Glossary

Biotechnology: The application of science and technology to living organisms as well as parts, products and models thereof, to alter living or non-living materials for the production of knowledge, food, drugs and other products and services and to improve the quality of life.

Buy-out option: Investors have the option to exercise the buy out option up to the end of the fifth year in the life of the fund, at a price that returns NZVIF its capital invested plus a rate of return. If NZVIF has not been bought out before the fifth year of the fund, it will take a pro-rata share of the net proceeds of the funds (including losses, if these have occurred), in the same manner as all other investors, when the fund terminates.

Committed capital: Pledges of capital by investors to a venture capital fund. This capital is drawn down progressively over the life of the fund for investments or to meet management fees.

Crown entity companies: One of the five categories of Crown entity. A company incorporated under the Companies Act 1993 that is wholly-owned by the Crown and named in Schedule 2 to the Crown Entities Act 2004.

Fund of funds: A fund that invests primarily in other venture capital funds as opposed to individual investee companies.

Management fee: The fee, typically a percentage of committed capital that is paid by investors in a venture capital fund to the fund manager to cover salaries and expenses.

Private equity: Private equity includes organisations devoted to venture capital, leveraged buyouts, mezzanine and distressed debt investments.

Statement of Intent (SOI): A document that identifies, for the medium term, the main features of intentions regarding strategy, capability and performance. SOIs are developed after discussion between an entity and its Minister(s). After being finalised, the SOI is tabled in Parliament.

Tranching: The provision of capital to entrepreneurs in multiple instalments, with each financing conditional on meeting particular business targets (milestones).

Venture capital fund: A pool of capital raised periodically by a venture capital or private equity firm. Funds typically have a ten-year life.

Venture capital: Professionally managed, dedicated pools of capital that focus on equity or equity-linked investments in privately held, high-growth companies.

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Company Stage of Development

Seed: An investee company is at the seed stage of its development if the investment will enable development, testing and preparation of a product or service to the point where it is feasible to start business operations.

Start-up: An investee company is at the start-up stage of its development if the investment will enable actual business operations to get underway. This includes further development of the company’s product(s) and initial production and marketing.

Early expansion: An investee company is at the early expansion stage of its development if the investment provides capital to initiate or expand commercial production and marketing but where the company is normally still cash flow negative.

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Entrepreneurs

Angel: A wealthy individual or professionally organised firm or group who invest in entrepreneurial firms. Although angels perform many of the same functions as venture capitalists, they usually invest their own capital rather than that of institutional or other individual investors.

Business incubator: A facility designed to assist businesses to become established and sustainable during their start-up phase. An incubator helps companies prepare their pitch and become “investment ready” along with providing mentoring and guidance by experienced business mentors. They will often be a source of referral to an Angel group or fund.

Convertible debt: (also known as convertible loan notes) A form of debt that converts to equity in a company. A conversion generally occurs on the achievement of certain milestones or after a specified time period. Debt convertible notes often attract interest which can be paid, deferred or converted to equity.

Pre-money valuation: The valuation of a company prior to an investment. The valuation will determine the amount of equity an investor will receive for their investment.

Post-money valuation: The valuation of the company after the current investment round has been completed. The value is the sum of the pre-money valuation plus the amount of new equity invested into the company in a round.

Term sheet: A document which outlines key financial and other terms of a proposed investment. Investors use a term sheet to achieve preliminary and conditional agreement to those key terms which forms the basis for drafting the investment documents. With the exception of certain clauses (commonly those dealing with confidentiality, exclusivity and sometimes costs and break fees) provisions of a term sheet is not usually intended to be legally binding. As well as being subject to negotiation of the final legal documentation, a term sheet will usually contain certain conditions which need to be met before the investment is completed and these are known as conditions precedent.

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