital rounds: Invested companies typically receive several rounds of venture capital before going public. The first round is usually smaller than subsequent rounds, and likely to involve fewer investors.
