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Private Equity Investment Terms
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Growth Capital
Private equity investment, usually minority investments, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets, or finance a significant acquisition without a change of control of the business.
Due Diligence
A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.
Distressed Buyout
Acquisition of a company that is under financial stress or bankruptcy, often with the intention of restructuring it and eventually selling it for a profit.
Buyout Fund
A fund that pools capital from investors for the purpose of acquiring control of companies through buyout transactions.
Secondary Market
The market where investors purchase securities or assets from other investors, rather than from issuing companies themselves.
Direct Investment
An investment in the form of a control stake in a company, often bypassing traditional venture capital funds and investing directly.
Carried Interest
The share of profits that the managers of private equity and hedge funds receive as compensation, typically 20% of the fund's profits above a certain threshold.
Private Equity (PE)
A form of financing where funds and investors directly invest in private companies or engage in buyouts of public companies, resulting in the delisting of public equity.
Exit Strategy
A private equity investor’s plan for getting out of an investment in a company. Common strategies include initial public offerings (IPOs), sales to other investors, or management buyouts.
Management Buyout (MBO)
A transaction where the management team of a company buys out the majority of the shares from the existing shareholders to take control of the company.
Venture Capital (VC)
A subset of private equity focused on investing in startup companies with strong growth potential in exchange for equity stakes.
Special Situation
An investment that capitalizes on unique circumstances, such a distressed firm's underpriced stock, that is considered to offer high returns.
Leveraged Buyout (LBO)
A financial transaction where a company is purchased using a significant amount of borrowed money to meet the cost of acquisition. Strategies often involve improving the company's profitability and cutting costs.
Mezzanine Financing
A hybrid of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default, generally, after venture capital companies and other senior lenders are paid.
Fund of Funds (FoF)
An investment strategy that holds a portfolio of other investment funds rather than investing directly in stocks, bonds, or other securities.
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