Vc Qrs

Front 1

Qualified institutional buyers (QIBs)

Back 1

Large institutional investors who are permitted to purchase securities under exceptions to the SEC's registration rules. The main class of QIBs are institutions that manage more than $100M.

Front 2

Qualified public offering (QPO)

Back 2

An IPO above a minimum size and above a minimum per-share price. These minimums are specified in the term sheet.

Front 3

Qualified Research Expenses (QREs)

Back 3

R&D expenses that qualify for R&D tax credit in the U.S.

Front 4

r

Back 4

Symbol for the cost of capital

Front 5

R

Back 5

Symbol for the return on capital

Front 6

R&D licensing agreement

Back 6

(=License)

Front 7

R&D tax credit

Back 7

A program by a government to reduce the tax liability of companies in some proportion to their R&D expenses. In the U.S., the federal government provides the largest tax credit, and many states and municipalities have smaller programs.

Front 8

Raised

Back 8

(=Closed)

Front 9

Random-expiration (RE) option

Back 9

An option with a random and unknown expiration date.

Front 10

Random-expiration binary call option (BC(X))

Back 10

A binary call option with a random and unknown expiration date.

Front 11

Rapid-growth period

Back 11

In the reality-check DCF model, the rapid-growth period is between exit and graduation.

Front 12

Reading the exit diagram

Back 12

The translation of an exit diagram into a portfolio of random-expiration options.

Front 13

Real options

Back 13

An option on a real asset. In contrast, financial options are options on financial assets.

Front 14

Reality-check DCF

Back 14

A model that uses agressive data-driven assumptions for growth, margins, and capital efficiency in order to get an absolute valuation for the exit value.

Front 15

Realization ratio

Back 15

(=Investment multiple, =Absolute return, =Value multiple)

Front 16

Realized return

Back 16

This term has two meanings: The first meaning, which is generic for all finance, is historical returns. The second meaning, specialized for private equity, refers to a fund's returns from all exited investments.

Front 17

Redeemable preferred (RP)

Back 17

Preferred stock that pays a redemption value on liquidation, but does not offer the holder the option of conversion to common stock.

Front 18

Redemption

Back 18

The act of turning in preferred stock for the redemption value.

Front 19

Redemption rights

Back 19

The right of preferred stock holders to redeem their stock outside of a deemed liquidation event. This right is usually less powerful in practice than it is on paper because preferred stock holders, as equity investors, do not have the power to force a company into bankruptcy if the company cannot pay the redemption.

Front 20

Redemption value (RV)

Back 20

The amount paid to the holder of preferred stock on redemption. In the absence of of dividends or excess liquidation preferences, the redemption value is equal to the aggregate purchase price.

Front 21

Redemption value per share (RVPS)

Back 21

The redemption value for a specific class of convertible preferred stock divided by the number of shares of common stock on conversion of that class.

Front 22

Registration rights

Back 22

As specified in the term sheet, registration rights give the holders the power to sell some of their shares in a registered transaction. These rights come in several different strengths, with demand registration rates being the strongest.

Front 23

Registered transaction

Back 23

A transaction on a public exchange that has been approved by the Securities and Exchange Commission. Restricted stock becomes unrestricted after it is sold in a registered transaction.

Front 24

Reinvestment rate

Back 24

(=Investment rate (IR), =Plowback ratio)

Front 25

Relative valuation

Back 25

The valuation of an asset based on the market values of similar assets.

Front 26

Replicating portfolio

Back 26

A combination of risk-free bonds and risky assets that provides exactly the same payoffs as a derivative asset.

Front 27

Required investment

Back 27

The amount of capital needed for a round of VC investment.

Front 28

Research and development (R&D)

Back 28

Investment made in basic research, applied research, or development projects.

Front 29

Restricted stock

Back 29

Stock that cannot be sold in a public market, except through a registered transaction or through a Rule 144 exception to the registration rules. Once a stock has been sold in a registered or Rule 144 transaction, it becomes unrestricted stock.

Front 30

Restrictive covenants

Back 30

Contractual terms in limited partnership agreements that restrict the activities of the general partner.

Front 31

Return on capital (R)

Back 31

For a company, the return on capital is an (adjusted) operating profit divided by operating assets. For an investment manager, the return on capital is the periodic return on the assets under management.

Front 32

Return on investment (ROI)

Back 32

For a company, ROI is defined the same way as R, except that the profits and assets are measured only for the newly invested capital.

Front 33

Right of first offer

Back 33

If Investor X has a right of first offer for investor Y's shares, then Y must give X the option to bid on Y's shares before those shares are offered to anyone else. If Y turns down X's offer, then she can sell her shares to other investors, but only if she obtains a price above X's initial offer.

Front 34

Right of first refusal

Back 34

The right of first refusal is more powerful than the right of first offer. If investor X has a right of first refusal for investor Y's shares, then Y must give X the option to buy on Y's shares at any price that Y has negotiated with an outside bidder. In this case, few outside bidders are likely to make na offer because they know that X can just come in and take away the deal.

Front 35

Riskfree rate (=riskless rate)

Back 35

The rate of return on securities that have no systematic risk. In the United States, federal government debt is often considered to be risk-free.

Front 36

Risk-netural

Back 36

We say that an investor is risk-neutral if her utility function in wealth is a straight line.

Front 37

Risk-neutral probabilities

Back 37

The probabilities that would have to exist if all investors were risk-neutral and asset prices were the same as in the real world.

Front 38

Risk factor

Back 38

(=Factor)

Front 39

Risk node

Back 39

The point in a tree where uncertainty is resolved along multiple branches.

Front 40

ROI

Back 40

Acronym for Return on Investment

Front 41

Round

Back 41

Financing round

Front 42

Royalty payments

Back 42

When a product is sold as part of a license agreement, the licensee will sometimes pay a percentage of sales or gross profit to the licensor.

Front 43

RP

Back 43

Acronym for redeemable preferred

Front 44

Rule 144

Back 44

A SEC rule that provides expceptions that allow the public sale of otherwise restricted stock.

Front 45

Rule 144A

Back 45

An SEC rule that allows the private sale of restricted stock to qualified institutional buyers.

Front 46

Rule 144(k)

Back 46

The specfic exception under Rule 144 that is most commonly used by LPs in VC funds.

Front 47

RV

Back 47

Acronym for redemption value.

Front 48

RVPS

Back 48

Acronym for redemption value per share.

Front 49

S-3 registration rights

Back 49

A type of demand registration right that only takes effct one the company is already public and has $75M of stock held by noninsiders. S-3 rights are weaker than regular demand registration rights because the former cannot be used to force a private company to go public.

Front 50

Sand Hill Econometrics (SHE)

Back 50

A company that produces the Sand Hill Index, a gross-return index for the VC industry.

Front 51

Sand Hill Road

Back 51

The street in Menlo Park, CA that is home to many of the world's top VC firms.

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Screening

Back 52

The activities of analyzing companies, performing due diligence, and making investment decisions.

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Second round (Series B)

Back 53

The second occurrence of a VC investment.

Front 54

Seed stage

Back 54

An investment idea that has not yet become a company. Seed-stage investments are typically made by angels, not VCs.

Front 55

Segmented markets

Back 55

When investors in countries A and B are unable to make investments in the other country, we say that these two markets are segmented.

Front 56

Self-dealing

Back 56

=Expropriation, =Investor expropriation, =Tunneling

Front 57

Sequential game

Back 57

A game where players take turns making moves.

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Series

Back 58

In VC transactions, preferred stock is referred to by a series letter: Series A, Series B, etc. In some cases, a VC round will include multiple series, so it is possible for the first round of investment to include shares labeled as Series A and Series B.

Front 59

Short position

Back 59

The ownership of a negative amount of an asset.

Front 60

Simple interest

Back 60

Interest that does not compound (i.e., 5 percent simple interest on $100 would pay $5 every year, even if the previous payments were accrued to the face value).

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Simultaneous game

Back 61

A game where players make moves at the same time.

Front 62

Sourcing

Back 62

The activities performed by VCs to generate deal flow.

Front 63

Special situations

Back 63

=Distress investing

Front 64

SPNE

Back 64

Acronym for subgame-perfect Nash equilibrium.

Front 65

Stable-growth period

Back 65

In the reality-check DCF model, the stable growth period follows graduation.

Front 66

Stale values

Back 66

When live VC funds report their performance, active investments are usually reported at the post-money valuation of their most recent round. Because many of these companies have had material changes since their last round, we say that those values are stale. When evaluating the performance of the VC industry using a factor model, we adjust for stale vaules by including past observations of the factors in the regression.

Front 67

Standard VC method

Back 67

The name for a group of techniques used by VCs to make investment decisions. The main idea of the standard VC method is to estimate a value for the company conditional on a successful exit, and then to discount that value back to the present using a high target rate of return.

Front 68

Star fund

Back 68

A VC fund with committed capital of at least $100M and a value multiple of 5 or greater.

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Start-up stage

Back 69

A stage of company development before any significant revenues have been earned.

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Step vesting

Back 70

When some set percentage of options (or stock) becomes vested on a specific date (i.e. if options are 25% step vested each year, then the vesting increases from 25% to 50% to 75% to 100% over a four-year period).