20/05/2011

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, we are making our way through the alphabet:

Risk

Investors accept risks when they invest. The principal risk is that they lose money on their investment. This can be due to inflation, interest rates, default, politics, foreign exchange, call provisions, etc. In private equity, the risks that the investors are likely to face are included in the Risk Factors section of the Private Placement Memorandum.

Road Show

This is when a company makes a series of presentations to potential investors to tell them about their business and to invite them to invest. It is also known as a "dog and pony show." They will usually be accompanied by their financial advisers.

Roll-over Relief

Tax relief or more precisely tax deferral, on capital gains which is granted if the gains are reinvested in a suitable vehicle eg an EIS qualifying company.

Run Rate/Run-rate

1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period of time. The run rate helps to put the company's latest results in perspective. For example, if a company has revenues of £100 million in its latest quarter, the CEO might say: "Our latest quarter puts us at a £400 million run rate." All this is saying is that if the company were to perform at the same level for the next year, they'd have annual revenues of £400 million. The run rate can be a very deceiving metric, especially in seasonal industries. A great example of this is a retailer after Christmas. Almost all retailers experience higher sales during the holiday season. It is very unlikely that the coming quarters will have sales as strong as in the 4th quarter, and so the run rate will likely overstate next year's revenue. 2. The average annual dilution from company stock option grants over the most recent three year period recorded in the annual report. Source: www.investopedia.com

SBIC/Small Business Investment Company/Enterprise Capital Fund

A company licensed by regulatory authorities in the US (and it is expected soon in the UK with the name Enterprise Capital Fund) to receive government leverage in order to raise capital to use in venture investing.

Secondary Market

1. The market for the sale of partnership interests in private equity funds. Sometimes limited partners choose to sell their interest in a partnership, typically to raise cash or because they cannot meet their obligation to invest more capital according to the takedown schedule. Certain investment companies specialize in buying these partnership interests at a discount. 2. The term used to describe the trading of shares in a company post flotation on a stock market.

Seed Stage/Seed Capital

The first round of capital for a start-up business. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides start-up companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money.

Seed Stage Financing

An initial state of a company's growth characterized by a founding management team, business plan development, prototype development, and beta testing.

Senior Debt

Element of a financial package which consists of bank lending. It is called senior because if things go wrong, the lender has higher priority than those who provided mezzanine or equity finance.

Shadow Director

A person who although they are not legally a director of a company, is deemed to play the de facto role of a director in that company eg has sufficient influence over decisions made by the company. This can be a significant issue for large shareholders in a company who may not wish to have a board seat, but can find themselves responsible for a company's actions if they have been involved in running the company or influencing how it is run.

ShareMark

ShareMark is an online share-trading and fund raising facility for small and medium sized companies, owned by The Share Centre. The facility allows companies to list and investors to buy and sell shares in those companies. ShareMark is different to all other markets currently operating in the UK because shares are traded at a single price meaning that there is no bid/offer spread. The single price is achieved through auctioning the shares of listed companies, ShareMark can operate as a 'closed market' for those companies wishing to restrict share trading to a pre-defined group, ShareMark is an electronic auction with its computer systems continually reviewing all of the orders submitted and pinpointing the price level at which demand meets supply. Rules govern the auction price calculations, ensuring that a fair price is established for investors, but the result is straightforward: a single dealing price each period. For more information visit www.sharemark.co.uk or email: Sharemark@share.co.uk

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