P/E Ratio

Price/earnings ratio.

Paid-in Capital

The amount of committed capital an investor has actually transferred to a fund. Also known as the ‘Cumulative Takedown Amount.’

Par

The nominal amount assigned to a security by the issuer. For an equity security in the USA, par is usually a very small amount that no longer bears any relationship to its market price, except for preferred stock, in which case par may be used to calculate dividend payments. For a debt security, par is the amount repaid to the investor when the bond matures (usually, corporate bonds have a par value of $1,000, municipal bonds $5,000, and federal bonds $10,000), which is also called ‘Face Value’ or ‘Par Value.’ Referred to in some countries as ‘Nominal Value.’

Par Bond

A bond selling at its face value.

Pari Passu

Equably, ratably, without preference. Generally used in the USA to describe securities that are to be treated as being of equal priority or preference.

Participating Preferred Stock

Preferred stock that entitles the holder not only to its stated dividend and liquidation preference, but also allows the holder to participate in dividends and liquidating distributions declared on common stock.

Partnership

A form of conducting business in which the parties carry on their business for their joint benefit.

Patent

The exclusive right, granted by a government for a limited time period, to exclude others from making, using, or selling the claimed invention.

Patent Pending

(USA) A statement or notice typically found on an article of manufacture or related documentation indicating that a patent has been applied for, but not yet granted.

Pay to Play

A provision in venture financing documents that states that if one of the venture investors declines to participate in a later financing round up to its pro rata ownership share of the company, it will forfeit certain of the beneficial terms of its investment, such as anti-dilution protection, pre-emptive rights, etc.

Payment in Kind (PIK)

A feature of a security permitting the issuer to pay dividends or interest in the form of additional securities of the same class.

Penny Stock

(USA) A stock that trades for less than $1.00 per share. Because they are assumed to be especially volatile, penny stocks are subject to heightened regulation. In the UK, the term ‘Penny Share’ refers generally to shares trading with a wide spread and is not limited to shares with low trading values.

Permitted Transfer

A transfer of shares in which it is not required to first offer them to existing shareholders.

Piggy-Back Registration Rights

(USA) Contractual rights granted to security holders, giving them the right to have their holdings included in a registration statement if and when the issuer files a registration statement. See ‘Demand Registration Rights’ and ‘Registration Rights.’

Pink Sheets LLC

(USA) A privately owned company based in New York that provides broker/dealers, issuers, and investors with electronic and print products and information (including quotes) relating to the over-the-counter securities that are not listed on the OTC or Nasdaq Bulletin Board. The name is derived from the fact that historically the information was printed on pink paper. See ‘OTC’ or ‘Nasdaq Bulletin Board.’

PIPE

A private investment in a publicly traded company (literally, ‘Private Investment Public Equity’).

Pipeline

The aggregate of securities that are in the process of registration and expected to come onto the market. An offering is ‘in the pipeline’ once the registration process has begun.

Pit

See ‘Ring.’

Placement Agent

A person or entity that acts as an agent for the issuer in privately placing securities, typically a broker/dealer.

Placing

A form of issue of securities in the UK, typically with a predetermined number of non-retail investors.

Placing with Clawback

A form of placing of securities in the UK subject to recall of securities to satisfy the entitlements (to the extent exercised or taken up) of existing shareholders to purchase such securities.

Plain English

(USA) The SEC rules requiring issuers to write the cover page, summary, and risk factors section of prospectuses in simple language to make prospectuses more clear, concise, and understandable.

Pledging

Offering assets to a lender as collateral for a loan.

Poison Pill

The most famous anti-takeover device. It normally takes the form of granting existing stockholders (other than stockholders who acquire more than a certain percentage of the company) the option (which can only be exercised upon certain events) to buy more stock on very favorable terms as a way of diluting the position of the person trying to take control. See ‘Anti-Takeover Provisions.’ ‘Blank Cheque Preferred Stock.’ ‘Shark Repellent,’ and ‘Staggered Board of Directors.’

Pooled IRR

The IRR obtained by taking cash flows from inception, together with the Residual Value for each fund, and aggregating them into a pool as if they were a single fund. This is superior to either the average, which can be skewed by large returns on relatively small investments, or the capital weighted IRR which weights each IRR by capital committed. This latter measure would be accurate only if all investments were made at once at the beginning of the fund’s life.

Pooling of Interests Accounting

(USA) A method of accounting for a business combination permitted in the USA prior to July 2001, in which the assets and liabilities of the combining companies were added together at historical cost, and the acquiring company generally was not required to reflect as good will any excess of the amount paid over historical cost of the seller’s assets and liabilities.

Portfolio at Cost

The sum of all private equity and venture capital investments (held at cost) that have been made until the end of the measurement period and that have not yet been exited.

Portfolio Company (or Investee Company)

The company or entity into which a private equity fund invests directly.

Post-Money Valuation

The valuation made of a company immediately after the most recent round of financing. See ‘Pre-Money Valuation.’

Power of Attorney

A legal document that enables one person to legally act on behalf of another person.

Pratt’s Guide

A directory of USA venture capital firms, the types of investments that they typically make, and the industries in which they specialize.

Pre-emptive Right

The right of an investor to participate in a financing to the extent necessary to ensure that, if exercised, its percentage of ownership of the company’s securities will remain the same after the financing as it was before.

Preference Shares (or Preferred Stock)

Shares which have preference over ordinary shares, including priority in receipt of dividends and upon liquidation. In some cases these shares also have redemption rights, preferential voting rights, and rights of conversion into ordinary shares. Venture capitalists generally make investments in the form of convertible preference shares. See ‘Cumulative Preferred Stock.’

Preferred Ordinary Shares (UK)

These may be known as ordinary shares, cumulative convertible participating preferred ordinary shares or cumulative preferred ordinary shares. These are equity shares with preferred rights. Typically they will rank ahead of the ordinary shares for income and capital. Once the preferred ordinary share capital has been repaid, the two classes may then rank pari passu in sharing any surplus capital. Their income rights may be defined; they may be entitled to a fixed dividend (a percentage linked to the subscription price, e.g. 8% fixed) and/or they may have a right to a defined share of the company profits – known as a participating dividend (e.g. 5% of profits before tax).

Preferred Return

Either (i) the set rate of return that the investors must receive before the general partners can begin sharing in any distributions, or (ii) the level that the fund's net asset value must reach before the general partners can begin sharing in any distributions.

Preferred Stock

Stock that has a ‘preference’ over common stock, including priority in receipt of dividends and upon liquidation. In some cases it also has redemption rights, preferential voting rights, and rights of conversion into common stock. Venture capitalists generally make investments in the form of convertible preferred stock. See ‘Cumulative Preferred Stock.’

Pre-IPO Capital/Fund

‘Late-round’ venture capital financing in connection with a company’s expansion phase as it solidifies its market share. A ‘Pre-IPO Capital/Fund’ is a venture capital fund focusing on late-round financing. See ‘Development Stage Capital/Fund’ and ‘Mezzanine Capital/Fund.’

Preliminary Prospectus

The form of prospectus used to solicit indications of interest in an issuer’s securities prior to the effectiveness of a registration statement. In the USA it contains a legend printed in red ink (hence, it is sometimes called a ‘Red Herring’) indicating its preliminary nature and that it does not contain final pricing information. In the UK, such a document is also referred to as a ‘Pathfinder’ prospectus.

Premium

Shares of a new issue trade at a premium if their market price rises above their initial offering price.

Pre-money or Pre-money Valuation

The valuation of a company immediately before investors put new funding into the company. Used as the basis for calculating the investors’ price per share and percentage of the equity for the new investment.

Present Value

Present value is found by dividing the future payoff by a discount factor which incorporates the interest forgone for not receiving this payoff at the present time.

Price-Sensitive Information

Confidential information about a company, which, if made public, is likely to have a significant effect on the price of the securities of the company.

Pricing Call

The discussion between the company and the underwriters of a public offering during which the price of the securities to be sold is determined. This discussion typically occurs after the market close on the evening immediately preceding the date on which the securities are to be publicly sold.

Primary Distribution/Shares

A distribution (i.e., public offering) of securities by the issuer itself, as distinct from a distribution by an existing stockholder. See ‘Secondary Distribution/Shares.’

Private Client

A UK regulatory term covering retail investors, charities, and trusts.

Private Company

See ‘Closed Corporation.’

Private Equity

Private equity provides equity capital through the purchase of securities that are not publicly traded. Private equity can be used to develop new products and technologies, expand working capital, make acquisitions, or strengthen a company’s balance sheet. It can also resolve ownership and management issues. A succession in family-owned companies, or the buyout and buyin of a business by experienced managers may be achieved using private equity funding. Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made for the launch, early development, or expansion of a business. See ‘Venture Capital.’ ‘Venture Capitalist.’

Private Letter Ruling

(USA) A letter sent by the Internal Revenue Service in response to a request for clarification or interpretation of a tax law as it applies to a specific question or situation.

Private Offerings, Resale and Trading through Automated Linkages (PORTAL)

A market created by The Nasdaq Stock Market, Inc. for the trading of certain foreign and domestic securities through an automated quotation and communications system that facilitates private offerings, resales, trading, clearance, and settlement of securities offered to Qualified Institutional Buyers under Rule 144A. See ‘Qualified Institutional Buyer’ and ‘Rule 144A.’

Private Placement

The offer and sale of securities not involving a public offering. The definition of public offering varies from country to country. A private placement typically implies that the stock will be placed only with a limited number of private investors. In the USA, a private placement is one that is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933. Referred to in the UK as a ‘private placing.’ Compare with ‘Placing’ and also ‘Public Offering.’

Private Placement Memorandum (or Private Offering Memorandum, Private Offering Circular, or Offering Circular)

A document used to describe securities being offered on a private basis that are exempt from the registration requirements of national competent authorities, or in the USA exempt from registration under the Securities Act of 1933. It may contain much of the same information that would be included in a prospectus. See ‘Prospectus.’

Pro Forma

Pro Forma A Latin term meaning ‘for form.’ Pro forma financial statements are prepared based upon certain assumptions. For example, if a company is raising funds in an offering in order to acquire another company, it may be required to prepare pro forma financial statements showing the financial position of the combined companies as if the acquisition had been consummated.

Prospectus

A document that must be delivered to recipients of offers to sell securities and to purchasers of securities in a public offering and that contains a detailed description of the issuer’s business. In the USA, it is included as part of the registration statement filed with the SEC and with documents required by stock markets, stock exchanges, and national competent authorities.

Prospectus Directive

A directive of the European Commission requiring the implementation into the national law of all member states of the European Union of a set of common standards for securities prospectuses. A key feature of this directive is that of ‘mutual recognition,’ such that a prospectus that has been approved by the appropriate competent authority of one member state is mutually recognized by the competent authorities of all other member states.

Public Float

See ‘Float.’

Public Limited Company (PLC)

A company whose shares may be purchased by the public and whose share capital is not less than a statutory minimum. Not all PLCs are listed companies.

Public Offering

An offering of stock to the general investing public. The definition of a Public Offering varies from country to country, but typically implies that the offering is being made to more than a very restricted number of private investors; that road shows promoting the offering will be open to more than a restricted audience; or that the offering is being publicized. For a public offering, registration of prospectus material with a national competent authority is generally compulsory. See ‘Private Placement.’

Public Orphan

A company that is publicly held, but where there is so little trading activity or analyst coverage that the company’s stock has limited liquidity and the company has limited ability to raise additional capital. A Public Orphan effectively has all the regulatory burdens of being public but none of the benefits.

Public to Private

A transaction involving an offer for the entire share capital of a listed target company by a new company - Newco - and the subsequent re-registration of that listed target company as a private company. The shareholders of Newco usually comprise members of the target company’s management and private equity providers. Additional financing for the offer is normally provided by other debt providers.

Punitive Financing Round

The normal method of accounting for a business combination, in which the acquiring company treats the acquired company as an investment, adding the acquired company’s assets and liabilities to its own balance sheet based upon its fair market value on the date of acquisition. Any excess of the amount paid over the fair market value of net assets is goodwill. See ‘Down Round,’ ‘Purchase Accounting.’

Purchaser Representative

(USA) A person who acts on behalf of a purchaser of securities who otherwise would not be deemed to be an Accredited Investor under Regulation D of the Securities Act of 1933. The Purchaser Representative must be knowledgeable in financial and business matters such that he or she is capable of evaluating the merits and risks of the prospective investment. A Purchaser Representative should be acknowledged in writing by the investor in order to qualify under Regulation D.

Put Option

A contract that gives the holder the right to sell specified securities at a specified price during a specified period of time. See ‘Call Option.’