Later-Stage A stage of company growth characterized by viable products, a developed market, significant customers, sustained revenue growth, and both profits and positive cash flow from operations. Later-stage companies would generally be candidates for an IPO. Investments in the C round or after qualify as later-stage. Lead Investor Also known as a bell cow investor. Member of a syndicate of private equity investors holding the largest stake, in charge of arranging the financing, and most actively involved in the overall project. Limited Partner An investor in a limited partnership who has no voice in the management of the partnership. Limited partners (LPs) have limited liability and usually have priority over general partners (GPs) upon liquidation of the partnership. Limited Partnerships An organization consisting of a general partner, who manages a fund, and limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, the general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners receive income, capital gains and tax benefits. Liquidation 1) The process of converting securities into cash. 2) The sale of the assets of a company to one or more acquirers in order to pay off debts. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred shares take precedence over the claims of those who own common shares. Liquidity Event An event that allows an investor to realize a gain or loss on an investment. The ending of a private equity provider’s involvement in a business venture with a view to realizing an internal return on investment. Most common exit routes include initial public offerings (IPOs), buy-backs, trade sales, and secondary buyouts. Lockup Period The period of time that certain shareholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups for a set period of time, typically 180 days from large shareholders (such as 1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners, and large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed.
114 A Practical Guide to Angel Investing
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