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Glossary of key terms

financing small and medium enterprises

V. Cvijanovic, Marovic, M. & Sruk, B.: Guide to financing SMEs (Bionza Press, 2008); and
EVCA Special Paper: Why and how to invest in Private Equity

Private Equity and Venture Capital Funds: Private Equity and Venture Capital funds invest in the companies with potential of achieving fast growth and sustainable comparative advantage. Private Equity and Venture Capital Funds take the equity stake in the company over medium term (typically 5 years) and work together with the management to enhance its competitive market position. Although Private Equity comprises of the universe of equity investments made in private companies (not public and listed on the stock exchanges), the term is normally used for buyout activity. Venture Capital is the sub-universe of equity investments in private companies referring to early stage, start-up and expansion capital. Typical Venture Capital investment in South East Europe(SEE) is in excess of 500,000 Euros, the majority of transactions in 1-10 million Euros range. Typical Private Equity deal in SEE is in excess of 10 million Euros, the majority of transactions in 20-200+ million Euros range. In Croatia, private equity and venture capital funds are represented by Croatian Private Equity and Venture Capital Association (CVCA).

Business Angels: individuals who invest directly in new early stage (seed / start-up) companies. Apart from capital, business angels invest their know-how and participate actively in the management of the company. These informal investments are typically in the range of 100-500 thousand Euros in SEE region. In Croatia, business angles are represented by the Croatian Business Angles Network (CRANE), co-founded by CVCA.

Seed Stage: An investment strategy involving portfolio companies which have not yet fully established commercial operations, and may also involve continued research and product development.

Early Stage: A fund investment strategy involving investment in companies carrying out product development and initial marketing, manufacturing and sales activities.

Later Stage: A fund investment strategy involving financing for the expansion of a company which is producing, supplying and increasing its sales volume.

Buyout: The purchase of what is normally a majority stake in an established mature company.

Mezzanine: A fund investment strategy involving subordinated debt (the level of financing senior to equity and below senior debt).

Turnaround: Financing provided to a company at a time of operational or financial difficulty with the intention of improving the company's performance.

General Partner (GP): A partner in a limited partnership responsible for the day-today operations of the fund.

Limited Partners (LPs): The investors in a limited partnership.

Limited Partnerships: The legal structure used by most private equity funds. Usually fixed life investment vehicles. The general partner or management firm manages the partnership using policy laid down in a Partnership Agreement. The Agreement also covers terms, fees, structures and other items agreed between the limited partners and the general partner.

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