Early Stage

Seed and start-up stages of a business. See ‘First Stage/Round.’, ‘Seed,’ ‘Start-up.’ Compare ‘Later Stage.’

Earnout

An arrangement in which sellers of a business may receive additional future payments for the business based upon economic performance of the sold business or the buyer (including the sold business) after the sale.

EASDAQ (archaic)

See ‘Nasdaq Europe’ (also archaic).

EBIT

Earnings before interest and taxes – a financial measurement often used in valuing a company.

EBITDA

Earnings before interest, taxes, depreciation and amortization – a financial measurement used in valuing a company.

EDGAR

See ‘Electronic Data Gathering, Analysis, and Retrieval.’

Effective Date

(USA) The date of the SEC order declaring the registration statement for a public offering to be effective, at which time the sale of shares to the public can commence. See ‘Acceleration Order,’ ‘Acceleration Request,’ and ‘Going Effective.’

Effective Par

(USA) The par value for preferred stock that would ordinarily correspond to a given dividend rate.

Electronic Data Gathering, Analysis, and Retrieval (EDGAR)

(USA) The SEC’s system required to be used since 1995 by substantially all public companies to file electronically with the SEC required reports, such as quarterly and annual reports, enabling electronic retrieval of these filings through the Internet. Until 2002, foreign companies registered as public companies in the USA were not required to file electronically. Beginning in November 2002, foreign companies were also required to file electronically through EDGAR.

Elevator Pitch

The short, oral summary of a business idea, so named for the time comparison of the period an entrepreneur has to gain the interest of a venture capitalist in his business idea with an elevator ride.

Employee Retirement Income Security Act (ERISA)

(USA) The Employee Retirement Income Security Act of 1974, the principal USA law regulating retirement and employee benefit plans.

Employee Stock Purchase Plan

(USA) A plan under which key employees are given the right to purchase shares of the company at a future date on favorable terms. Under the USA Internal Revenue Code, if a plan meets certain requirements, employees can purchase stock at 85% of market price without any USA tax consequence, although the rules in other countries are different.

Employee Stock Repurchase Agreement

(USA) An arrangement in which a corporation sells stock to its employees but reserves the right to repurchase it under certain conditions.

Enterprise DCF Model

Variant of the DCF model, which looks at the company’s operations and calculates the present value of future free cash flows by discounting them with the weighted average cost of capital. See ‘Free Cash Flow’ and ‘Weighted Average Cost of Capital.’

Entrepreneur In Residence (EIR)

An entrepreneur that has experience in creating a business and works in a venture capital fund using the funds’ network, deal flow and resources to develop new or existing portfolio companies.

Envy Ratio

(UK) The ratio between the effective price paid by management and that paid by the investing institution for their respective holdings in the NewCo in an MBO or MBI. Envy ratio = (IC/I%):(MC/M%), where: - IC = investors amount to be invested in NewCo - I% = investors’ ownership in NewCo. - MC = management amount to be invested in NewCo - M% = management percentage ownership of NewCo (i.e. percentage of ordinary shares owned) Example: If the VC invests £5m for 60% equity and the management invests £0.2m for 40% ordinary shares the Envy Ratio is: Envy Ratio=(5/60)/(0.2/40)=16.7

Equity

Ownership interest in a company, represented by the shares issued to investors.

Equity Kicker

Option for private equity investors to purchase shares at a discount. Typically associated with mezzanine financings where a small number of shares or warrants are added to what is primarily a debt financing.

Equity Ratio

One of the indicators used by banks to calculate debt ceiling. It consists of net equity divided by the company’s total assets. Banks apply yardstick ratios for different industry sectors to arrive at a minimum level of funding that shareholders are required to contribute.

ERISA

See ‘Employee Retirement Income Security Act.’

ETF (Exchange Traded Fund)

A collective investment vehicle which tracks indices - it can allow low cost exposure to the performance of an index as quickly and efficiently as the most liquid UK stocks.

EURIBOR

The interest rate at which Euro denominated interbank term deposits are offered within the Eurozone.

Euroclear

An international clearing organization based in Brussels, Belgium, specializing in securities clearance, settlement, and custody services. In September 2002, Euroclear merged with CREST. See ‘CREST.’

EURONEXT

The name of the exchange resulting from the merger of the Amsterdam, Brussels, and Paris Stock Exchanges in 2001.The Madrid Stock Exchange has since joined and EURONEXT has acquired LIFFE, the London International Financial Features and Options Exchange.

European Association of Securities Dealers (EASD)

An association of securities houses, investment banks, venture capital firms, professional advisors, and others formed to promote the development of securities markets in Europe for growth companies. EASD’s ambition was to be the most effective organization to foster the best conditions for seamless European investment and trading. The creation of the EASDAQ stock market (now Nasdaq Europe) was one of its first initiatives. EASD has merged with APCIMS.

European Option

See ‘European-Style Option.’

European Private Equity and Venture Capital Association (EVCA)

An association formed to promote and facilitate European private equity and venture capital. It has over 900 member organizations in 36 countries and is headquartered in Brussels.

European-Style Option

An option that can only be exercised for a short, specified period of time just prior to its expiration, usually a single day. Also called ‘European Option.’

EVCA Corporate Governance Guidelines

Guidelines set out by EVCA concerning good practice in the management and governance of privately held companies in the private equity and venture capital industry. Its aim is to define principles of good governance for private equity and venture capital investing and regarding the conduct as shareholders, board members and management.

EVCA Professional Standards

EVCA Professional Standards are a unique set of behavioral principles that encompass the relationship between limited partners, general partners and portfolio companies. The EVCA Professional Standards encompass a Code of Conduct, Governing Principles, and Corporate Governance, Valuation and Reporting Guidelines.

Exemption or Exempt from Registration

(USA) An exemption from the statutory requirement to register the offer and sale of a security with the SEC under the Securities Act of 1933. Exemptions are provided for certain types of securities (such as government issues and pension plans) and certain types of transactions (such as private placements and offerings to existing security holders). Similar concepts exist in the UK and other jurisdictions but the meanings and applicability may vary widely.

Exercise Price

The price at which shares that are subject to a stock option may be purchased or sold. Also known as the ‘Strike Price.’

Exit

Liquidation of holdings by a private equity fund. Among the various methods of exiting an investment are: trade sale; sale by public offering (including IPO); write-offs; repayment of preference shares/loans; sale to another venture capitalist; sale to a financial institution.

Exit Strategy

The method by which an investor anticipates liquidating its investment, such as sale of the business, public offering, etc.

Exiting Climates

The conditions which influence the viability and attractiveness of various exit strategies.

Expansion Capital

Also called ‘Development Capital.’ Financing provided for the growth and expansion of a company, which may or may not break even or trade profitably. Capital may be used to: finance increased production capacity; market or product development; or provide additional working capital.

Expense Allowance

An amount paid by the issuer of a security to an underwriter (most common in smaller, higher risk offerings) to reimburse it for expenses incurred in connection with a securities offering. An expense allowance may be accountable (reimbursement against documented out-of-pocket expenses) or non-accountable (typically a percentage of the offering amount without documentation of the expense).