Glossary — Private Equity and Venture Capital

Fund Structure and Legal

LP Ch 07: Limited partner — the investor in a fund. Provides capital, has limited liability and limited control.
GP Ch 07: General partner — the entity that manages the fund and makes investment decisions. Typically a small group of partners with personal liability for the GP entity.
LPA Ch 08: Limited Partnership Agreement — the constitutional document of the fund. Defines economics, governance, term, and the rules under which everyone operates.
Management Company Ch 07: The operating entity that employs the investment professionals and receives the management fee. Distinct from the GP entity.
Parallel Fund Ch 07: A second fund vehicle that invests pari passu with the main fund, used to accommodate LPs with regulatory or tax constraints (e.g. ERISA, offshore).
Feeder Fund Ch 07: A vehicle that aggregates investors (often offshore) and invests as a single LP into the master fund.
LPAC Ch 08: Limited Partner Advisory Committee — a small group of LPs that advises on conflicts and gives consents called for by the LPA.
Key-Man Clause Ch 08: Provision that suspends the investment period if a named partner departs or stops devoting time to the fund.
No-Fault Divorce Ch 08: LP right to remove the GP without cause, typically requiring a supermajority (e.g. 75%) and triggering carry forfeit consequences.
Clawback Ch 09: The GP's obligation to return previously distributed carry if final fund returns fall short of the deal LPs were promised.
PPM Ch 11: Private Placement Memorandum — the offering document used to market the fund to qualified investors.
Subscription Agreement Ch 11: The contract by which an LP commits capital to the fund and makes regulatory representations.

Fund Economics

Committed Capital Ch 09: The amount each LP has agreed to invest over the life of the fund.
Called Capital Ch 09: The portion of committed capital that has actually been drawn by the GP.
Management Fee Ch 09: Annual fee paid to the management company, typically 1.5–2.0% of committed capital during the investment period and stepping down on invested capital after.
Carried Interest Ch 09: The GP's share of profits, almost always 20% above a hurdle rate. The economics that make the asset class.
Hurdle Rate Ch 09: The minimum return LPs receive before the GP earns carry — typically 8% IRR. Also called the preferred return.
Catch-Up Ch 09: After the hurdle is met, distributions go entirely or 80/20 to the GP until the GP has caught up to a 20% share of total profits.
American Waterfall Ch 09: Deal-by-deal carry — the GP earns carry as each deal exits, subject to clawback. Standard in US buyout.
European Waterfall Ch 09: Whole-fund carry — LPs must receive their full committed capital plus the hurdle before any carry is paid. Standard in venture and Europe.
GP Commit Ch 09: The capital the GP itself contributes to the fund, typically 1–5% of total commitments. A signal of alignment.
Recycling Ch 09: Re-investing realized proceeds back into new investments, allowing the fund to deploy more than its committed capital over time.

Performance Metrics

IRR Ch 06: Internal Rate of Return — the annualized discount rate at which the NPV of cash flows equals zero. Time-weighted but distorted by deal pacing.
Net IRR Ch 06: IRR after management fees, expenses, and carry. The number LPs actually earn.
TVPI Ch 06: Total Value to Paid-In capital — the sum of distributions and remaining NAV divided by called capital. The total return multiple.
DPI Ch 06: Distributions to Paid-In capital — cash actually returned to LPs divided by called capital. The realized portion of TVPI.
RVPI Ch 06: Residual Value to Paid-In capital — unrealized NAV divided by called capital. Marked at fair value, contestable.
PME Ch 06: Public Market Equivalent — Kaplan-Schoar style benchmark that compares fund cash flows against a public index. The honest test of alpha.
J-Curve Ch 06: The early-life negative net cash position of a fund as fees are paid before exits arrive. Steeper for longer-hold strategies.

Deal Mechanics — PE

LBO Ch 18: Leveraged buyout — acquiring a company using a mix of equity and (typically substantial) debt.
EBITDA Ch 16: Earnings before interest, taxes, depreciation, and amortization. The default cash-flow proxy in PE valuation.
Quality of Earnings (QofE) Ch 16: A diligence study that normalizes EBITDA for non-recurring items, accounting policies, and run-rate adjustments.
Entry Multiple Ch 17: Acquisition enterprise value divided by EBITDA at close.
Returns Bridge Ch 28: Decomposition of LBO returns into multiple expansion, EBITDA growth, and debt paydown.
Rollover Equity Ch 28: Existing management equity that converts into the new capital structure rather than cashing out at close.
Dividend Recap Ch 30: Distributing cash to equity holders by issuing new debt against the portfolio company. A partial monetization.

Deal Mechanics — VC

Pre-Money Valuation Ch 21: The agreed value of the company before the new investment is added to the cap table.
Post-Money Valuation Ch 21: Pre-money plus the size of the new round.
Option Pool Shuffle Ch 21: Increasing the option pool pre-investment so the dilution falls on existing shareholders, not the new investor.
SAFE Ch 24: Simple Agreement for Future Equity — Y Combinator's unpriced instrument that converts at the next priced round, often with a cap and/or discount.
Convertible Note Ch 24: Short-term debt that converts into equity at the next priced round, typically with interest, a cap, and/or a discount.
Pro-Rata Right Ch 21: An investor's right to participate in future rounds in an amount sufficient to maintain its ownership percentage.
Pay-to-Play Ch 21: A provision that converts an investor's preferred shares to common (or to a less-protected class) if they fail to participate in a future round.

Security Types and Cap Table

Preferred Stock Ch 22: Equity senior to common, with negotiated rights: liquidation preference, dividends, conversion, voting, and protection.
Liquidation Preference Ch 22: The amount preferred holders receive ahead of common at exit. Quoted as a multiple of original investment (e.g. 1x, 1.5x, 2x).
Participating Preferred Ch 22: Preferred that takes its preference and then also participates pro rata in remaining proceeds with common. 'Double-dip'.
Non-Participating Preferred Ch 22: Preferred that takes the greater of its preference or its as-converted share — the modern default in venture.
Anti-Dilution — Broad-Based Weighted Average Ch 23: Adjusts the conversion price modestly for a down round, weighted by the size of the dilutive issuance relative to the existing share count.
Anti-Dilution — Full Ratchet Ch 23: Resets the conversion price to the lowest price of the new issuance regardless of size. Aggressive.
409A Valuation Ch 27: An IRS-blessed independent valuation of a private company's common stock, used to set option strike prices.

Governance and Control

Board of Directors Ch 25: The body with formal corporate authority. Investors typically buy seats as part of the term sheet.
Observer Rights Ch 25: The right to attend board meetings without voting — common for non-lead investors.
Protective Provisions Ch 26: Consent rights over material corporate actions (issue new senior security, sell, dissolve, change board).
Drag-Along Ch 26: Right that lets a majority force minority holders to join in a sale — clears the path to an exit.
Tag-Along Ch 26: Right that lets minority holders join a sale on the same terms as a controlling holder. Anti-freeze-out protection.
ROFR Ch 26: Right of First Refusal — the right to match a transfer of shares to a third party.
Fiduciary Duty Ch 25: Directors' obligations to act in the corporation's best interests: duty of care, duty of loyalty, and Revlon duties in a sale.

Diligence and Process

CIM Ch 14: Confidential Information Memorandum — the sell-side marketing document that describes the company, market, and financials.
NDA Ch 19: Non-Disclosure Agreement — required before a CIM or data room is shared.
Data Room Ch 19: A secured online repository of diligence documents, organized by workstream.
LOI Ch 21: Letter of Intent — non-binding (mostly) indication of price and key terms, often paired with exclusivity.
Reps and Warranties Ch 19: Statements of fact about the company in the purchase agreement, with indemnification if proven false.
Earn-Out Ch 30: Contingent purchase price tied to post-close performance, used to bridge valuation gaps.

Exit and Liquidity

Strategic Acquirer Ch 30: An operating company buying for synergies and capabilities — often the highest-priced exit.
Sponsor-to-Sponsor (S2S) Ch 30: Sale of a portfolio company from one PE firm to another. The dominant exit route in many vintages.
IPO Ch 31: Initial Public Offering — listing the company's shares on a public exchange.
Lockup Ch 31: Post-IPO period (typically 180 days) during which insiders agree not to sell. Its expiry is a known supply event.
LP-Led Secondary Ch 32: An LP selling its fund interest to another investor, allowing early liquidity at a market-clearing price (often a discount to NAV).
GP-Led Secondary Ch 33: A GP-initiated transaction — most commonly a continuation vehicle — that extends hold on selected assets.
Continuation Vehicle (CV) Ch 33: A new fund structure formed by the existing GP to acquire one or a few assets from the prior fund, with new LP capital and reset economics.

Macro and Market

Vintage Year Ch 35: The calendar year in which a fund holds its first close. The key cohort dimension for benchmarking.
Dry Powder Ch 35: Committed but uncalled capital across the industry — the supply side of deal pricing.
Denominator Effect Ch 35: When public market drawdowns inflate the relative weight of private holdings in an LP's portfolio, forcing PE selling or pacing changes.
Zombie Fund Ch 32: A fund past its term that cannot exit assets and continues collecting fees — a governance failure.
Mark-to-Market Ch 32: Carrying assets at fair value (ASC 820) rather than at cost. The accounting basis for NAV.

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