11/03/2011

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, as you can see, we are making our way through the alphabet:

Narrow-based Weighted Average Ratchet

This is a type of anti-dilution mechanism, which adjusts downward the price per share of the preferred stock of an existing investor when new preferred shares are issued to a new investor at a reduced price. The existing investor's shares are repriced to a weighed average of all the shares now in issue. A narrow-based ratchet uses only issued ordinary shares in the calculation for working out the new weighted average price. See Broad-Based Weighted Average Ratchet.

NASDAQ

The National Association of Security Dealers Automated Quotation is the world's largest electronic stock market with approximately 3,600 of the world's most innovative companies listed. It is also the fastest growing. More companies are listed on NASDAQ than all other major US stock markets. Trades are executed through a sophisticated computer and telecommunications network - a system which transmits timely, critical investment information to more than 1.3 million users in 83 countries. It was launched in 1971 and is operated by the Nasdaq Stock Market Inc. Website: www.nasdaq.com

Non-disclosure Agreement/NDA

The agreement issued by entrepreneurs to potential investors to protect the privacy of their ideas when disclosing those ideas to third parties.

Net Asset Value/NAV

The assets/investments in the company/fund divided by the outstanding number of shares of the company/fund.

Net Present Value/NPV

The sum of the cashflows of a project/investment including initial cash investment and final cash realised on exit discounted to come to a present value of those cashflows.

Newco

A generic name for any new company.

Non-executive Director

"Part-time" directors who share all the legal responsibilities of their executive colleagues on the board of a company. The general view is that they can operate as an independent director able to take a long term view of a company and protect the interests of shareholders. An investor will often appoint a non-executive to the board of an investee company as one way of monitoring his/her investment.

Observation Rights

The right taken by non-management shareholders to attend and observe, but not actively participate in a company's board meetings. See Shadow Director.

OFEX

The OFEX market is a secondary market for the trading of unlisted and unquoted securities in the UK, off exchange. It is a prescribed market under Section 118 of the Financial Services and Markets Act 2000. The total number of companies using OFEX at present is 143, with a total combined market cap of £1,154m. OFEX plc is the operator of the OFEX market and a wholly-owned subsidiary of OFEX Holdings plc. OFEX plc is authorised and regulated by the Financial Services Authority ("FSA"). For more information visit www.ofex.com.

Off-the-shelf Company

A package of legal documents that may be easily purchased to allow an entrepreneur to trade through a registered company.

Option Pool

The number of shares set aside for future issuance to employees of a private company.

Pari Passu

Equal to.

Participating Preferred Shares

Shares that bear the right to a stated dividend (and frequently a return of the original investment upon flotation or sale of the company) and also to additional dividends related to payments of dividends to ordinary shareholders.

Partnership

An entity in which each partner shares in its profits, loses and liabilities. The entity itself is not taxed. Instead each partner is responsible for the taxes on its share of profits and losses.

Partnership Agreement

The contract that specifies the compensation and conditions governing the relationship between Limited Partner and General Partners for the duration of a private equity fund's life.

Phoenix Plan

A strategy intended to rescue a firm from a dire financial or commercial position.

Placing

The sale of a shareholding or block of shares, through a broker, to other investors, usually institutions.

Plum

A successful investment, "Plums ripen later than lemons".

Poison Pill

A right issued by a corporation as a preventative anti-takeover measure enabling a party to purchase shares in either their company or in the combined target and bidder entity at a substantial discount, usually 50%. This discount may make the takeover prohibitively expensive. Common in the US.

Portfolio Companies

The companies in which a venture capital fund is invested.

Post-Money Valuation

This is the valuation of the company immediately after a round of financing. It comprises the Enterprise value of the company and the amount of cash invested in the round. For example, a venture capitalist may invest £3 million in a company valued at £2 million "pre-money" (before the investment was made). As a result, the start-up will have a post-money valuation of £5 million.

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