Data Room

A location where one or more parties can review information for due diligence purposes about a company.

DAX

A price-weighted index of the most heavily traded stocks on the Frankfurt Stock Exchange. See ‘Index.’

Deal Flow

The flow of investment opportunities available to a private equity house.

Dealer

Any individual or firm, other than a bank, that is engaged in the buying and selling of securities for itself.

Death Spiral Deal

A convertible security where the conversion price is tied to the market price (frequently at a fixed percentage discount) at the date of conversion. Also known as a ‘Toxic Convert.’

Debenture

A note or bond usually backed only by the general credit of a company, and not secured by specific property.

Debenture, Subordinated

See ‘Subordinated Debenture.’

Debt

A fixed obligation to pay money at a stated time.

Debt Capital

Capital raised through the issuance of bonds.

Debt Financing

Financing by selling bonds, notes, or other debt instruments.

Debt Ratio

Debt capital divided by total capital.

Debt Service

Cash required in a given period to pay interest and matured principal on outstanding debt.

Debt/Equity Ratio

A measure of a company’s leverage, calculated by dividing long-term debt by common shareholders’ equity.

Deemed Liquidation or Liquidity Event

Term used to describe trigger events for a liquidation preference. Usually defined to cover, among other things, a merger, acquisition, change of control or consolidation of the company, or a sale of all or most of its assets.

Default

Failure to discharge an obligation when due.

Defined Benefit Plans

A pension plan that promises a specified monthly benefit to be paid to the employee at retirement. See ‘Defined Contribution Plans.’

Defined Contribution Plan

(USA) A retirement plan in which the employer’s obligation is to make a definite contribution into the retirement plan and the employee bears the risk of investment performance by the plan. In the UK, such plans are known as ‘defined contribution pensions’ or ‘personal pensions.’ A defined contribution plan is the opposite of a defined benefit plan where the employer’s obligation is to make a definite payment to the retired employee and the employer bears the risk of investment performance by the retirement plan. In the UK, this is known as a defined benefit or final salary pension scheme.

Delisting

The removal of a company from listing on a stock exchange, either because the company no longer satisfies certain minimum financial or market capitalization standards or because the company violated one of the rules or regulations of the exchange.

Demand Registration Rights

(USA) The contractual right of a security holder to require an issuer to file a registration statement to register the holder’s securities so that the holder may sell them in the public market without restriction. See ‘Piggy-Back Registration Rights’ and ‘Registration Rights.’

Depository Receipt

Commonly known as ‘DRs,’ Depository Receipts are negotiable certificates that enable domestic investors to own shares in foreign companies. DRs are created when a broker purchases a non-UK company’s shares in the home stock market and delivers those shares to the depository’s local custodian bank. The custodian then instructs the depository bank to issue DRs to the investor. Each DR represents a given number of a company’s shares and can trade as freely as any other security in the UK. Several types of DRs can be listed and traded in London, including Global Depositary Receipts (GDRs) and American Depositary Receipts (ADRs) that are denominated in US dollars.

Depository Trust Company (DTC)

(USA) DTC is the world’s largest securities depository. It serves as a clearing house in the USA for the settlement of securities trades and performs securities custody-related services for its participating banks and broker-dealers. DTC is owned by members of the financial services industry and their representatives who are its users.

Derivative or Derivative Security

A financial instrument or security whose characteristics and value depend upon the characteristics and value of an underlying instrument or asset, typically a commodity, bond, equity, or currency. Examples include futures, options, and mortgage-backed securities.

Deutsche Borse

Deutsche Borse operates the Frankfurt Stock Exchange (FWB), the largest of the eight German stock exchanges.

Development Capital

See ‘Expansion Capital.’

Development Fund

Venture capital funds focused on investing in companies in need of expansion capital.

Diluted Earnings Per Share

See ‘Fully Diluted Earnings Per Share.’

Dilution

A decrease in the value of securities or percentage of equity ownership as the result of the issuing, or potential issuing, of additional securities.

Direct Public Offering

A public offering in which shares are sold directly to investors, rather than through an underwriter.

Directors & Officers Insurance

Professional liability coverage for legal expenses and liability to shareholders, creditors or others caused by actions or omissions by a director or officer of a company.

Disciplinary and Appeals Handbook

The Disciplinary and Appeals Handbook, as issued by the London Stock Exchange from time to time, setting out procedures for issuers in relation to appeals regarding the London Stock Exchange’s application and interpretation of Standards.

Disclosure Letter/Disclosure Schedule

A document disclosing exceptions to representations and warranties.

Discounted Cash Flow (DCF)

A method of assessing the value of an investment based on predicted cash flows discounted taking into account that a euro tomorrow is worth less than a euro today.

Discretionary Client

A client who gives an investment manager total authority to manage his assets.

Distribution

The sale of a block of securities to a number of investors. Often this is accomplished through a syndicate of investment banks or stockbrokers that buy the securities from the underwriter or underwriters and sell them on to their clients.

Distributions to Paid-In Capital (D/PI)

A measure of the cumulative distributions returned to the limited partners as a proportion of the cumulative paid-in capital. DPI is net of fees and carried interest. See ‘Realization Ratio.’, ‘Residual Value.’, ‘RV/PI’, and ‘TV/PI.’

Divestment

See ‘Exit.’

Dividend

The payments designated by the Board of Directors to be distributed pro-rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortune of the company and the amount of cash on hand and may be omitted if business is poor or if the Directors determine to withhold earnings to invest in capital expenditures or research and development. Dividends can be paid either in cash or in kind, i.e. additional shares of stock.

Dividend Cover

A ratio that measures the number of times a dividend could have been paid out of the year’s earnings. The higher the dividend cover, the safer the dividend.

Double Dip

Generally refers to participating preferred stock that entitles a holder to a liquidation preference and also to participate in the residual value. See ‘Participating Preferred Stock.’

Dow Jones Industrial Average (DJIA)

An index based on 30 major stocks listed on the New York Stock Exchange. The companies included in the DJIA are all major factors in their respective industries, and their stocks are widely held by individuals and institutional investors. The DJIA is one of the oldest and most widely recognized stock indices and has been published daily for more than 100 years.

Down Round

A round of equity financing at a valuation lower than a prior round of financing. Also sometimes referred to as a ‘Punitive Round.’

DPI - Distribution to Paid-In

The DPI measures the cumulative distributions returned to investors (Limited Partners) as a proportion of the cumulative paid-in capital. DPI is net of fees and carried interest. This is also often called the ‘Cash-on-Cash Return.’ This is a relative measure of the fund’s “realized” return on investment.

Drag-along Rights

See ‘Bring-Along Rights.’

Drawdown

When investors commit themselves to back a private equity fund, all the funding may not be needed at once. Some are used as drawn down later. The amount that is drawn down is defined as contributed capital. See ‘Commitment.’ ‘Contributed Capital.’

DTC

See ‘Depository Trust Company.’

Dual Listing or Trading Facility

The listing of a security on more than one exchange. Increasingly, securities are being listed on both a local exchange and an exchange with more widespread coverage. In addition, issuers may list on both a US exchange and a European or Asian exchange.

Due Diligence

An examination of the books and records of an issuer and interviews with officers, partners, etc., to confirm information about the issuer’s business as well as legal and accounting affairs. It typically includes a review of such matters as significant customers and suppliers, background of key employees (to learn of prior employment problems, criminal convictions, disciplinary actions by market regulators, fraudulent resumes), material contracts, facilities, real property owned, subsidiaries, judgments and lawsuits, insurance, patents and other intellectual property rights, licenses and permits, and tax status. The phrase derives from the fact that under USA law certain persons (including the directors, underwriters, and auditors) are personally liable for a misstatement of material fact in a registration statement unless they can demonstrate that after reasonable investigation they had reasonable grounds to believe, and, in fact, did believe, that the statement was true. Conducting the due diligence examination enables these persons to raise a ‘due diligence defense’ if sued.