Liquidation Preference

The duration for which an investor retains an investment before exit, typically measured from the date of initial acquisition to the date of sale or IPO. In private equity and venture capital, holding periods typically range from three to seven years and influence the internal rate of return calculation.

The managing entity of a private equity or venture capital fund, responsible for making investment decisions, managing portfolio companies, and generating returns for investors. GPs typically earn management fees and carried interest.

The percentage ownership interest a shareholder holds in a company. Equity stakes determine voting rights, dividend entitlements, and the share of proceeds received in a sale or liquidation event.

The process of offering shares of a private company to the public for the first time through a stock exchange listing. An IPO is a major exit route for venture capital and private equity investors, and requires extensive preparation including financial audits, regulatory compliance, and valuation.

A private equity and venture capital performance metric measuring the ratio of cumulative cash distributions returned to investors relative to the capital they have contributed. A DPI of 1.0x means investors have received back their original investment.

A provision that allows majority shareholders (or lead investors) to force minority shareholders to join in the sale of the company on the same terms. Drag-along rights prevent minority holders from blocking an exit that the majority supports.

The International Private Equity and Venture Capital Valuation Guidelines (IPEV Guidelines) are best-practice recommendations, published by the IPEV Board, for measuring the Fair Value of private equity and venture capital investments consistently with IFRS 13 and ASC 820. They apply at investment level: a fund's Valuer uses them to value the fund's holding in each portfolio company at every measurement date — typically quarterly — with one or more of five techniques (multiples, industry valuation benchmarks, available market prices, discounted cash flows and net assets), calibrated to the price of a recent orderly investment.

A Latin term meaning 'on equal footing,' used in finance to indicate that two or more parties, instruments, or claims have equal rights to payment or assets. In venture capital, pari passu clauses ensure that investors in the same class receive proportional treatment during distributions or liquidation events.

What is a private equity fund and how do they use valuations?

PE funds buy companies at entry multiples, operate them to improve cash flows and competitive position, then exit at higher multiples — valuations are critical for entry/exit decisions.

What are protective provisions and what power do they give investors?

Protective provisions grant preferred shareholders approval rights over major corporate actions (salary changes, major acquisitions, debt issuance) to prevent founders from taking actions against investor interests.

What is pari passu and how does it affect investor rights?

Pari passu means investors hold equal ranking in liquidation or dividend priorities — no investor class has preference over another, protecting minority investors from founder dilution.

How are intangible assets treated in insolvency and restructuring?

In insolvency, intangible assets are realised at forced-sale values (typically 10-40% of going-concern fair value), with IP, brands, and customer lists potentially sold separately to maximise creditor recovery.