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Investment Glossary

Wednesday, 13/11/2013 @ 4:44 pm

Accredited Investor A term used by the Securities and Exchange Commission (SEC) that refers to an investor who meets certain SEC requirements for net worth and income and has a reduced need for the protection provided by certain government filings.

Acquisition Acquisition is the process through which one company takes over the controlling interest of another company.

Broker An individual agent or firm that arranges transactions between a buyer and seller for a commission when the deal is executed.

Buyout The purchase of a company's shares in which the acquiring party gains controlling interest of the targeted firm. A leveraged buyout is accomplished with borrowed money or by issuing more stock.

Committed Fund A committed fund is a specific quantity of liquid capital that has been raised and secured, and is now available for immediate investment.  Investors in committed funds have left the decision to invest in particular investments up to the Funds’ investment committee and are contractually obligated to fund investments at the request of the investment committee.

Control Investor A control investor is a group that invests capital and in return expects to be involved in the major decisions confronting the business including executive personnel, strategic direction and the eventual sale of the business.

Due Diligence Due diligence is the process of investigation and evaluation, performed by a buyer or investor, into the details of the target company, to confirm the accuracy of the company’s accounts and financial data.

EBIT (Earnings before Interest and Tax) EBIT is an indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. The formula for EBIT is: EBIT = Revenue – Cost of Goods Sold- Operating Expenses - Depreciation & Amortization

EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) EBITDA is a measure of the earnings of a company that adds the interest, taxes, depreciation and amortization back to the net income number. EBITDA = Revenue – Expenses (excluding tax, interest, depreciation & amortization)

Evolutionary Capital Capital and expertise for Second Stage Companies who want to take their organization to the next level.  Evolutionary Capital provides the foundation for scale and the ability to move further faster by leveraging Evolution’s resources, network and best practices.

Equity Financing A method of financing in which a company issues shares of its stock and receives money in return.

Exit Strategy A method by which a business owner is transitioning the ownership of a company.   Also known as "cashing out"  or “liquidity event”,  it  most often involves the sale of equity to someone else through a trade sale.

Financial Buyer A financial buyer is typically a long-term investor looking for a solid, well-managed company, and a high return on investment. Typically, these buyers are focused on purchasing the future cash flow of a company at set multiples and use cash flow growth as buying criteria. Financial buyers often include private equity firms, venture capital firms, hedge funds, family offices and high net worth individuals.

Free Cash Flow Operating cash flow less capital expenditures.  Free Cash Flow is true cash a company generates after paying all expenses to maintain or expand its asset base.

Growth Capital/Growth Equity A later-stage round of funding meant to encourage further development and scale of a business.  It is typically an investment in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition.

Growth Company An organization whose business generates positive cash flows, which increase at a faster rate than other companies in its field or the overall economy.

Merger & Acquisition Advisor Professional experts (accountant, lawyer, valuation expert, etc..) that understands the investment banking process for selling and buying middle-market companies.

Merger The fusion of two companies into one rather than remaining separately owned and operated.

NDA (Non-Disclosure Agreement) / CA (Confidentiality Agreement) A legal contract between two parties ensuring the confidentiality of exchanged company details and information.

Outstanding Debt An unpaid portion of a debt that may include interest accrued on the balance.

Private Equity Investments Capital (financial or strategic) invested into a private company in order to typically take a majority stake, improve the company and then exit the investment at a profit.

Recapitalization The reorganization of a company’s capital structure to build a more sustainable business model or to cash out a single shareholder.

Second Stage Company A Second Stage Company has broad characteristics, but generally includes:
  • $4M - $10M in annual revenue
  • At least $500K of annual EBITDA
  • Established and profitable
  • 20-50 employees
  • Founder dependent
  • Local or regional reputation
Strategic Buyer A business buyer interested in expanding an existing company by eliminating competitors, buying into new markets, or adding to an existing division or holding.

Venture Capital Venture capital (VC) is money provided to early-stage, high-risk companies with perceived long-term growth potential. Venture capital can also include managerial and technical expertise.

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