Call Option: The right to buy a security at a given price (or range) within a specific time period.

Calmar Ratio - The average annual return for a period of time divided by the maximum drawdown during that period.

Capital (or Assets) Under Management: The amount of capital available to a fund management team for venture investments.

Capital Call: Also known as a draw down - When a venture capital firm has decided where it would like to invest, it will approach its investors in order to "draw down" the money. The money will already have been pledged to the fund but this is the actual act of transferring the money so that it reaches the investment target.

Capital Gains: The difference between an asset's purchase price and selling price, when the selling price is greater. Long-term capital gains (on assets held for a year or longer) are taxed at a lower rate than ordinary income.

Capitalization Table: Also called a "Cap Table", this is a table showing the total amount of the various securities issued by a firm. This typically includes the amount of investment obtained from each source and the securities distributed -- e.g. common and preferred shares, options, warrants, etc. -- and respective capitalization ratios.

Capitalize: To record an outlay as an asset (as opposed to an Expense), which is subject to depreciation or amortization.

Captive funds: A venture capital firm owned by a larger financial institution, such as a bank.

Carried Interest: The portion of any gains realized by the fund to which the fund managers are entitled, generally without having to contribute capital to the fund. Carried interest payments are customary in the venture capital industry, in order to create a significant economic incentive for venture capital fund managers to achieve capital gains.

Cash Position: The amount of cash available to a company at a given point in time. Claim Dilution A reduction in the likelihood that one or more of the firm's claimants will be fully repaid, including time value of money considerations.

Catch-up: This is a common term of the private equity partnership agreement. Once the general partner provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried interest, is reached.

Chapter 11: The part of the Bankruptcy Code that provides for reorganization of a bankrupt company's assets.

Chapter 7: The part of the Bankruptcy Code that provides for liquidation of a company's assets.

Chinese wall: A barrier against information flows between different divisions or operating groups within banks and securities firms. Examples include a policy barrier between the trust department from making investment decisions based on any substantive inside information that may come into the possession of other bank departments. The term also refers to barriers against information flows between corporate finance and equity research and trading operations.

Clawback: A clawback obligation represents the general partner's promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund's limited partners an amount equal to what is determined to be "excess" distributions.

Closed-end Fund: A type of fund that has a fixed number of shares outstanding, which are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock. The market price of a closed-end fund fluctuates in response to investor demand as well as changes in the values of its holdings or its Net Asset Value. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.

Closing: An investment event occurring after the required legal documents are implemented between the investor and a company and after the capital is transferred in exchange for company ownership or debt obligation.

Co-investment: The syndication of a private equity financing round or an investment by an individuals (usually general partners) alongside a private equity fund in a financing round.

Collar Agreement: Agreed upon adjustments in the number of shares offered in a stock-for-stock exchange to account for price fluctuations before the completion of the deal.

Collateralized Debt Obligations (CDO/CBO): An asset-backed type of securitization whereby the underlying portfolio is comprised of securities, Collateralized Bond Obligation (CBO), or loans, Collateralized Loan Obligation (CLO), or a mixture of both. CDOs fall into two main categories: 1) Balance sheet CDO -- usually the seller is a financial institution selling to restructure a debt portfolio, possibly to free up loaning capacity or reduce their regulatory capital. 2) Arbitrage CDO -- here the goal is to purchase a portfolio which will act as collateral for a securitization with tranches for the various risk levels required by investors.

Collateralized Mortgage Obligation (CMO) - A pass-through security that aggregates a pool of mortgage-backed debt obligations. Homeowners' principal and interest payments pass from the originating bank or savings and loan through a government agency or investment bank, to investors, net of a loan-servicing fee payable to the originator.

Commingled Pools: A pool of capital made up of several investors in a single or multi-manager strategy. The opposite of a separate, managed account for a single investor. Usually structured to allow for lower minimum investments than a separate account.

Committed Capital: The total dollar amount of capital pledged to a private equity fund.

Committed funds or raised funds: Capital committed by investors. Cash to the maximum of these commitments may be requested or drawn down by the private equity managers usually on a deal-by-deal basis. This amount is different from invested funds for three reasons. Firstly, most partnerships will initially invest only between 80% and 95% of committed funds (possibly even less). Second, it may be necessary in early years to deduct the annual management fee that is used to cover the cost of operation of a fund. Third, payback to investors usually begins before the final draw down of commitments has taken place. To the extent that capital invested does not equal capital committed, limited partners will have their private equity returns diluted by the much lower cash returns earned on the uninvested portion. Avoiding this situation is the main reason for the Partners Group over-commitment model, which aims to keep Partners Group products as close 100% invested as possible.

Commodity Futures Trading Commission (CFTC): A regulatory agency that monitors commodity pool operators and commodity trading advisors.

Common Stock: A unit of ownership of a corporation. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings. Investors who purchase common stock hope that the stock price will increase so the value of their investment will appreciate. Common stock offers no performance guarantees. Additionally, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Company buy-back: The redemption of private of restricted holdings by the portfolio company itself. In essence the company is buying out the VC's interest.

Compound (Geometric) Average Return - The geometric mean is the monthly average that assumes we have an equivalent rate of return for each month to arrive at the same compound growth rate as we do using the actual month-to-month return data. The quarterly and annual compound returns are calculated using the monthly compound return solution.

Consolidation: Also called a leveraged rollup, this is an investment strategy in which a leveraged buyout (LBO) firm acquires a series of companies in the same or complementary fields, with the goal of becoming a dominant regional or nationwide player in that industry. In some cases, a holding company will be created to acquire the new companies. In other cases, an initial acquisition may serve as the platform through which the other acquisitions will be made.

Conversion Ratio: The number of shares of stock into which a convertible security may be converted. The conversion ration equals the par value of the convertible security divided by the conversion price.

Convertible Bond Arbitrage - An investment strategy whereby one is simultaneously long the undervalued convertible securities (bond or preferred stock) and short the overvalued underlying equities of the same issuer, thereby "working the spread" between the two types of securities. This is considered a relatively conservative, market neutral strategy (low or no correlation to the market), with a medium term investment period.

Convertible Security: A bond, debenture or preferred stock that is exchangeable for another type of security (usually common stock) at a pre-stated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together with greater appreciation potential than regular bonds offer. (See Common Stock, Dilution, and Preferred Stock).

Convexity: Convexity refers to the shape (i.e., degree of curvature) of the price/yield relationship in a fixed income instrument.

Corporate Charter: The document prepared when a corporation is formed. The Charter sets forth the objectives and goals of the corporation, as well as a complete statement of what the corporation can and cannot do while pursuing these goals.

Corporate Resolution: A document stating that the corporation's board of directors has authorized a particular individual to act on behalf of the corporation.

Corporate Venturing: Venture capital provided by [in-house investment funds of] large corporations to further their own strategic interests.

Corporation: A legal, taxable entity chartered by a state or the federal government. Ownership of a corporation is held by the stockholders.

Correlation: A measurement of relationship between two variables. The correlation coefficient (r) shows if there is any correlation between an asset and the market. 1.0 is perfect correlation, 0.0 is absolutely no correlation, and -1.0 is a perfect negative correlation. Studies indicate that a correlation coefficient below 0.3 has no correlation to the market.

Covenant: A protective clause in an agreement.

Credit Default Swaps - are typically used to obtain capital relief. In this structure, the mortgage lender enters into a credit default swap agreement with an intermediary bank that guarantees to repay foreclosure-related losses on the lender's mortgage portfolio. The intermediary bank then enters into a back-to-back swap agreement with a special purpose vehicle. (Alternatively, the mortgage lender can sell notes to an intermediary bank, which then enters into a swap agreement with the special purpose vehicle.)

Cumulative Dividends: Dividends that accrue at a fixed rate until paid are "Cumulative Dividends" which are payments to shareholders made with respect to an investor's Preferred Stock. Generally, holders of Preferred Shares are contractually entitled to receive dividends prior to holders of Common Stock. Dividends can accumulate at a fixed rate (for example 8%) or simply be payable as and when determined by a company's Board of Directors in such amount as determined by the board. Because venture backed companies typically need to conserve cash, the use of Cumulative Dividends is customary with the result that the Liquidation Preference increases by an amount equal to the Cumulative Dividends. Cumulative Dividends are often waived if the Preferred Stock converts to Common Stock prior to an IPO but may be included in the aggregate value of Preferred Stock applied to the Conversion Ratio for other purposes. Dividends that are not cumulative are generally called "when, as and if declared dividends."

Cumulative Dollar Profit - The total profit/loss in dollars (in millions) from inception to the end of the year.

Cumulative Preferred Stock: A stock having a provision that if one or more dividend payments are omitted, the omitted dividends (arrearage) must be paid before dividends may be paid on the company's common stock.

Cumulative Voting Rights: When shareholders have the right to pool their votes to concentrate them on an election of one or more directors rather than apply their votes to the election of all directors. For example, if the company has 12 openings to the Board of Directors, in statutory voting, a shareholder with 10 shares casts 10 votes for each opening (10x12= 120 votes). Under the cumulative voting method however, the shareholder may opt to cast all 120 votes for one nominee (or any other distribution he might choose). Compare Statutory Voting.

Custodian - A financial institution which holds stocks, bonds and other securities for guaranteed safekeeping. Related services include the collection of income on custodied securities, the settlement of transactions, the investment of cash overnight and the provision of accounting reports. Additional services may include performance evaluation and analysis, on-line reporting, global custody and securities lending.