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Definitions - Investment

• Collateral: Collateral is a physical asset that a borrower owns and puts forward as security in case they default on their loan.
• Debt: A loan to a company.
• Development capital: Capital provided after a company has become established, to fund an expansion of the business
• Divestment: The disposal of a business or business segment.
• Equity: A shareholding in a company.
• Exit: The route by which a venture capitalist realises their original investment, usually after flotation or corporate purchase.
• Expansion financing: This is capital provided for growth and expansion of an established company to finance increased production capacity, market or product development and/or provide additional working capital, for turnaround situations, refinancing of bank debt.
• Factoring: Factoring is when a company either purchases your accounts receivable or loans you funds against your accounts receivable. This can improve your company's liquidity.
• Gearing: Gearing is the amount of debt financing compared to equity financing in a company. If the company has low levels of debt compared to equity it has a low gearing ratio. Conversely, a high debt to equity ratio would be a highly geared company. Gearing can also be referred to as financial leverage.
• IPO: An IPO, or Initial Public Offering, is the selling of securities, or shares, in your company to the general public. This is normally done through an investment bank (an underwriter).
• Liquidity: Liquidity refers to the ability of an organisation to meet its liabilities. One liquidity ratio is `net working capital' which is the difference between current assets and current liabilities. This ratio roughly measures a company's potential reservoir of cash.
• Management buy-in (MBI) : Funds provided to enable a manager or a group of managers from outside the company to buy into the company.
• Management buy-out (MBO) : Funds provided to enable current operating management and investors to acquire an existing product line or business.
• Mezzanine finance: A form of finance falling between equity and debt. It is a flexible form of funding, typically used in a management buy-out to achieve the desired risk/return profile for investors. Frequently unsecured, it usually bears interest at a higher rate than secured loans and often gives the lender a stake in the equity of the company.
• Nasdaq: The Nasdaq stock market is the second-most active equity market in the world and is the home of trading for many of the most dynamic new companies in the United States.
• Options: In its broadest sense, an option is where the lender is given the right to either exchange their security for stock, or to purchase stock at a favourable price, in the borrower's company at a later date. There are several different variations depending upon the type of option
• Seed capital: Financing provided to research, develop and assess an initial concept before a business has reached the start-up stage.
• Start-up: Financing provided to companies for product development and initial marketing. Companies may be in the process of setting up or have been in business for a short time, but have not yet sold their product commercially.
• Venture capital: Risk investment in unlisted companies with high growth potential. Venture capital can be broadly subdivided into seed or start-up capital, second round finance for young companies (used to expand the range of products) and development finance for established companies (used to develop an alternative product or expand through acquisition).