"A" round
First financing event in which a private equity investors, generally an angel or venture capitalists, often invests hundreds of thousands or even millions of US dollars in an start-up company.
Accredited Investor
A person or entity which is able to make investments in private equity. Generally, people qualify by having $1 million in net worth and annual income exceeding $200,000 individually or $300,000 with a spouse. There are actually eight ways to qualify as an accredited investor according to rule 501 of Regulation D, which the US Securities and Exchange Commission created as a safe harbor for the Securities Act of 1933:
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Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
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Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
- Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
- Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
- Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000;
- Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
- Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and
- Any entity in which all of the equity owners are accredited investors.
Advisory Board
A group of individuals with expert knowledge in fields required by a company that meets regularly to offer advice on topics of interest to the management. An Advisory Board does not have the power of a Board of Directors to replacement management or change corporate bylaws, but also does not assume liability for its decisions.
Alpha
The portion of a portfolios investment return that is in excess of the benchmark index. Manager returns and benchmark returns are measured net of the risk-free rate. In addition, manager returns are adjusted for the risk of the manager's portfolio relative to the risk of the benchmark index. Alpha is generally considered to be the best measure of a portfolio manager’s skill.
Alternative Investments
A class of investments that includes private equity, real estate, oil and gas, and hedge funds but excludes publicly registered securities. Pension plans, college endowments, and other relatively large institutional investors typically allocate five to twenty percent of their investments to alternative assets with an objective to diversify their portfolios and increase their investment returns.
Angel
A wealthy individual that invests in companies in relatively early stages of development. Usually angels invest less than $1 million per startup. The typical angel-financed startup is in concept or product development phase.
Anti-Dilution Provisions
A contract clause that protects an investor from a substantial reduction in percentage ownership in a company due to the issuance by the company of additional shares. The mechanism for making adjustments is called a Ratchet.
Asset
Anything owned a that has a present or future value. A simple test for an asset is whether it can be exchanged for cash. Tangible assets can be touched and include land and buildings while intangible assets cannot be held and include such items as goodwill, patents and copyrights.
Asset allocation
The percentage breakdown of a portfolio on the basis of investment categories. These assets classes include registered and unregistered shares, regular way and convertible bonds, real estate, hedge funds, cash and overseas investments. Effective asset allocation maximizes returns while minimizing volatility.
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