Management Fee Compensation for the management of a venture capital fund’s activities, paid from the fund to the general partner or investment advisor. This compensation generally includes an annual management fee. Market Capitalization The total dollar value of all outstanding shares. Computed as shares multiplied by current price per share. Prior to an IPO, market capitalization is arrived at by estimating a company’s future growth and by comparing a company with similar public or private corporations. (See also: pre-money valuation.) Merger Combination of two or more corporations in which greater efficiency is supposed to be achieved by the elimination of duplicate plant, equipment and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company. Mezzanine Financing Refers to the stage of venture capital financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine-level financing can take the structure of preferred shares, convertible bonds or subordinated debt. Net Financing Cost Also called the cost of carry or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset’s cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned. Net Income The net earnings of a corporation after deducting all costs of selling, depreciation, interest expense and taxes. Net Present Value An approach used in capital budgeting where the present value of cash inflow is subtracted from the present value of cash outflows. NPV compares the value of a dollar today versus the value of that same dollar in the future after taking inflation and return into account.
106 A Practical Guide to Angel Investing: How to Achieve Good Returns
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