Venture Capital Vocabulary | Friday January 30th, 2004 | |
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.
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