Venture Capital Vocabulary

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In understanding the nature of venture capital, it's important for companies to speak the same "language" as the venture capitalists. Here are a few of the key terms:

Exit-

One of the key concerns of venture capitalist. Typically, the fund has a specified duration, and in order to take the profits that the venture fund develops in the company, they must sell or in some way reduce their interest in the portfolio company. This process or stage of investing is considered the "exit" or "cashing-out."

Harvest-
Some venture capitalist use this to signify the exit stage or the process of reducing the interest of a portfolio company.

Institutional Investors-
These are large organizations with huge amounts of capital. Examples would be: mutual fund companies, pension plans for public and private organizations, and insurance companies. Institutions are always looking for ways to increase their return to their investors. Ultimately, though, institutions are just a group of people.

Multiple-
Commonly know as the price earnings multiple. It represents the amount of times that earnings are multiplied to reach a sales price for the portfolio company. This is very important to the venture capitalist who can best optimize the multiple by going public with an IPO.

Portfolio Company-
A Company in which the venture capitalist has invested money, time, resources, or any combination.

Upside-
Capital appreciation derived from the portfolio company being with more when the fund is winding-up than it was worth when the fund invested its capital.

These are only a few of the key terms. It is suggested that you consult the excellent glossary in Gladstone's Venture Capital Investing for more venture capital vernacular.