Ratchet

A mechanism whereby founders and management are able to recover a portion of their equity diluted by a down round upon the achievement of certain targets on an exit.

Real Options Valuation

This model places a present value on the ‘real options’ available to a company.

Realization Rati

Benchmark measurements of investment performance which complement IRR. Realization ratios are distributions to paid-in capital (D/PI), residual value to paid-in capital (RV/PI) and total value to paid-in capital (TV/PI). These are measures of returns to invested capital. These measures do not take the time value of money into account.

Realized Multiple

The ratio of total gain (/loss) to cost of realized investments.

Recapitalization

The reorganization of a company’s capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility. Recapitalization can be an alternative exit strategy for venture capitalists and leveraged buyout sponsors. See ‘Exit Strategy’ and ‘Leveraged Buyout.’

Red Herring Prospectus

See ‘Preliminary Prospectus.’

Redeemable Cumulative Preference Share/Redeemable Cumulative Preferred Stock

A form of preference shares/preferred which provide that, if one or more dividends are omitted, these dividends accumulate and must be paid in full before other dividends can be paid on the company’s ordinary shares/common shares. These securities may be refinanced by mezzanine providers, banks and other institutional equity providers, thus allowing the initial investors to recover their investment.

Redemption

Repurchase by a company of its securities from an investor. Often required for preferred stock in a venture capital financing.

Registered Secondary Offering

(USA) An offering of securities by a stockholder (often an affiliate) of a company that requires an effective registration statement to be on file with the SEC before distribution may be effected.

Registered Securities

Securities issued in a form allowing the owner’s name to be imprinted on the certificate and allowing the issuer to maintain records as to the identity of the owners. Also commonly used in the USA in reference to securities that are registered under the Securities Act of 1933. See ‘Bearer Securities.’

Registrar

See ‘Transfer Agent/Registrar.’

Registration

The process of filing the necessary documentation with the appropriate authorities for an offering of securities to the public, and having this registration approved or declared effective. In Europe, filing is generally made with the stock market(s) on which the stock is to be traded, as well as with the competent authorities for such filings in the home country of the stock market(s). In the USA, the registration statement is filed with the SEC, which also declares it effective. See ‘Registration Statement.’

Registration Rights

(USA) The contractual right of a stockholder to participate in the registration of the issuer’s stock for resale in the public market. See ‘Demand Registration Rights’ and ‘Piggy-back Registration Rights.’

Registration Statement

(USA) The document required by the Securities Act of 1933 to be filed with the SEC by the issuer of securities before a public offering can be made. The most frequently used registration statement forms include the following: Forms F-1, 2, and 3 For foreign companies; correspond with Forms S-1, 2, and 3 described below: Form S-1 The most complete version, required for initial public offerings. Form S-2 Intermediate version, used for public companies already registered under the Securities Exchange Act of 1934 that are up to date with their filings and with payments to security holders. Form S-3 Short version, used for public companies already registered under the Securities Exchange Act of 1934 that meet certain additional conditions. Form SB-2 Similar to Form S-1, but somewhat abbreviated for small business issuers. Form U-7 A form of registration at the state level for offerings by small businesses that are exempt at the federal level because they are below $1 million. Requires somewhat less disclosure. Form 2O-F This is an integrated form used both as a registration statement to register securities of qualified foreign private issues under Section 12 and as an annual report under Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

Regulation A (or Reg A)

(USA) A regulation under the Securities Act of 1933 providing for a simplified form of filing with the SEC, used for certain public offerings of not more than $5,000,000 and exempting such offerings from full registration.

Regulation D (or Reg D)

(USA) A regulation under the Securities Act of 1933 that exempts limited offers and sales of securities from registration if the offering satisfies certain requirements as to the number and nature of investors and the value of the offering. Advertising and resale are restricted. In general, Rule 504 of Reg D is used for offerings of $1 million or less; Rule 505 of Reg D is used for offerings of $5 million or less, with no more than 35 purchasers who are not Accredited Investors; and Rule 506 of Reg D is used for offerings over $5 million, with no more than 35 purchasers who are not Accredited Investors, but who must be either sophisticated or represented by a Purchaser Representative. See ‘Accredited Investors’ and ‘Purchaser Representative.’

Regulation S (or Reg S)

(USA) A regulation under the Securities Act of 1933 that exempts from registration certain offers and sales of securities made outside of the United States by USA or foreign issuers.

Regulation S-K

(USA) An SEC regulation that sets forth in detail the information to be disclosed in registration statements and periodic reports of public companies.

Regulation S-X

(USA) An SEC regulation that sets forth in detail the requirements as to the form and content of financial statements used in registration statements and periodic reports of public companies.

Replacement Capital (Secondary Purchase)

Purchase of existing shares in a company from another private equity investment organization or from another shareholder or shareholders.

Reporting - EVCA Reporting Guidelines

Guidelines set by EVCA concerning reporting practices toward investors. Its aim is to improve transparency, so that investors are better able to monitor and evaluate the performance of their investments and to make the asset class more accessible and comprehensible to new and existing investors.

Reporting Company

(USA) An issuer subject to the periodic reporting requirements of the Securities Exchange Act of 1934, such as the requirements to file Form 10-Ks and Form 10-Qs. A prerequisite to listing on the major exchanges in the USA is that the issuer must be a reporting company.

Reporting Company Forms (Periodic Reports)

(USA) The most common forms under the Securities Exchange Act of 1934 include the following: Forms 3, 4, and 5 Reports to the SEC required to be made under Section 16 of the Securities Act of 1934 by directors, executive officers and certain other insiders of a public company, reporting their trades in securities of that company or its subsidiaries; Form 6-K The form filed with the SEC by foreign companies subject to the USA public company reporting rules for the filing of information that: (a) The company is required to make public under the laws of its jurisdiction of incorporation (b) It files with the securities exchange on which its securities are traded and which was made public by that exchange, or (c) It distributes to its stockholders Form 8-A The form filed with the SEC to register a company’s class of securities under the Securities Exchange Act of 1934 concurrently with a company’s registration of securities under the Securities Act of 1933. Form 8-K A form required to be filed with the SEC by any USA public company upon the occurrence of certain events such as a change in control of the company, significant acquisitions or dispositions of assets, bankruptcy or receivership of the company, changes in the company’s independent accountants, and certain other matters. Form 10 A form required to be filed with the SEC to register a company’s class of securities under the Securities Exchange Act of 1934 where no other form is prescribed. Generally used when an issuer has more than 500 shareholders in the USA. Form 10-K A form required to be filed annually with the SEC by any public company with a class of securities registered under the Securities Exchange Act of 1934 that includes a narrative description of the business, audited financial statements, and other information. Form 10-Q A form required to be filed quarterly with the SEC by any public company with a class of securities registered under the Securities Exchange Act of 1934 that includes unaudited quarterly financial information and certain other information.

Representations and Warranties

Provisions in a venture capital investment agreement, underwriting agreement, or other financing document in which the company provides assurances as to the status of its business and other matters, such as the company’s capitalization, key personnel, financial information, brokerage, ownership of properties and assets, litigation, and compliance with legal and environmental requirements.

Repurchase Agreement

An agreement in which a holder of shares agrees that the person from whom it purchased the securities may repurchase them in certain events. In venture capital rounds, founders may be required to enter into repurchase agreements in which they agree to resell their shares to the company at a fixed price in the event that they leave the company prior to a given date.

Rescue (or Turnaround)

Financing made available to an existing business which has experienced trading difficulties, with a view to re-establishing prosperity.

Residual Value

The estimated value of the assets of the fund, net of fees and carried interest.

Residual Value to Paid-in Capital (RV/PI)

A realization ratio which is a measure of how much of a limited partner’s capital is still tied up in the equity of the fund, relative to the cumulative paid-in capital. RV/PI is net of fees and carried interest.

Resolution

An official document representing an action on the part of the board of directors of a corporation, or more generally, an expression of intent to do something.

Restricted Security/Restricted Stock

(USA) A security that has not been registered under the Securities Act of 1933 and may only be resold in certain ways.

Restrictive Covenant

An agreement pursuant to which a party undertakes not to carry on covenant activities.

Retail Investor

A non-institutional investor who purchases securities for his or her own account.

Reverse Split or Reverse Stock Split

A decrease in the number of a company’s outstanding shares such that the proportionate equity of each shareholder remains the same. The market price per share theoretically should increase proportionately. Usually done prior to an IPO so that the offering price is consistent with similar new issues or to make a stock with a very low per-share price appear more valuable. Requires approval from the board of directors and shareholders.

Revlon Duties

The legal principle that actions, such as anti-takeover measures, that promote the value of an auction process are allowable, whereas those that thwart the value of an auction process are not allowed. The duty is triggered when a company is in play as an acquisition target.

Right of First Refusal

A contractual right, frequently granted to venture capitalists, to purchase shares held by other shareholders before such shares may be sold to a third party.

Right of Rescission

The right of a person to cancel or nullify a contract without penalty under certain legally prescribed circumstances.

Rights (or Rights Offering)

Usually used to refer to an option granted for a short period of time to existing stockholders to purchase additional securities on a prorata basis to their holdings. The options granted in a ‘Poison Pill’ are also referred to as rights. See ‘Warrants,’ which are the longer term equivalent.

Rights Issue

In the UK, an issue on a pre-emptive basis to existing shareholders of the right to subscribe for securities in a publicly traded company at a discount to prevailing market price.

Ring

Location on the floor of an exchange where trades are executed. The circular arrangement where traders can make bid and offer prices is also called a ‘pit,’ particularly when commodities are traded.

Road Show

The process during a public offering in which the management of an issuing company and the underwriters meet with groups of prospective investors to stimulate interest in an issuer. Road Shows are conducted during the ‘waiting period’ shortly before the registration statement becomes effective. Road Shows may take place in multiple cities and countries.

ROI

Return on investment.

Rounds

Stages of financing of a company. A first round of financing is the initial raising of outside capital. Successive rounds may attract different types of investors as companies mature.

Rule 144

(USA) An SEC rule specifying the conditions under which a holder of unregistered securities may publicly sell them without filing a registration statement. See ‘Rule 144 Stock’ and ‘Registration Statement.’

Rule 144 Stock

(USA) Rule 144 stock or shares are those shares of a publicly traded company that cannot be resold freely for one of two reasons: (1) the shares were acquired directly or indirectly from the issuer or an affiliate of the issuer in one or more transactions that were not registered under the Securities Act of 1933, or (2) the shares are owned by an affiliate. Rule 144 stock generally can be resold in the public markets only by complying with the requirements of Rule 144, which include certain holding periods and volume limitations. See ‘Rule 144.’

Rule 144A

(USA) An SEC rule that permits the private placement of securities to institutional investors that are qualified institutional buyers through an underwriter or placement agent. Rule 144A securities are typically eligible for trading on PORTAL. See ‘Qualified Institutional Buyer’ and ‘PORTAL.’

Rule 501

Rule 501 of Regulation D defines Accredited Investor.

Rule 504

A company can raise up to $1 million in any 12-month period from any number of investors provided that a company does not engage in a general solicitation. There are restrictions on the resale of the securities, but there is no requirement of disclosure. Investors need not be sophisticated nor is any formal private offering memorandum required. However, such an offering is subject to the general antifraud provisions of the federal securities laws requiring that all material information be accurately presented to purchasers.

Rule 505

Rule 505 of Regulation D is an exemption for limited offers and sales of securities not exceeding $5,000,000. A company can raise up to $5 million in a 12-month period. Security sales can be made to an unlimited number of accredited investors plus 35 additional investors. Disclosure documents, i.e., a private placement memorandum, must be delivered to all non-accredited investors. If dealing with accredited investors, the number of these is unlimited, but the company must not engage in a general solicitation.

Rule 506

Rule 506 of Regulation D is considered a “safe harbor” for the private offering exemption of Section 4(2) of the Securities Act of 1933. Companies using the Rule 506 exemption can raise an unlimited amount of money if they meet certain exemptions. No more than 35 non-accredited investors can be involved, and all must be sophisticated. Sellers are restricted from general solicitation.

Rules of Fair Practice

(USA) Rules established by NASD to protect the best interests of the securities investor.

Russell Indexes

A series of indexes developed jointly by the Frank Russell Company and the New York Futures Exchange (NYFE) to represent investment-grade equities in the USA, which include the Russell 1000 Index, 2000 Index, and 3000 Index. The Russell 3000 Index tracks the 3,000 most actively traded stocks in the USA and is divided into the Russell 1000 and Russell 2000 sub-indexes. The Russell 1000 Index represents the largest companies in the USA domestic equity market, based on market capitalization. The Russell 2000 Index represents the second tier of USA equities, or companies with market values between approximately $20 million and $300 million. See ‘Index.’

RVPI - Residual Value to Paid-In

The RVPI measures the value of the investors’ (Limited Partner’s) interest held within the fund, relative to the cumulative paid-in capital. RVPI is net of fees and carried interest. This is a measure of the fund’s “unrealized” return on investment.