Glossary

Acquisition The obtainment of control, possession or ownership of a company.

Acquisition Financing Funds provided to a firm to finance its acquisition of companies.

Angel A wealthy individual who invests in entrepreneurial companies.

Balanced Venture Fund A venture capital (VC) fund investment strategy which includes investment in portfolio companies at a variety of stages of development (Seed, Early Stage, Later Stage).

Bridge Financing Short-term debt financing.

Buyout Funds Funds that provide equity capital for acquisition transactions or refinancings.

Capital Gains Short or long-term profits from the sale of assets.

Carried Interest Also known as "carry". The percentage of profits (generally 20-30%) that general partners receive out of the profits of the investments made by the fund. The term originally came from the practice in the early days of VC where general partners put up nothing in return for 20% of the profits and thus the limited partners "carried the interest" of the general partners. Nowadays, general partners typically put up about 1% of the fund commitments and the limited partners put up the rest. Now "carried interest" is synonymous with profit split.

Club Deal Transaction involving more than one private equity firm.

Buyout Co-Investment A direct investment made alongside of a lead investor, typically a general partner in which Adams Street is a limited partner

Commitment A limited partner's obligation to provide a certain amount of capital to a fund.

Direct Investment An investment in an operating company in exchange for a direct equity ownership stake in that company.

Distribution Cash or the value of stock disbursed to the limited partners of a fund.

Distributions to Paid-in Capital The amount a fund has distributed to its investors relative to the total capital contribution to the fund.

Disbursement Investments by funds into portfolio companies.

Due Diligence The investigation and evaluation of a management team's characteristics, investment philosophy, and terms and conditions prior to committing capital to a fund or portfolio company investment.

Early Stage A fund investment strategy involving investment in companies for product development and initial marketing, manufacturing and sales activities.

Exit Strategy A fund's intended method for liquidating its holdings while achieving the maximum return possible.

Fair Value Generally accepted accounting principles define fair value as the amount at which the asset could be sold in a current transaction between willing parties, other than in a forced or liquidation sale.

First Stage/Round The first round of financing following a company's startup phase that involves an institutional VC fund.

Fund The investment vehicle, often a limited partnership, to which the limited partners commit capital.

Fund Capitalization The total amount of capital committed to a fund by the limited partners or investors.

Fund Focus (Investment Stage) The indicated area of specialization of a venture capital fund usually expressed as Balanced, Seed, Early Stage or Later Stage.

Fund of Funds A fund which takes minority equity positions in other funds. If the focus is primarily investing in new funds, this is a primary fund of funds and if focusing on investing in existing funds, this is referred to as a secondary fund of funds.

Fund Size The total amount of capital committed by the limited and general partners of a fund.

Fund Size Ranges In the private equity universe the fund size ranges termed small, medium, large and mega correspond to capitalization amounts. As fund sizes have increased some of the old definitions have become obsolete. The fund size ranges for buyout managers as defined by Thomson Reuters are listed below. In addition, we have listed ranges that, in Adams Street’s view, more accurately reflect the current state of the industry.

Buyout and Other Thomson Reuters ($ M) Adams Street Partners ($ M)
Small $0-250 $0-250
Medium $250-500 $250-1,000
Large $500-1,000 $1,000-5,000
Mega $1,000+ $5,000+

General Partner (GP) The team that oversees the investment of a specific private equity fund.

Holding Period The amount of time an investment remains in a portfolio.

Horizon Return An IRR calculation between points in time where the beginning point is variable and the end point is fixed. An example would be the 3, 5, and 10 year returns ending 12/31/09, with 12/31/09 as the end point.

Inception The starting point at which IRR calculations for a fund would be calculated; generally, the vintage year or date of first capital takedown.

IRR (Internal Rate of Return) The discount rate that equates the net present value (NPV) of an investment's cash inflows with its cash outflows.

IPO (Initial Public Offering) The sale of a stock of a portfolio company to the public for the first time.

J-CurveIn private equity, the J curve is used to illustrate the historical tendency of private equity funds to deliver negative returns in early years and investment gains in the outlying years as the portfolios of companies mature.

In the early years of the fund, a number of factors contribute to negative returns including management fees, investment costs and under-performing investments that are identified early and written down. Over time the fund will begin to experience unrealized gains followed eventually by events in which gains are realized.

LBO (Leveraged Buyout) A fund investment strategy involving the acquisition of a product or business, from either a public or private company, utilizing a significant amount of debt.

Limited Partners (LPs) The investors in a limited partnership.

Limited Partnerships The legal structure used by most private equity funds. Usually fixed life investment vehicles. The general partner or management firm manages the fund using policy laid down in a Partnership Agreement. The Agreement also covers, terms, fees, structures and other items agreed between the limited partners and the general partner.

Liquidation The sale of the assets of a portfolio company to one or more acquirers when venture capital investors receive some of the proceeds of the sale.

Later Stage A fund investment strategy involving financing for the expansion of a company which is producing, shipping and increasing its sales volume.

Management Fee Compensation for the management of a fund's activities, generally paid quarterly from the fund to the general partner or management company.

Mezzanine/subordinated debt Funds that provide intermediate capital between equity and senior debt in acquisition or refinancing transactions.

Net Asset Value The term used by a fund to designate the excess of fair value of investments owned, cash and other assets over the liabilities of the fund.

Paid-in Capital The amount of committed capital a limited partner has actually transferred to a fund. Also known as the cumulative takedown amount.

Primary Investments An original limited partner commitment to a private equity fund, which does not include any transfer of limited partner interests / ownership. These commitments are typically made during the fundraising period for that private equity fund and are sometimes referred to as blind pool commitments.

Pooled IRR A method of calculating an aggregate IRR by summing cash flows together to create a portfolio cashflow and calculate IRR on portfolio cashflow.

Portfolio Company The company or entity into which a fund invests directly.

Quartile Segment of a sample representing a sequential quarter (25%) of the group. (First 10 out of 40 funds - first quartile, etc.)

Preferred Return Either (i) the set rate of return that the investors must receive before the general partners can begin sharing in any distributions, or (ii) the level that the fund’s net asset value must reach before the general partners can begin sharing in any distributions.

Realization Ratio The ratio of cumulative distributions to paid-in capital.

Residual Value The remaining equity, or the net asset value, which a limited partner has in a fund.

Restricted Securities Public securities which are not freely tradable due to regulatory restrictions.

Restructuring/distressed debt Restructuring funds make new equity investments in financially or operationally distressed companies; distressed debt funds purchase debt of companies in distress.

Seed Stage An investment strategy involving portfolio companies which are at the very beginning of their formation where capital is usually used to develop a business plan.

Secondary Investments Generally refers to the purchase of investment commitments to private equity funds often in the form of limited partnership interests. Since most secondary transactions take place after some passage of time following initial primary investment commitments to funds from sellers, buyers are typically purchasing portfolios of existing funded assets in funds while also assuming any remaining unfunded commitments to the same funds.

Special Situations Funds with a specific industry focus, or unique opportunities falling outside the regular subclasses.

Terms and Conditions The financial and management conditions under which limited partnerships are structured.

Trade Sale Sale of a portfolio company to another company, typically operating in the same industry.

Turnaround Financing provided to a company at a time of operational or financial difficulty with the intention of improving the company's performance.

Valuation Method The policy guidelines a management team uses to value the holdings in the fund's portfolio.

Venture Capital Early-stage (which provide capital for businesses in the conceptual stage, or where products are not fully developed and revenues and/or profits may not exist) and later-stage (which provide growth or expansion capital for more mature businesses) venture capital funds. Venture capital funds typically focus on information technology and/or health care related investments.

Venture Capital & Growth Equity investment A direct investment led by Adams Street in a company that is rapidly growing or has rapid growth potential. The company may or may not have raised previous venture capital.

Vintage Year The year of fund formation and first takedown of capital.

Write-down A reduction in the value of an investment.

Write-off The write-down of a portfolio company's holdings to a valuation of zero and the venture capital investors receive no proceeds from their investment.

Write-up An increase in the value of an investment.

Sources: Thomson Reuters and Adams Street Partners, LLC