Private investment are the most basic for of investment
All small businesses in North America are primarily structured as private companies
A private company is a company whose shares are not listed on a public stock market.
Examples of public stock ma
The Liquidation Preference section of the term sheet details the terms and mechanics of how
the preferences will work if a liquidation event takes place (including a merger or a sale)
For example: for a non-participating preferred
What is an LBO?
A leveraged buyout (or an LBO) is buying out a company with an above-average level of
When we speak of financial leverage, we refer to the level of debt in the capital structure that
is more than the conventional level
Layers of Debt
The LBO structure comprises the following sources of funds
Senior debt or first-lien secured debt such as a revolving credit facility and term loan facilities;
Mezzanine debt, ranked between traditional debt and equity;
Preferred shares are usually not commonplace among the publicly listed companies. Instead,
the security is used extensively in private companies
The following are various flavors of the preferred shares
Cumulative Preferred Shares
In the revenue phase, entrepreneurs typically have the goal of breaking-even from a cash flow
perspective as quickly as possible
Once the product is proven, a venture will ramp up sales
During the revenue phase, it is not unusual for a venture
The Venture Investment Model
The venture investment model is not a typical investment model followed in corporate finance.
The model is based on the concept of implied valuation
The venture investment is usually intended for a very long time horizon (mo
The limited partners require a certain rate of return for investing in the fund
This required rate of return is a function of the risk of investing in the fund as evidenced by
factors such as the liquidity of the fund, the riskiness of th
What is a Venture Capital Term Sheet?
A term sheet is a business document that outlines the major terms and conditions of an
agreement or an arrangement
While it is not necessarily legally binding, it guides the detailed legal document that is
What is a Tradable Security?
A financial instrument is a tradable asset of any kind, such as cash or evidence of an
ownership interest in an entity
A contractual right to receive, or deliver, cash or another financial instrument is also a financial