Vc Nop

Front 1

Narrow-base formula

Back 1

One of the methods used to compute the adjusted conversion price under weighted-average antidilution protections. The narrow-base formula provides larger adjustments than does the broad-base formula.

Front 2

Nash equilibrium (NE)

Back 2

In game theory, where all players are choosing best responses to the strategies of other players. In a NE, no player can benefit by changing his strategy.

Front 3

National Venture Capital Association (NVCA)

Back 3

The main organization for venture capital in the United States.

Front 4

Net contributed capital

Back 4

At any given time in the life of the fund, net invested capital is equal to contributed capital less the cost basis of all exited and written-off investments.

Front 5

Net investment (NI)

Back 5

The net amount added to a company's capital stock in a period: net investment = gross investment - depreciation.

Front 6

Net profits

Back 6

(=Earnings, =Net income)

Front 7

Net return

Back 7

Return computed after taking account of management fees, carried interest, and any other investment costs.

Front 8

Nodes

Back 8

In a tree, decision nodes signify where a player must make a move and risk node signify where uncertainty is resolved.

Front 9

Noncumulative dividends

Back 9

Dividends that do not accrue across periods.

Front 10

Non-diversifiable risk

Back 10

(=Market risk, =Systematic risk)

Front 11

Nonlinear model

Back 11

A model with nonlinear interactions between any of the input variables, for example Z = 2X * 2Y v. a linear model of Z = 2X + 2Y

Front 12

Normal form

Back 12

A matrix representation of a game. In a two-player game, one player's strategies are represented in the columns and the other player's strategies are represented in the rows.

Front 13

Normative analysis

Back 13

Research about how things "should" be. In contrast, positive analysis is research about how things actually are.

Front 14

Operating assets

Back 14

Company assets that are necessary for the production of goods and services.

Front 15

OPP

Back 15

Acronym for Original Purchase Price

Front 16

Option to abandon

Back 16

A real option to abandon a project after it has been started.
(Stop producing after 1 year)

Front 17

Option to delay

Back 17

A real option to begin a project at a later date.
(Start producing 1 year later)

Front 18

Option to expand

Back 18

A real option to expand a project at a later date.

Front 19

Option to extend

Back 19

A real option to extend a project at a later date.
(Build an annex to Huntsman Hall in 10 years)

Front 20

Option to shrink

Back 20

A real option to shrink a project at a later date.
(Scale back your workforce after the subprime crisis)

Front 21

Option to switch

Back 21

A real option to switch the underlying production process. (Switch from oil heating to gas heating in your house in 10 years)

Front 22

Option tree

Back 22

A type of binomial tree showing the value of an option at each point in time.

Front 23

Original Purchase Price (OPP)

Back 23

The price per share paid in a transaction.

Front 24

Out-of-the-money

Back 24

If the price of an underlying security is below (above) the strike price for a call (put) option, then the option is out-of-the-money.

Front 25

Partial valuaiton

Back 25

The valuation of the fund's stake, using option-pricing methods.

Front 26

Participating convertible preferred (PCP)

Back 26

Convertible preferred stock that is entitled to a liquidation return, which includes both its redemption value and as-if conversion into common stock. PCP is forced to convert to common stock in the event of a qualified public offering.

Front 27

Participating convertible preferred with cap (PCPC)

Back 27

Identical to PCP, except that the liquidation return is capped, even if there is no qualified public offering.

Front 28

Pastor-Stambaugh Model (PSM)

Back 28

A multifactor model with four factors related t the market premium, the size of the company, the growth prospects of the company, and the liquidity risk of the company.

Front 29

Payment-in-kind (PIK) dividends

Back 29

(=Stock dividends) Dividends that are paid in stock.

Front 30

Payoffs

Back 30

In a tree, we refer to all cash flows, positive and negative, as payoffs.

Front 31

PDF

Back 31

Acronym for probability density function.

Front 32

Performance-evaluation regression

Back 32

The estimation of a factor model on returns generated by an investment manager. The estimate of alpha - the abnormal return - is then interpreted as the performance of the manager.

Front 33

Periodic return

Back 33

The return over a set period of time from t-1 to t: Rt = (Pt + Dt)/Pt-1 where R is the periodic return, P is the price, an D is the dividend (if any).

Front 34

Perpetuity

Back 34

A constant payment in every period, forever.

Front 35

Personal valuation

Back 35

An analyst's opinion about the value of an asset. This personal valuation may rely almost exclusively on the analyst's forecasts (as in absolute valuation), or it may use market information from similar assets (as in relative valuation). In contrast, a market valuation relies exclusively on information embedded in the price of the actual asset or derivative securities for the asset.

Front 36

Phase I

Back 36

The first phase of clinical trials for a drug. Phase I trials test for the safety of the drug using healthy volunteers.

Front 37

Phase II

Back 37

The second phase of clinical trials for a drug. Phase II trials test for efficacy and safety of the drug using patients who have the relevant disorder. Phase II trials difer from Phase III trials in that the latter are much, larger, take longer, and are more expensive.

Front 38

Phase III

Back 38

The third and final phase of human trials for a drug. Phase III trials test for efficacy and safety of the drug using patients who have the relevant disorder. Phase II trials difer from Phase III trials in that the latter are much, larger, take longer, and are more expensive.

Front 39

Piggyback registration rights

Back 39

Rights that allow preferred stock holders to "piggyback" and sell their shares in an already scheduled registered transaction. Piggyback registration rights are weaker than demand registration rights, because the former cannot create a new transaction, but must rely on other investors obtaining a registered transaction.

Front 40

PIK

Back 40

Acronym for payment-in-kind

Front 41

Pitch meeting

Back 41

A meeting where entrepreneurs attempt to sell VCs on making an investment in their company.

Front 42

Plowback ratio

Back 42

(=Investment rate, =Reinvestment rate)

Front 43

Portfolio company

Back 43

A company that has received VC investment and has not yet been exited.

Front 44

Positive analysis

Back 44

Research about how things "actually are". In contrast, normative analysis is research about how things "should be".

Front 45

Postboom period

Back 45

In this book, the period since 2001.

Front 46

Post-money valuation

Back 46

The $investment divided by the proposed ownership percentage.

Front 47

Preboom

Back 47

In this book, the period before 1995.

Front 48

Preclinical

Back 48

The stage of drug testing that preceeds clinical trials.

Front 49

Preferred returns

Back 49

(=Hurdle returns, =priority returns)

Front 50

Preferred stock

Back 50

Equity that is above common stock in the capital structure.

Front 51

Pre-money valuation

Back 51

The post-money valuation minus the $investment.

Front 52

Priority returns

Back 52

(=Hurdle returns, =preferred returns)

Front 53

Prisoner's dilemma

Back 53

A famous game used to illustrate an arms race.

Front 54

Private equity

Back 54

In its broadest meaning, private equity includes all investments that cannot be resold in public markets. In its more narrow meaning, private equity refers to a class of investments, managed by private equity firms, which make investments in VC, leveraged buyouts, mezzanine, or distress.

Front 55

Probability density function (pdf)

Back 55

For a discrete random variable, the pdf evaluated at point x is the probability that the random variable is exactly equal to x. For a continuous random variable, the definition is more subtle. In standard continuous distributions, there are an infinity of possible outcomes, so the probability of any one outcome is vanishingly small. To obtain probabilities from continuous functions, we need to integrate that function over some range. The pdf is the function that we integrate: its inputs are not exactly probabilities, but are equivalent to probabilities integrated over a unit interval.

Front 56

Proceeds

Back 56

The amount of value (in cash and stock) that is received in an exit.

Front 57

Proposed%

Back 57

The shorthand we use in equations to represent the proposed ownership percentage.

Front 58

Proposed ownership percentage (proposed%)

Back 58

In any given transaction, the proposed ownership percentage represents the percentage of fully diluted shares that the VC is proposing to buy.

Front 59

Proprietary deal flow

Back 59

When a private equity investor receives investment opportunities that are not offered to anyone else, we say that he has proprietary deal flow.

Front 60

PSM

Back 60

Acronym for Pastor-Stambaugh model

Front 61

Pure-strategy

Back 61

In game theory, if a player chooses the same move every time, we say that he is playing a pure strategy. In contrast, a mixed strategy is a combination of several moves, each with a postive probability of being played.

Front 62

Pure-strategy NE

Back 62

A Nash equilibrium where all players choose pure strategies.