Private Markets Glossary

Private Markets Glossary ​

As start-ups become agents of change; companies stay private longer and the VC/PE industry raises record funds, the global private markets ecosystem is more important than ever.

To help you navigate the market and capture the opportunity our glossary explains the most common terms relating to the debt, equity and hybrid funding of private companies.
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An organization that helps early-stage companies improve their product, growth and investability via a fixed-term program that includes education and mentorship from industry experts. May culminate is a pitch event for cash or an equity investment by the accelerator.


Accredited Investors

Investors who are considered sophisticated by the regulator, often measured by asset size and experience.


Active Investors

Investors who are active in the trading of a company’s securities, as opposed to passive. Historically the domain on listed companies, improved liquidity for private companies creates new opportunities for active management.


Angel Investor (Business Angel)

An individual who provides capital to start-ups. Angel investors are rarely involved in the daily management of the company but often add value through capital, network and expertise.


Asset-Backed Lending (ABL)

Any loan that is secured by an asset. If the debt is not repaid, the asset is repossessed by the loan provider. Common assets include accounts receivable, inventory, equipment, and real estate.  


Asset Classes

A group of financial instruments that have similar characteristics and/or marketplace behaviors. Examples include equity, fixed income, real estate, commodities and cash.


Assets Under Management (AUM)

The combined market value of the assets controlled by an asset manager (private equity firm, investment fund, depository institution, etc) on behalf of clients.

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Balanced Fund

A venture capital fund that focuses investments across a range of assets. These funds tend to be more conservative investments.



Standard performance metrics for measuring success versus an index, peer group or target. Investors use company benchmarks to help make investment decisions. Benchmarks can also be used to measure the performance of a fund or investment manager. 


Blind Pool

A direct participation program or limited partnership without a specific, stated investment goal. These pools typically raise money through an individual’s name recognition or a firm’s past performance. The GP usually has the flexibility to make a wide range of investments.


Bridge Loan

Short-term debt financing that provides immediate liquidity to meet obligations or make acquisitions until a longer-term debt or equity investment can be secured.



The purchase of a controlling (majority) share of a company’s equity.


Buyout Fund

A fund that uses money from wealthy investors to acquire the controlling interest in established companies.

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Capital Call

When a fund manager in private equity calls or demands committed capital from limited partners. After the call, the capital contribution is typically due within 10 business days.  


Capital Gain

When a capital asset is sold at a higher price than its purchase price. The gain is typically the realized amount minus the price of the initial investment.


Capital Under Management

The capital available to management for investments. 


Carried Interest

The share of the profits paid to the general partner regardless of investment contributions. This fee encourages enhanced performance.


Cash Burn Rate

The rate at which a company expends capital to finance activities. This measure of negative cash flow is typically expressed in months and helps start-ups calculate their runway.



A provision in which limited partners commit to paying back distributions to pay for any legal judgment imposed on the fund if the fund lacks the assets to make the payment. This requirement comes with limitations and does not usually exceed the LP’s committed capital.


Closed Fund

A fund that is no longer taking commitments from limited partners and is ready to start investing.



The final event that completes an investment, when documents are signed, funds transferred, and ownership legalized.



When one or limited partners make a direct investment into a company alongside a VC/PE fund. This allows LP to invest without incurring the fees charged by the fund.


Co-Sale Rights 

A contractual obligation that grants minority shareholders the right to join a sale if a major shareholder sells their stake. Also called “tag-along” rights. 



A limited partner’s obligation to provide a fund with the amount of capital subscribed.


Convertible Debt [Convertible Note]

Debt that automatically converts into equity at a specific date or valuation. Popular among start-ups, discounts and valuation caps encourage early investing.


Corporate Venturing

When a large company takes a minority position in a small but promising company in a related field. The goal is to benefit from the smaller company’s growth and innovation. Also called Corporate Venture Capital (CVC).



A condition in debt finance that requires the borrower to fulfil certain requirements, such as performance targets and monthly reporting, or to refrain from certain activities such as wholesale change that might disadvantage investors.


Credit Rating Agency

A professional service provider specialised in the analysis of risk, such as the creditworthiness of a company or bond issue. An independent rating by such an agency may be required by investors and can help a company achieve better pricing on primary issues and liquidity in secondary trading.



An assessment of the ability and willingness of a borrower to repay their debt obligations. Assessment is based on qualitative factors such as leverage, interest cover, cash flow, etc plus qualitative factors such as credit history. The credit rating will determine what repayment profile, returns and security an investor will require. Companies with strong ratings generally received with lower borrowing costs.



The practice of funding ventures by raising small amounts of equity or debt from a large number of investors, often through a digital platform.



A bank or professional service provider that safeguards financial assets for companies and their investors to minimize the risk of theft or loss. In addition to protecting assets, custodians usually offer additional services such as account admin, payment collection, transaction settlement, and tax support.

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Data Room

A virtual space used to store and secure digital information. Typically, data rooms are used to facilitate the sharing of information for investment due diligence.


Debt Finance

Capital for expansion, acquisition or working capital in the form of instruments such as loans, bonds, bills, notes and securitization. Debt can be listed or private placement, secured or unsecured, subordinated or unsubordinated. Lenders can be institutional or individuals who become creditors and receive principal plus interest on the debt. Debt is attractive where it has a lower cost of capital than equity and is tax deductible.



When a new financing round occurs and new shares are issued, existing investors will experience a reduction in their ownership percentage if they are excluded from the new round. These investors can also experience a valuation reduction if the new round is priced below the previous round.



All cash, shares, or securities returned to limited partners by the fund.


Distribution Waterfall

The order in which payments are allocated to limited partners and general partners during cash distributions.



Distributions made by a company to its shareholders. Dividends are typically cash payments but can also be paid in additional company stock. Dividends are either mandatory or given at the discretion of the company’s board.


Drag-Along Rights

Rights that enable a shareholder to force other shareholders to participate in the sale of the company.



When a VC/PE firm raises money for a fund at an early stage but agrees to refrain from making any capital calls to limited partners until it actually starts investing in the fund.


Dry Powder

For VC/PE funds, dry powder refers to the cash reserves on hand for future investments or to cover obligations. Assets that can be liquidated quickly can also be considered dry powder.


Due Diligence (DD)

The process used by investors to investigate the risk and potential of an investment. This includes evaluating a company’s operations, management, performance benchmarks and material facts of the company and investment terms.

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Early-Stage Company

Describes a recently founded company that is still developing its initial products/services or a financing round for such a company.


Early-Stage Fund 

A VC fund that focuses on investing in early-stage companies.


Enterprise Value (EV)

The total value of a company, including the fully-diluted market capitalization and net debt. The sum of all claims by all claimants.  


Equity Finance

Capital raised by issuing common or preferred shares/stock. Investors become shareholders and may receive dividends (and interest if appropriate). Shareholder rights are protected by corporate governance.


Evergreen Fund

A fund that never closes to ensure consistent cash flows. These open-ended funds can recycle realized returns.



When an investor decides to sell all or a significant portion of their stake in a company for cash, debt, or shares of a different company. At this point, the investor will realize a profit or a loss.


Exit Strategy

The way in which a VC/PE fund or business owner plans to sell their share in an investment. Exit strategies typically lead to a liquidity event in which the shareholder can make a substantial profit if the investment is successful.

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Family Office

A private entity established to manage the assets and investments of a wealthy family or individual.


FFF Round

FFF stands for Friends, Family and Fools. This is a source of funding for start-ups when the founder needs to lean on personal relationships for initial funds. The “fools” part is for alliteration.


Final Close

A threshold has been reached and the general partner stops fundraising. New LPs can no longer join the specific fund.


Final Return

The return owed to limited partners when the fund is liquidated, after all capital has been returned to LPs.


Financing Round

Any time a company raises money in a structured manner, usually with a target number of shares at a desired price per share. Companies will go through multiple rounds from Seed and Series A to Exit. The round is closed when the money is raised.


First-Round financing

The first investment(s) made in a company by outside investors.


Follow-On Investment

When a VC or PE investor joins a subsequent round of financing after making an initial investment in the company.


Follow-on Offering (FPO)

An issuance of stock shares that follows an initial public offering (IPO). An FPO is either diluted or non-diluted. A diluted FPO lowers a company’s earnings per share (EPS) as it issues new shares. A non-diluted FPO uses existing shares and does not affect the EPS.


Fund of Funds (FOF)

A mutual fund that invests in other funds rather than making direct investments in companies, bonds, or other securities.

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General Partner (GP)

The entity that manages a private equity firm. Unlike limited partners, general partners execute and operate investments and have full liability. GPs are typically paid using a “2 and 20” structure, referring to the 2% management fee and the 20% of profits above the agreed threshold (hurdle rate).


General Partner Commitment

The amount of invested capital expected from the general partner. This aligns interests and builds confidence as the limited partners know that the general partner has a vested interest in the performance of the fund.


Generalist Fund 

A fund with wide-ranging investment activity across sectors and development stages. Experienced generalists can move in and out of different types of investments, which is often not possible for a specialist. 


GP Catch Up

A provision in a partnership that allows the general partner to receive all, or most, of the remaining profits until the GP receives the full carry amount. This occurs after the LPs have received their preferred return and allows the GP to “catch up.”


GP Claw-back

A provision that allows the funds to take back excess funds from the general partner if the GP has received too much carry over the fund’s lifecycle. The reimbursed amount is “clawed back.”

Ground Floor

The beginning or first stage of a new venture or potential investment. 


Gross Return

Returns from investments before deducting expenses, carried interest, and management fees. Gross returns contrast with net returns, which are the returns that LPs receive from the fund after deductions.


Growth Equity

Growth equity is an investment in relatively mature companies that are going through some transformational event in their lifecycle with potential for some dramatic growth. Funds and Corporate Venturers that invest in growth equity are referred to as growth equity funds/firms.


Growth Fund 

PE funds that invest in relatively mature companies that need funds to expand or restructure (growth equity).

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An organization that fosters early-stage companies through the use of resources, expertise, mentorship, and access to capital. Incubators help growing companies until they are capable of succeeding on their own. Incubators may take a fee or equity option in their portfolio.


Initial Public Offering (IPO)

The process by which a private company offers shares for sale to the public for the first time on a stock exchange. Usually, this is a younger company that wants to raise capital. The shares will vary in price and be traded if liquid.


Institutional Investor

A financial organization that invests in others. Institutional investors such as insurance companies, pension funds, and mutual funds make up a large portion of private equity limited partners.


Internal Rate of Return (IRR)

The interest rate that makes all present cash flows equal to zero. Simply, IRR is the return a company realizes when they invest in themselves instead of externally.



The attractiveness of an investment to investors based on qualities that are likely to reduce risk and maximize value. For example, good corporate governance increases the investability of companies. 


Investment Banks

An intermediary between an issuer of debt or equity and the investors. Investment banks value, underwrite, facilitate mergers and acquisitions, help with the IPOs and other corporate finance topics.


Investor Relations

The process of keeping debt and equity investors informed about company performance and key events. Helps investors make informed decisions about providing further support or compliance with deal terms. IR is a key element of good corporate governance.

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The tendency for a private equity fund to experience negative returns in its initial years and then post increasingly positive returns as the fund matures. This forms a “J-curve” pattern when charted.

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Later-Stage fund

A venture capital fund that primarily invests in companies that have grown beyond the start-up phase and have proven sales or significant growth potential.


Lead Investor

The investor who provides initial venture capital and anchors early financing rounds. The lead investor typically invests at least 10-15% of the round and often has the highest share of equity. Other investors have confidence in an investment if they trust the lead investor’s due diligence.



Investing borrowed capital to expand assets and amplify returns. Investors use debt to maximize buying power while companies often use debt as it has a cheaper cost of capital than equity.


Leveraged Buy-Out (LBO)

The use of borrowed capital to buy a company. In private equity, firms typically use their own assets as collateral to pay for a large portion (70-80%) of the purchase price.


Limited Partner (LP)

An investor in a VC/PE fund who is not typically engaged in the day-to-day management of the investment, which is the role of the General Partner (GP). LPs have limited liability, meaning their personal assets can’t typically be used to settle the fund’s debts. 


Limited Partnership

The legal structure used to form a VC/PE fund. Limited Partnerships have at least two partners, the general partner (unlimited liability) and the limited partner (limited liability).


Limited Partnership Agreement (LPA)

The written, founding document of a limited partnership that defines the authority of the general partner, the rights of limited partners, and the key terms of the agreement.



The process in which a company’s operations and business activity are brought to an end. The term can also refer to the sale of a company in the context of venture capital financing.


Liquidation Preference

A clause that is common in venture capital contracts that directs the payout order during a corporate liquidation event. Preferred stockholders will usually receive their money, sometimes at a multiple, before common stockholders.


Liquidation Waterfall

The allocation of payments made to stockholders after a company sale or other liquidation events, based on liquidation preference.


Liquidity Event

A merger, acquisition, IPO, exit or other event where a shareholder realizes (liquidates) its investment. Can also be applied to debt financing in relation to a repayment or refinancing.


Lock-up Period

The pre-determined period of time which company shareholders must wait before they can sell or redeem their shares after an initial public offering (IPO). The purpose of this lock-up period is to prevent volatility after the IPO.

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Management Buy-In (MBI)

The purchase of a company by an outside team of managers with financial backing from PE funds and banks that will replace or succeed existing management. This can occur when a company appears to be undervalued but requires direction to succeed.


Management Buy-Out (MBO)

When the operating manager or management team purchases the business or assets that they currently manage. Normally requires private equity and debt finance alongside a personal commitment. Managers become owners instead of employees and have greater control and potentially greater rewards as a result.


Master Limited Partnership

A publicly traded limited partnership. MLPs enjoy both the tax benefits of a private partnership and the liquidity of a publicly traded entity.


Mezzanine Fund 

A fund that provides mezzanine investment, generally to facilitate the financing of buyouts.


Mezzanine Investment

A round of financing between senior and subordinated debt that commonly includes convertible equity instruments known as warrants.


Mezzanine Level

Describes a company at a stage between start-up and Initial Public Offering. Committed capital at this level is riskier and potentially more rewarding than investing in an IPO, but typically has less risk and potential reward than start-up investing.

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Negative Pledge

An undertaking by a borrower not to create, pledge or subordinate certain of its assets without the prior consent of the lender. See also Covenant.


Net Asset Value (NAV)

The total value of a funds assets minus the total value of its liabilities. Companies may refer to this as net worth.


Net Return

The returns a fund receives from its investments after deducting expenses, management fees, and the carried interest paid to the general partner. Net returns are the returns realized by limited partners.

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Paid-in Capital

The full amount of cash or other assets that has been transferred from the limited partner to the general partner.


Pari Passu

“Equal footing” – describes situations where two or more assets, creditors, securities, or obligations are managed equally, without preference.


Passive Investors

Investors that attempt to generate returns that mirror the returns of a predetermined benchmark. Passive investors tend to be less attentive to firm-specific performance and governance issues.


Payment-in-Kind (PIK)

Payment made to investors with equity or securities instead of cash. PIK financing tends to be high risk, high reward and appeals to private equity investors with a relatively high risk tolerance.



A presentation performed with the intention of convincing an investor to invest in a company. 


Portfolio Company

One entity that a VC/PE firm invests in. The portfolio is the entire range of companies that the firm invests in and each company is a portfolio company.


Post-money Valuation

The value of a company after a round of financing. This includes the pre-money valuation plus any new capital.


Pre-money Valuation

The value of a company prior to an investment.


Preferred Return

A minimum annual return that limited partners receive before the general partner receives any carried interest.


Preferred Stock

A type of equity that has a priority position over common stock for dividends or asset distribution. Preferred stockholders typically have no or limited voting rights in corporate governance.


Primary Offering

When a private company first issues its stock for public sale, typically to raise capital.


Private Debt

Debt investments in companies by banks and funds that are not publicly traded.


Private Equity (PE)

Equity investments in companies by business angels, family offices, CVC, VC and PE funds that are not publicly traded. Generally, these are illiquid and long-term investments.


Private Limited Partnership

A limited partnership with no more than 35 general and limited partners. These partnerships are deemed illiquid enough to not require SEC registration.


Private Placement

A funding round of debt or equity that is privately held instead of listed and traded on a public exchange.


Pro Rata

“In proportion” – In VC/PE, the right, but not the obligation, of an investor to participate in future financing rounds so they can avoid dilution and keep their percentage ownership stake in the company.


Public Market Equivalent (PME)

The measures used to compare the performance of private equity to the public market by applying PE cash flows to hypothetical investments in the stock market index.

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Raising capital

Obtaining money from investors via a financing round.



A technique for acquisition used in private equity. The technique rebalances a company’s mixture of equity and debt and can relieve the owner of personal guarantees and/or help defend against a hostile takeover.



Capital that funds set aside for future investments in a company after an initial investment. In venture capital, funds often reserve an amount equal to the initial investment to maintain proportionate shares during future financing rounds.


Residual Value (RV)

The market value of the remaining equity in a fund. This is the net value of the fund’s assets after subtracting the fund’s liabilities.


Revolving Credit

A type of credit without a fixed number of payments that allows the borrower to drawdown and repay irregularly with an agreed limit. Companies typically use for working capital purposes.


The inherent uncertainty and variability surrounding outcomes and the measurable likelihood of loss or underperformance. The lack of liquidity in private company shares may be considered a risk by certain investors but can be mitigated with good corporate governance.


Risk Capital

Funds allocated for investments that are typically high-risk, high reward. Venture capital that funds a promising start-up is risk capital. 

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Second Stage Capital

The capital provided to a company to meet its need for increased marking and working capital. These companies have started operations but don’t have the cash flows needed to continue growing.


Secondary Public Offering

Sales of shares after the initial public offering (IPO). If the issuer creates new shares, this is a dilutive offering. If a stockholder sells shares, this is considered non-dilutive.


Secondary Purchase

A purchase of company stock from one of its shareholders rather than a direct purchase from the issuing company.



A debt structure that allows issuers to accelerate cashflow on an underlying asset. Typically, a company will securitize its future trade receivables and an investor will sell loan receivables (CDOs for example). Requires a special purpose vehicle (SPV) to be established, the receivables converted into a security and sold to third-party investors. Credit and liquidity support many be required.

Seed Capital

The money required to begin developing an idea for a new business or product. The funding comes from private investors in exchange for equity in the company or a share of potential profits. Typically, this only covers the early costs for proof of concept (POC) and will require additional funding for the start-up phase. 


Seed Stage

The financing required between concept and Series A, when entrepreneurs pitch investors to fund their new business idea.


Series A

A company’s first substantial round of private equity financing. Series A financing follows Seed and takes place after a company has demonstrated a viable business model. Followed by subsequent rounds B, C, etc until Exit.



A shareholder (also called a stockholder) is a private individual, company, fund or financial institution that owns shares in a company.

Shareholders essentially own the company and seek dividends and share price appreciation in return for their invested capital.

Shareholders can be passive or, in the case of private companies, more active such as being elected onto the board of directors, seeking monthly updates, etc.

There are two types of shareholders. Common shareholders have the right to vote on matters concerning the company at annual and extraordinary general meetings. They rely on corporate governance structures to ensure the company operates correctly but have the right to file law-suits in the event of wrongdoing. Preferred shareholders are rarer and typically have no voting rights but are entitled to a fixed dividend which is paid before common shareholders.

In the event of liquidation shareholders are not responsible for liabilities but will receive payment only after other creditors.


Shareholder Agreement

A legal agreement between shareholders that outlines how the company should be run and describes the shareholders’ rights and obligations. A shareholder agreement often supplements the company’s constitutional documents and is typically a private document.


Silent Partner

An individual in a partnership who contributes capital to a business but rarely gets involved in the company’s daily operations or management meetings.


Sovereign Wealth Fund

A state-owned investment fund that invests in asset classes such as private equity, stocks, fixed income, real estate, commodities and funds.


Special Purpose Vehicle (SPV)

An entity which is created to have a separate legal status and financing. Often used to ringfence assets, such as a holding company in securitization or preventing bankruptcy in one operation affecting the parent company and its investors.



A company in its early stage of development, usually undertaken by an entrepreneur to create and scale a business model. As a verb, the act of setting such a business or project in motion.


Step-up Multiple

The increase in a company’s valuation between financing rounds, calculated by dividing the pre-money valuation of the current round by the post-money valuation of the previous round.


Subordinated Debt

A bond or loan that ranks below senior debt in the event of default. This debt will not be paid until senior creditors are paid in full e.g. not pari passu.



When a group of VC/PE firms each contribute a portion of the amount needed to fund a company.  Also occurs among lenders in debt financing.

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Tag-Along Rights

Rights that enable a minority shareholder to participate in the sale of shares by a majority shareholder to a third party on the same terms.



When a buyout fund acquires a public company and it is delisted from a stock exchange.


Term Sheet

A written, non-binding agreement that describes the key terms and conditions related to an investment. This is a first step between a VC/PE firm or lender and the company, and provides a template for more formal, legally binding documentation.


Third Stage Capital

Enterprise capital provided to support continued expansion and development after production and baseline marketing are already operational.


Total Shareholder Return (TSR)

The total return from a company to a shareholder over a defined period based on dividends paid and appreciation of the share price.


Total Value to Paid In (TVPI)

The current value of a fund’s remaining investments plus the value of all distributions relative to the capital paid into the fund by limited partners.


Trade Sale 

A common exit strategy in private equity in which shares are sold to industry investors, which often facilitates faster due diligence and closing.



Tranches are segments created from larger pools of securities (typically debt) that are grouped by different characteristics, such as risk, that can be marketed to a wide range of investors seeking different opportunities.


Transaction Fees

The amount charged by private equity firms for company acquisition(s).



An uptrend reversal after a company experiences a period of poor performance.

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A start-up or otherwise risky enterprise company, often with high growth potential to match the high risk.  


Venture Capital (VC)

The money and resources (including expertise) made available to start-ups and other emergent businesses with significant growth potential. Most of this capital comes from business angels, CVC or VC funds.


Venture Capital Firm

The investment management company with the role of general partner that invests money from wealthy individuals and institutional investors in the private equity of start-ups and other emergent opportunities.


Venture Capital Fund

The legal entity venture capital firms create to pool investor money and invest in companies with growth potential. The structure, investment targets, governance and other key data about the fund will be contained in a prospectus. Limited partners supply the fund with most of its money and the general partner manages the fund.


Venture Capitalist

An equity investor that provides capital to start-ups or small companies. Typically, these companies have high growth potential but lack access to funding. 


Venture Debt

A type of debt financing for early and growth stage companies that either need increased flexibility or lack the immediate cash flow for traditional forms of financing. This is typically senior debt that includes warrants.



A legal term that describes when a payment, asset, or other benefit becomes an unconditional right. Commonly occurs when employees have share options in a company.


Vintage Year

The year in which a fund started investing, specifically when the fund first deployed capital to a portfolio company or project.


Vulture Capitalist

Slang for an investor who seeks to acquire distressed or dying companies with the goal of making a profit in a quick turnaround by any means necessary.

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Warehouse Line

A short-term, revolving credit used to bridge short-term funding requirements. Examples include using the line to close a transaction before syndicating the funding or selling in the secondary markets.


A security that grants the holder the option to purchase shares in a company at a specified price for a period of time. Warrants are often used to incentivize company staff to stay and perform.


Weighted Average Cost of Capital (WACC)

The calculation of a company’s average funding cost based on a proportionate weighting of debt and equity instruments. Often used by companies when fundraising e.g. try to reduce the WACC as this improves risk profile and valuation. Often used by investors as a benchmark for calculating returns and future cash flow analysis (DCF).


Working Capital

The operating liquidity required by a company for its day-to-day operations, usually funded by debt such as overdraft or revolving credit.



An accounting action that reduces a portfolio company’s value to zero or a nominal amount. This represents a total loss of invested capital.

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Last updated: 10 th September 2021

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