Private Equity Glossary: Common Terms Explained

Private Equity Glossary: Common Terms Explained

The world of private equity and equity crowdfunding can be a confusing one, with a lot of jargon and terminology that may not be familiar to everyone. To help you navigate this landscape, we’ve put together a private equity glossary of some of the most commonly used terms in the industry, along with explanations of what they mean.

1. Private Equity: Private equity refers to investment capital that is not publicly traded. It is typically provided by institutional investors or high-net-worth individuals and is used to acquire or invest in private companies.
2. Equity Crowdfunding: Equity crowdfunding is a way for startups and small businesses to raise capital by selling shares of their company to a large number of investors through an online platform.
3. LBO (Leveraged Buyout): An LBO is a type of private equity transaction in which a company is acquired using a significant amount of debt, with the goal of generating a high return on investment.
4. PE Firm (Private Equity Firm): A PE firm is a company that specializes in making private equity investments. They manage money on behalf of institutional investors, pension funds, and wealthy individuals.
5. Portfolio Company: A portfolio company is a company that is owned by a private equity firm.
6. Exit: An exit is the point at which a private equity firm or venture capitalist sells their stake in a portfolio company. This can be through a sale of the company, an initial public offering, or a merger or acquisition.
7. IRR (Internal Rate of Return): IRR is a measure of the profitability of a private equity investment, calculated as the annualized rate of return on the invested capital.
8. Valuation: Valuation is the process of determining the worth of a company or asset. In private equity, valuations are used to determine the purchase price of a company or the value of a portfolio company.
9. GP (General Partner): A GP is a managing partner of a private equity firm. They are responsible for making investment decisions and managing the firm’s portfolio companies.
10. LP (Limited Partner): An LP is an investor in a private equity fund. They provide the capital for the fund’s investments and share in the profits, but do not have a say in the investment decisions.

This is just a small sample of the many terms used in private equity and equity crowdfunding. But with this glossary in hand, you should have a better understanding of the basics of the industry.