The bunch glossary

CLA (Convertible Loan Agreement)

A legal agreement outlining the terms under which a loan will be converted into equity in a company, typically during a future financing round.

Cap/Uncapped

A cap is a limit on the maximum valuation at which a convertible note will convert into equity, while uncapped means there is no limit.

Capital Call/Drawdown

A request by a fund manager for investors to transfer a portion of their committed capital to the fund for investment purposes.

Carried Interest (Carry)

The share of profits from an investment fund that is paid to the fund's manager, typically a percentage of the fund's total returns.

Catch-up

A waterfall provision that allocates most distributions to the GP after the preferred return is met.

Contributions

Capital invested by limited partners into a fund, typically in response to a capital call or drawdown request.

Discount (Rate/Price)

A reduction in the price of an asset or security, often used to incentivize early-stage investors by offering a lower price per share or a lower valuation during a future financing round.

Distributions

Payments made by a fund to its investors, typically resulting from realized gains on investments or income generated by portfolio companies.

Equalisation

A process that adjusts costs and returns so investors joining at different times participate on equal terms.

Fee Offsets

Reductions to management fees based on other income the GP receives related to the fund.

GP/Lead Commitment

The amount of personal capital that a general partner commits to invest in a private equity or venture capital fund.

Hurdle Rate

A minimum rate of return that must be achieved before a fund manager is entitled to a share of the profits.

Leveraged Buyout (LBO)

An acquisition strategy that uses significant borrowed money to purchase a company.

Liquidation Preference

The priority of payment in the event of a sale or liquidation of a company, often granted to preferred stockholders over common stockholders.

Liquidity

The ability to convert an investment into cash or cash equivalents with minimal impact on the market price.

Management Fee

The fee paid to a private equity or venture capital fund's management company for managing the fund's investments, typically calculated as a percentage of the fund's assets under management.

Over Commitment

A strategy where investors commit more capital to funds than they could fund at once, assuming calls will be staggered over time.

Preferred Return

The minimum return investors must receive before a fund manager can earn performance fees.

Pro-Rata Rights

The right of an investor to maintain their proportional ownership stake in a company during subsequent funding rounds.

Right of First Refusal

The right of a party to purchase a certain asset or investment opportunity before it is offered to other parties.

Round

A stage in the funding process of a private equity or venture capital investment, typically characterized by a specific amount of capital raised or a specific set of investment terms.

Total Commitment

The total amount of capital committed by investors to a private equity or venture capital fund.

Uncapped/Cap

Refers to the presence or absence of a cap on the potential returns of an investment or fund.