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Private equity glossary28/06/2006. Source: Center for Private Equity and Intrepreneurship, Tuck School of Business at Dartmouth. Professor Colin Blaydon and Adjunct Associate Professor Fred Wainwright 
 For those new to the discipline, the Center for Private Equity and Entrepreneurship at the Tuck School of Business at Dartmouth have provided their private equity glossary for download.
Accredited investor - a person or legal entity, such as a company or trust fund, that meets certain net worth and income qualifications and is considered to be sufficiently sophisticated to make investment decisions in complex situations. Regulation D of the Securities Act of 1933 exempts accredited investors from protection under the Securities Act. Typical qualifications for a person are: $1 million net worth and annual income exceeding $200,000 individually or $300,000 with a spouse. Directors and executive officers are considered to be accredited investors.
After-tax operating income - see Net operating profit after taxes.
Alternative asset class - a class of investments that includes private equity, real estate, and oil and gas, but excludes publicly traded securities. Pension plans, college endowments and other relatively large institutional investors typically allocate a certain percentage of their investments to alternative assets with an objective to diversify their portfolios.
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 - 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 to other entities. The mechanism for making adjustments is called a Ratchet.
"B" round - a financing event whereby professional investors such as venture capitalists are sufficiently interested in a company to provide additional funds after the "A" round of financing. Subsequent rounds are called "C", "D" and so on.
Balloon payment - a relatively large principal payment due at a specific time as required by a lender.
Basis point ("bp") - one one-hundredth (1/100) of a percentage unit. For example, 50 basis points equals one half of one percent. Banks quote variable loan rates in terms of an index plus a margin and the margin is often described in basis points, such as LIBOR plus 400 basis points (or, as the experts say, "beeps").
Best efforts offering - a commitment by a syndicate of investment banks to use best efforts to ensure the sale to investors of a company's offering of securities. In a best efforts offering, the syndicate avoids any firm commitment for a specific number of shares or bonds.
Beta - a measure of volatility of a public stock relative to an index or a composite of all stocks in a market or geographical region. A beta of more than one indicates the stock has higher volatility than the index (or composite) and a beta of one indicates volatility equivalent to the index (or composite). For example, the price of a stock with a beta of 1.5 will change by 1.5% if the index value changes by 1%. Typically, the S&P500 index is used in calculating the beta of a stock.
Beta Product - a product that is being tested by potential customers prior to being formally launched into the marketplace.
Blow-out round - see Cram-down round.
Board of directors - a group of individuals, typically composed of managers, investors and experts, which have a fiduciary responsibility for the well being and proper guidance of a corporation. The board is elected by the shareholders.
Boat anchor - a person, project or activity that hinders the growth of a company.
Book - see Private placement memorandum.
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Source: Center for Private Equity and Entrepreneurship, Tuck School of Business at Dartmouth. http://mba.tuck.dartmouth.edu/pecenter
Profile: The Center's mission is to generate fundamental and insightful research, education, and training in the global private equity markets and among entrepreneurial managers. The Center produces reports, courses, and programs for practitioners, academics, the Tuck / Dartmouth community and the greater business community.
Authors: Professor Colin Blaydon and Adjunct Associate Professor Fred Wainwright of the Tuck School of Business at Dartmouth. Jesse Sherman T'05 provided assistance with the 2004 update. Copyright © 2001-2006 Trustees of Dartmouth College. All rights reserved.
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