PE/VC Terms 4 DUMMIES, a 🧵
When I started in finance, I had to google what a mutual fund was.
Not my 💡moment.
How bout I save you the embarrassment of doing what I did & asking if I had to "carry" something when they said I got carry... 🤦♀️
When I started in finance, I had to google what a mutual fund was.
Not my 💡moment.
How bout I save you the embarrassment of doing what I did & asking if I had to "carry" something when they said I got carry... 🤦♀️
Top terms to know (so u sound supa smart):
#1 Equity kicker
- Aka a sweetener
- An option to buy equity...
- At a discounted price...
- Bc u invested in a company today...
- Like when they throw in hot dog when u buy a car (same same really)
#1 Equity kicker
- Aka a sweetener
- An option to buy equity...
- At a discounted price...
- Bc u invested in a company today...
- Like when they throw in hot dog when u buy a car (same same really)
#2 Full ratchet 🔧
- If company u invest in goes down in value...
- 🔧 for preferred shares protects u from...
- Getting diluted (aka owning less of company)
- If company u invest in goes down in value...
- 🔧 for preferred shares protects u from...
- Getting diluted (aka owning less of company)
#3 ROFR
- Right of first refusal
- "Hey bud, that's mine" rule
- Contract that gives u first option to buy, sell etc b4 any other homies
*Love these in my contracts*
- Right of first refusal
- "Hey bud, that's mine" rule
- Contract that gives u first option to buy, sell etc b4 any other homies
*Love these in my contracts*
#4 Put/Call Option
- Means you got options baby
- To buy or sell at a certain price & time
- i.e. I invest in company A for $100k @$1M valuation & negotiate option to buy more equity at lower price w/in 2 years OR sell at a set price
- Means you got options baby
- To buy or sell at a certain price & time
- i.e. I invest in company A for $100k @$1M valuation & negotiate option to buy more equity at lower price w/in 2 years OR sell at a set price
#5 Sidecars
- Investing w/ buds
- A way to coinvest alongside other investors in a deal
- You can invest direct instead of in a fund usually through SPV
*Love getting into funds, but asking for co-invest options*
- Investing w/ buds
- A way to coinvest alongside other investors in a deal
- You can invest direct instead of in a fund usually through SPV
*Love getting into funds, but asking for co-invest options*
#6 First lien position
- When an investment goes bust, you get to pick the ☠️ first
- Sad but true, it means u get any of the assets or property until ur paid back
Sound cool: " Who is at top of cap stack."
- When an investment goes bust, you get to pick the ☠️ first
- Sad but true, it means u get any of the assets or property until ur paid back
Sound cool: " Who is at top of cap stack."
#7 Personal guarantee or PG
- Means you are on the hook w/ur personal assets if ur investment goes south
- Normal for SBA & some debt
Sound cool: "I did it w/o a PG"
- Means you are on the hook w/ur personal assets if ur investment goes south
- Normal for SBA & some debt
Sound cool: "I did it w/o a PG"
#8 Stock pledges
- Basically collateral
- Means if I super promise to pay u back, so much I'm gonna put some stock in an escrow account so u can take it if I fail to pay back
You can ask for this on debt you lend. Pro move.
- Basically collateral
- Means if I super promise to pay u back, so much I'm gonna put some stock in an escrow account so u can take it if I fail to pay back
You can ask for this on debt you lend. Pro move.
#9 Yield maintenance
- In finance, there's a fee for paying out $ early, ain't that funny
- 1-3% ish bc if u pay early then the investor needs to make up $ lost
*This ain't that normal in PE, VC more for CMBS, or lev loans.
- In finance, there's a fee for paying out $ early, ain't that funny
- 1-3% ish bc if u pay early then the investor needs to make up $ lost
*This ain't that normal in PE, VC more for CMBS, or lev loans.
TLDR:
This is just 10 of my favs
- There's a sh*t ton more
- Know the terms you control the deal
- Have fun, there's no right way to do it
- Don't let anyone make u feel dumb for "not knowing"
This is just 10 of my favs
- There's a sh*t ton more
- Know the terms you control the deal
- Have fun, there's no right way to do it
- Don't let anyone make u feel dumb for "not knowing"
I write threads like this weekly. Follow along if ya like:
@Codie_Sanchez
Or get the expanded weekly versions for cashflow & critical thinking frameworks here:
contrarianthinking.co
@Codie_Sanchez
Or get the expanded weekly versions for cashflow & critical thinking frameworks here:
contrarianthinking.co
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