04/02/2011

By Michelle Williams, 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:

Killer Application

This is usually used in software to describe a programme that is far superior to its competitors who, in turn, are unlikely to be able to emulate it.

LandMARK

The London Stock Exchange market for quoted regional companies dedicated to highlighting their potential in every area of the UK and Ireland. It is composed of over 2,200 businesses traded on the main market and AIM which cover a range of industry sectors, sharing strong foundations in certain regions of the UK and Ireland. landMARK gives companies a strong basis for their own locally-focused investor relations campaigns. It provides a point of focus for press and broadcasters in their local financial and business coverage and creates the foundations for communities of investors, advisers and companies. landMARK is attribute-led which means that its companies benefit by being categorised according to region rather than by industry sector and so ensuring that they stand apart from other companies on the London markets, attracting the interest of both local investors and the media. For more information visit www.londonstockexchange.com

Later Stage

A company that is already revenue generating and growing.

Lead Investor/Bell Cow Investor

The largest shareholder in a syndicate who is in charge of arranging the financing and most actively involved in the overall project.

Leaseback

Sale and leaseback. To raise capital by selling assets eg a factory which it previously owned and then leases it back off the acquirer (usually a financial institution). Other variations include lease and leaseback. These structures can also be tax driven.

Leasing

Payment for an asset by regular payments over a fixed period, with ownership of the asset held by the lessor. Depending on the terms of the lease, the asset can be retained by the lessor or acquired by the lessee. Can be an off-balance sheet method of financing and therefore not readily identifiable by third parties, although having a significant effect on gearing (qv).

Lemon

A bad investment. "Lemons ripen before plums"

Leveraged Buyout/LBO

A takeover of a company, using a combination of equity, but principally borrowed funds, usually using the investee company's assets as collateral for the debt financing taken out by the purchaser and the company's cashflow for financing the repayments on that debt. Sometimes an LBO is used by a management team to regain control of the company from other shareholders. Usually the shareholders who are being bought out receive a premium price for their shares.

Limited Partner/LP

An investor in a limited partnership who has no voice in the management of the partnership, has limited liability and has priority over General partners in the liquidation of a partnership.

Limited Partnership

A partnership comprised of a General Partner and Limited Partners. The General Partner receives a management fee and a percentage of the profits (or carried interest). The Limited Partners receive income, capital gains and tax benefits.

Liquidation

The sale of all of a company's assets, for distribution to creditors and shareholders in order of priority.

Liquidation Preference

The contractual right of an investor to priority in receiving the proceeds from the liquidation of a company. Eg, 2x liquidation preference equates to the right to receive two times the original investment upon liquidation.

Liquidity Event

When an investor realizes a gain or loss on an investment and ends its relationship with an investee company.

Listing

When a company trades it shares on a stock market.

Living Dead

An investment which is not going well, but which is managing to survive.

Loan Capital

Form of debt which has to be repaid at a specified time in the future (as distinct from a bank overdraft which may be called in at short notice).

Lock-up

The period of time that certain shareholders waive their rights to sell their shares and are physically prevented from selling post flotation of a company. Underwriters to a flotation generally insist upon lockups of at least 180 days from shareholders with 1% ownership or more in order to allow an orderly market to develop in the shares. The management and directors of the company, strategic partners are also usually subject to a lock-up.

Management Buy-in

Purchase of a business by an outside team of managers who have found financial backers and plant to manage the business actively themselves.

Management Buy-out/MBO

When the current management team in a business acquire or buy at least 50% of the business they manage. Frequently MBOs are backed by venture capitalists who take a significant stake in the business. It is a much less risky investment for investors than backing earlier stage businesses.

Management Fee

The fee paid out of a venture capital fund to the fund's managers eg the General Partner or the investment adviser in return for managing the fund. Usually paid annually and representing around 1-3% of the size of the fund.

Mark-up

(Sales price-cost of materials and direct labour)/cost of materials and direct labour. See Gross Margin (qv).

Marriage Bureau

Organisations which match investors and entrepreneurs, often a term used to describe a business angel network.

Mezzanine Financing

1. Financing for a company immediately prior to its IPO. Mezzanine level financing can be in the form of preference share, convertible bonds or subordinated debt. 2. A financing instrument which has elements of both debt and equity eg convertible debt.

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