PE Ecosystem and General Glossary

Question 1

What is meant by an incubator?

Answer 1

Organisation that provides start ups with space and resources to get started. Provide limited cash but mainly mentorship and networks and help finding strategic partners and investors

Question 2

What is bootstrapping

Answer 2

Funding a startup with your own resources.

Question 3

What is an angel investor?

Answer 3

1. Usually HNWI who are successful entrepreneurs who invest in early stage companies
2. Use their own funds and invest around 250k to 500k for a substantial amount of equity

Question 4

What is Venture Capital

Answer 4

o Minority investment in high growth early stage companies
o Post revenue but pre profit or positive cash flow
o High risk and high return but many companies fail

Question 5

What is growth equity

Answer 5

o PE firms make minority or majority investment in an earlier stage compane
o Transforms less mature companies into market leaders based on innovative business model or technology

Question 6

• What is Mezzanine Finance?

Answer 6

o Provided by specialist funds focusing on junior/subordinated debt yielding 15%, often with an equity kicker in the form of warrants
o Used to fill gaps when senior debt is not being offered to the extent the lead PE firm investor wants

Question 7

• What is a family Office?

Answer 7

o Investment firm established by wealthy family to professionally manage their assets and investments of the family

Question 8

• What is a strategic investor?

Answer 8

o An established company that makes investments in early stage companies to gain access to new technology or business model. Come in in place of a VC. Usually a JV or ultimately acquisition of the company

Question 9

• What is corporate VC

Answer 9

o Established companies that make investmesn either opportunistically or as part of a formal programme targeted at early stage businesses with innovative technology.

Question 10

• What is crowdfunding

Answer 10

o Raising capital from nonprofessional investors to fund a startup/ prototype development etc.

Question 11

• What is a generic LBO?

Answer 11

o A deal funded largely by debt. Usually in a more mature company

Question 12

• What is a corporate carve out?

Answer 12

o The sale of a non core division or non core asser to a strategic or financial buyer such as a PE firm

Question 13

• What is a MBO ?

Answer 13

o Led by existing management from parent with the help of a PE firm.
o Management know the company well and get a slice of ownership and look to make a good return from equity

Question 14

• What is a MBI?

Answer 14

o Management Buy In. This is where a external management team buy out an existing business. This is higher risk than an MBO as management do not know the company well so do not know where the skeletons really are until the business has been bought

Question 15

• What is a BIMBO?

Answer 15

o This is a combination of an MBO and MBI where an external senior executive comes in and joins with existing management to buy existing business

Question 16

• What is middle market buyouts?

Answer 16

o Buyouts of middle market companies (25m – 1bn revenues)

Question 17

• What is a JAMBOG

Answer 17

o Middle market buyout firm that has failed to differentiate it from every other MM buyout fund

Question 18

• What is a secondary buyout?

Answer 18

o Company that is already funded by a PE investor is sold to another PE firm rather than a strategic or trade purchaser.
o Provides direct liquidity for the seller without having to go through a complicated IPO or trade sale

Question 19

• What is a direct Secondary Transaction?

Answer 19

o When a stockholder in the company sells stake to another LP or PE firm

Question 20

• What is an LP Secondary?

Answer 20

o When a LP sells Limited interest to another investor

Question 21

• What is a synthetic secondary?

Answer 21

o When an LP sells its economic interest (and liabilities) without transferring legal ownership of the fund structure?
o WHY would you ever do this

Question 22

• What is a club deal?

Answer 22

o When two PE firms team up to invest in the company

Question 23

• What are the reasons Club deals happen?

Answer 23

o One firm does not have enough capital

o Two firms of complementary skills e.g. in a turnaround or a specific sector

Question 24

• What is a PIPE?

Answer 24

o This is a private investment in a public equity
o The investment instrument is not quoted and structured to deliver a PE level investment return.
o Allows company to raise funds without going back to the market. Uniquely structured

Question 25

• What is a roll up or buy and build strategy?

Answer 25

o Buy a platform company and then make a series of acquisitions of competitors with the aim of achieving market leadership or higher exit value/return from economies of scale

Question 26

• What are the usual revenue thresholds to categorise small, mid market and large cap companies?

Answer 26

o Small - < 150m of revenue
o Mid market > 150m of revenue
o Larges > 1bn of revenue

Question 27

• What are the types of deals that PE pursue?

Answer 27

o Trade Carve Outs – Acquisition of a non-core sub or division and it is usually achieved via an LBO
o Buy and build – Growth equity where PE acquires a platform business and buys bolt on acquisition to scale up and grow using a combination of equity and debt
o Public to Private transactions – PE firms usually take 100% of the firm leaving a slither for management as incentive in order to have full control to grow business
o MBO/MBI deals – Help internal or external management take over a business with PE capital firepower. Usually when a founder wants out.

Question 28

Explain a Trade Carve Out deal

Answer 28

Acquisition of a non-core sub or division and it is usually achieved via an LBO

Question 29

Explain a buy and build strategy

Answer 29

Growth equity where PE acquires a platform business and buys bolt on acquisition to scale up and grow using a combination of equity and debt

Question 30

Explain a public to private transaction

Answer 30

PE firms usually take 100% of the firm leaving a slither for management as incentive in order to have full control to grow business

Question 31

Explain MBO/MBI deals

Answer 31

Help internal or external management take over a business with PE capital firepower. Usually when a founder wants out.

Question 32

• What are the key differences between PE and VC

Answer 32

o DEAL STAGE – The maturity of a business. A good way to think about it is whether the business has a 2-3 year track record of positive EBITDA. If so then it belongs in PE.