14/04/2011

By Michelle Williams, Marketing Manager at AngelNews

More investment terms and phrases for you to get your head around, if you can think of any that we have missed, please get in touch, as you can see, we are making our way through the alphabet:

Pre-money Valuation

The valuation of a company prior to a round of investment. This valuation is calculated using various methods, such as discounted Price Earnings Ratios multiplied by historical, current or future earnings or a Net Present Value computation, as well as a comparative valuation based on the market valuation of comparable quoted and prices achieved for exits of comparable private companies.

Pre-emption Right

A shareholder's right to acquire shares in the future when a new round of financing is held thereby preventing that shareholder from being diluted.

Preferred Dividend

A dividend accruing on preferred shares.

Preferred Shares/Preference Shares

A class of shares that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets.

Price Earnings Ratio/PER/P/E

The quoted market price per share/earnings per share. Alternatively market capitalisation/net profit after tax. Used by analysts as an indicator of the expected future performance of a company relative to its peers.

Private Equity

Shares in a company that not listed on a public exchange. Such shares are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell shares in private companies must find a buyer in the absence of a marketplace and often has restrictions in the ability to transfer these shares under the terms of the Shareholders Agreement.

Private Placement Memorandum/Offering Memorandum

A document that outlines the terms of shares to be offered in a private placement. Can resemble a business plan in content and structure.

Put Option

The right to sell a security at a given price (or range) within a given time period.

Ratchet/Sliding Scale

Basis for offering increased equity interest in a company to its management, based on the results of the company.

Recapitalization

The reorganization of a company's capital structure.

Receivership

The common term for administrative receivership (qv).

Refinancing Bank Debt

An investment of money into a company in debt, in order to wipe out of pay off any loans then possess. This improves the potential of the company which no longer incurs interest payments. The investment can then be paid back at a later date.

Redeemable Preferred Shares/Exploding Preferred Shares

Shares that are redeemable at the shareholder's option after (typically) five years, which in turn gives the holders (potentially converting to creditors) leverage to induce the company to arrange a liquidity event.

Regional Venture Capital Funds/RVCFS

Regional Venture Capital Funds are an England wide programme to provide risk capital finance in amounts up to £500,000 to SMEs who demonstrate growth potential. The funds, managed by experienced venture capital professionals, are commercially focused, making commercial returns.

Replacement Capital

Capital provided as a substitute for funds removed by a previous shareholder, such as a retiring director, who now wishes to realise his stake.

Restructure

Usually involving major changes in the organisation of a company, possibly by changing the management and/or the share ownership structure.

Return on Capital Employed/ROCE

Earnings before interest and tax(EBIT)/(Capital employed + Short term borrowings - Intangible assets). ROCE provides an idea of the efficiency and profitability of a company's capital investments. As long as ROCE is higher than the rate that the overall interest rate at which the company borrows shareholder earnings will be protected. Return on average capital employed (ROACE) can also be calculated which takes the average of opening and closing capital employed for the time period and gives be a more measured result adjusting for movements in the company's assets over time.


Revlon Duties (US)

In the US, unlike the UK, some measures can be legally instituted by a company that promote the value of an auction process, but those that thwart the value of an auction process are not allowed. Usually Revlon Duties are triggered when there are a number of bidders for a company.

Right of First Refusal

This gives an offer for shares a right to meet any other offer before the proposed contract is accepted. It can be held by existing shareholders or a new bidder.

Rights Issue/Offer

This is when a company offers new shares to existing shareholder, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them.

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