Vc D-E

Front 1

DCF

Back 1

Acronym for discounted cash flow analysis.

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Decision nodes

Back 2

The point in a tree where a player must must a decision.

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Decision trees

Back 3

Trees with two types of nodes: risk nodes and decision nodes

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Deemed liquidation event (=Liquidation)

Back 4

An event where certain preferred stock rights come into force. These events are carefully defined in the term sheet. The most common triggers for a deemed liquidation event are when a portfolio company is purchased or shut down.

Front 5

Demand registration rights

Back 5

Rights that allow preferred stock holders to demand that their shares be sold in a registered transaction.

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Derivative assets

Back 6

Assets whose value is completely dependent on the value of other assets.

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Development

Back 7

When used to describe a type of R&D project, development projects are those designed to translate scientific research into marketable products.

Front 8

Discount rate

Back 8

The rate that equates $1 today with the expected value of $1 in some future period.

Front 9

Discounted-cash-flow (DCF) analysis

Back 9

A method that values an asset as the sum of the discounted value of all cash flows produced by that asset. DCF analysis is a form of absolute valuation.

Front 10

Discrete random variables

Back 10

A random variable whose possible values are physically separable when plotted on a real line.

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Distress investing

Back 11

Investing in companies that have a significant risk of going out of business. (=Special situations)

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Diversifable risk

Back 12

Risk that has only a negligible impact on the whole economy (e.g. the risk that any specific house will burn down is diversifable risk) (=Idiosyncratic risk)

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Dividend preference

Back 13

The restriction that dividends cannot be paid to common stockholders unless they are first paid to preferred stockholders.

Front 14

Domestic beta

Back 14

The regression coefficient on an asset's excess returns when it is regressed on the market premium from its own country.

Front 15

Domestic CAPM

Back 15

A CAPM that uses the market premium from any one country. In contrast, the global CAPM uses the global market premium.

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Dominant strategy

Back 16

In game theory, a strategy that does at least as well as every other strategy, no matter what strategies are chosen by other players.

Front 17

Down round

Back 17

In term sheets, the technical definition that round Y is a down round typically requires that the conversion price for preferred stock in Round Y is lower than the conversion price for preferred stock in Round X, where X < Y. More generally, we can also think of a down round occurring if the implied valuation for series X after round Y is lower than the LP cost of series X.

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Drag-along

Back 18

A right of preferred stock holders to force other investors to sell their stake in the company, provided that the preferred stock holder has found a buyer for all shares at the same price.

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Drawdown

Back 19

=Capital call =Takedown

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Due diligence

Back 20

Careful study of all aspects of a potential investment.

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Early-stage

Back 21

The definitions of early-stage, mid-stage, and late-stage are all imprecise. The NVCA definitions (Exhibit 1-5) indicate that the early stage of company development begins at birth and ends before revenues begin to grow rapidly.

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Earnings

Back 22

The difference between revenues and expenses.

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Earnings before Interest and Taxes (EBIT)

Back 23

Earnings plus interest expense plus taxes.

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EBIT

Back 24

Acronym for Earnings before Interest and Taxes.

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Entrepreneurial ecosystem

Back 25

A regional community of entrepreneurs, venture capitalists, technologists, and service providers.

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Enterprise value

Back 26

The market value of all securities issued by the company.

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Equilibrium concept

Back 27

In game theory, a set of conditions necessary to define an equilibrium. For example, for the equilibrium concept fo Nash equilibrium, the conditions require that every player give a full menu of strategies at every decision node, with all these strategies being a best response to the menu provided by all other players.

Front 28

Equilibrium strategy

Back 28

In game theory, the strategy for any given player that satisfies a specific equilibrium concept.

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Equity market value

Back 29

=Market cap =Market capitalization

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European call

Back 30

Gives the holder the right, but not the obligation, to purchase an underlying security at a strike price on a specific expiration date.

Front 31

European put

Back 31

Gives the holder the right, but not the obligation, to sell an underlying security at a strike price on a specific expiration date.

Front 32

Event trees

Back 32

Trees without any decision nodes.

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Exercise price

Back 33

=Strike price

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(2X, 3X, 4X, etc.) Excess liquidation preference

Back 34

The multiple of aggregate purchase price that holders of preferred stock receive on redemption.

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Excess returns

Back 35

The difference between the return on a specific asset and the riskfree rate over the same time period.

Front 36

Exit

Back 36

This term has two related meanings. First, an exit refers to the sale or IPO of a portfolio company. Second, an exit refers to the sale of a VC's stake in a portfolio company. These two definitions are not always the same (e.g., a VC usually must hold his stock for at least six months after an IPO). Then, we have the paradox of an IPO "exit" followed by the VC "exit" six months later.

Front 37

Exit diagram

Back 37

On the x-axis, the market value of a company at exit; on the y-axis, the value of a VC stake in that company at exit. An exit diagram differs from an expiration diagram in that the former plots values at a VC exit at some unknown expiration date, whereas the latter plots values on a known expiration date.

Front 38

Exit equation

Back 38

The value of a VC stake in a company at exit, expressed as a portfolio of random-expiration options. We obtain exit equations by reading the exit diagram.

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Exit valuation

Back 39

The value of a VC stake in a company at exit, conditional on a successful exit.

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Expansion stage

Back 40

=Midstage
The NVCA definitions indicate that this stage involves applying working capital to the initial expansion of a company. The company is now producing, shipping, and has growing accounts receivables and inventories. It may or may not be showing a profit.

Front 41

Expected holding period

Back 41

The amount of time that a VC expects to hold an investment before exit.

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Expected retention percentage

Back 42

Suppose a VC fund owns X percent of a compnay after making its initial investment. Before an exit occurs, the fund expects that the company will need to raise more capital by selling additional shares, which will reduce the initial ownership percentage to Y percent. Then, the expected retention percentage will be Y/X.

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Expected return

Back 43

From a mathematical perspective, the expected return on an investment is computed by multiplying each possible return by the probability of that return. In an equilibrium model like the CAPM, the expected return is equal to the cost of capital.

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Expiration date

Back 44

The last possible date that an option can be exercised.

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Expiration diagram

Back 45

On the x-axis, the market value of the underlying asset on the expiration date; on the y-axis, the value of an option on that asset. An exit diagram differs from an expiration diagram in that the former plots values at a VC exit at some unknown exit date, whereas the latter plots values on a known expiration date.

Front 46

Expropriation

Back 46

A fancy way to say "stealing". Miniority investors (like VCs) must always be on guard for subtle ways that managers and majority investors can expropriate resources of the company.

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Extensive form

Back 47

=Game tree
A decision tree with more than one player. In game theory, the normal form lists all possible strategies for all players; the extensive form provides all the information available in the normal form, and also shows the timeing for all moves.