Tuesday 20 February 2018

Database Glossary

NOTE: Portions of this glossary were compiled with direct reference to the European Private Equity and Venture Capital Association’s highly respected glossary of private equity terms. The full EVCA glossary is available online at www.evca.eu. However, many of the definitions printed here are unique, or have been adapted to fit the African context. Definitions have also been adapted in line with Africa Assets' data collection and presentation methodology.


Early Stage

Incubation: Some venture capital funds work with business incubators to help would-be entrepreneurs develop business ideas to the point that would normally attract venture capital. Incubation services are becoming more common in Africa. They generally involve more intensive hands-on support and basic business guidance than with a traditional seed or start-up investment. Incubators may also provide access to work space, office equipment, internet connections, legal advice and managerial services.

Seed: Venture capital for entrepreneurs that are developing a business concept and have not yet reached the start-up stage.

Start-up: Venture capital for companies that have just been set up or are being set up, but have yet to bring their product or service to market.

Later Stage

Growth: Growth capital is the most common private equity investment type in sub-Saharan Africa. Financing is used by established companies to expand capacity, enter new markets, develop products and services, and/or improve operations.

Acquisition: A deal that results in the PE/VC fund taking control or ownership of a company, with the purchase of 50% or more of the company's shares. In the Africa Assets database, the acquisition category encompasses all kinds of acquisitions, including the various types of buyout deals. See Buyout.

Buyout: Buyout deals involve the purchase of a company, which is often financed by a mix of equity and debt, either on behalf of the current management team (management buyout – MBO), an outside management team (management buyin – MBI), or by the private equity firm (institutional buyout – IBO). Leveraged buyouts (LBO) involve high levels of debt financing. Buyouts are less common than growth plays in sub-Saharan Africa. Debt financing is less readily available and PE firms focus more on growth potential than financial engineering to generate returns. Sub-Saharan African buyouts can also be categorized into the following sizes:

  • Small - less than USD5m
  • Mid-market - greater than/equal to USD5m and and less than 20m
  • Large - greater than/equal to USD20m and and less than 200m
  • Mega - greater than/equal to USD200m

Replacement Capital: Purchase of shares in a company from existing shareholders. This later stage deal type involves a change in ownership structure but does not provide the target company with additional capital.

Secondary Purchase: Purchase of shares in a company by one private equity firm from another private equity firm. Effectively a form of replacement capital.

Private Investment in Public Equity (PIPE): An investment made by a private equity firm through the purchase of public shares in a company, usually in the form of preferred stock or convertible securities. PIPE deals are relatively common in Africa, where companies that are publicly listed can be attractive targets due to their size, transparency and good corporate governance standards.

Mezzanine: Loan financing that sits halfway between equity and secured debt. Returns on the investment may be deferred as a rolled up payment in kind or equity kicker, where the lender agrees to lower interest rates in return for an ownership share in the venture financed.

Distressed: Provision of turnaround capital for an unprofitable, failing or otherwise distressed company.

Project Finance: Financing from a PE firm for a project – often an infrastructure, agricultural or real estate development – or for the development of a new company. This financing differs from "traditional" PE finance, which normally involves the purchase of a stake in an existing company with a shorter exit horizon. However, due to the shortage of viable companies in which to invest in sub-Saharan Africa, many PE firms choose to fund development projects or build companies from scratch.

Minority Stake: Taken when a fund acquires less than 50% of the target company shares.

Majority Stake: Taken when a fund acquires 50% or more of the target company shares. See Acquisition.


Trade Sale: Sale to an industrial investor

Initial Public Offering (IPO): First sale of a private company to the public, either to raise expansion capital or to become a publicly traded company.

Iinitial Public Offering, No Disposal of Shares (IPONDS): Where an IPO is held for an investee company, with no disposal of shares by the PE/VC fund. This constitutes an effective but incomplete exit; the fund may easily exit its investment at any time following the public offering.

Financial Sale: Sale to a financial institution

Secondary Sale: Sale to another PE/VC firm

Buyback: Repurchase of shares by the investee company

Liquidation: Where portfolio company assets are split and sold, with some proceeds going to the PE/VC investor.

Write-Off: When a fund cannot obtain a successful exit, it may write down a portfolio company’s value to zero and abandon the investment. For obvious reasons, these exits are rarely reported.


Venture Capital Funds: focus on early stage investments (seed and start-up deals), often with a technology component that supports high growth potential, and may sometimes target business incubation or growth play deals.

Later Stage Funds: focus on growth plays, acquisitions of later stage companies and buyout deals. Relatively little leverage is used in sub-Saharan Africa-focused funds, even for buyouts. The overwhelming focus here is on growth capital that allows firms to take advantage of the region’s high growth rates and economic integration that drives business expansion.

Open Funds: have no specific sector focus.

Sector-Specific Funds: may focus on a single sector or a few specific sectors. Agribusiness is the most popular single-sector focus for funds targeting sub-Saharan Africa. Many funds in the region choose a few core sectors, but will consider deals in other sectors on a case-by-case basis. Some funds also define their sector focus by excluding a few sectors – often mining and extractive industries.

Infrastructure Funds: Private financing for infrastructure development is in high demand across sub-Saharan Africa. While infrastructure is often treated as a separate asset class (because it carries a different exit horizon, risk and return profile), many PE funds targeting the region include infrastructure deals in their portfolios. These funds are tagged as having infrastructure as one of their sector focus areas. Other PE GPs manage funds dedicated solely to infrastructure. All of this activity is tracked in our database.

Real Estate Funds: Real estate is a popular and profitable asset class in many of Africa’s fast growing economies. Some PE GPs targeting sub-Saharan Africa manage funds dedicated solely to real estate development projects. We track these funds in our database, while recognizing that they do carry a different exit horizon, risk and return profile than a normal private equity fund. Many PE funds targeting the region also include real estate projects or real estate-related investments in their portfolios, alongside investments in other sectors. We note real estate as a sector focus area for these funds, and track these deals in the database.

SME Funds: define their investment focus by target company size, specifically targeting small to medium sized enterprises (SMEs), with deal sizes in the USD50,000 to USD5m range. These are quite common in sub-Saharan Africa, given the great number of SMEs in need of growth capital here and relative lack of large companies in which to invest.

Captive Funds: make PE/VC investments on behalf of a bank, investment firm, corporation, family office or other parent investor. The fund is often defined by a certain commitment size. However, the pool of capital comes entirely or mostly from the single parent investor, and is therefore not always subject to the same exit timeframe or return demands as third party funds.

Joint Venture Funds: JVs are usually established by a joint commitment from two parent LPs. Funds are often committed all at once when the fund is launched, bypassing the traditional PE fundraising model, and then managed by a third party fund manager or by one of the LP partners. In some cases, further funds are raised from additional LPs.

Special Purpose Vehicles: SPVs raise funds from third party investors for a specific project or investment that is known to the LPs at the start of fundraising. The entire fund is usually invested in one large project or investment, or used to establish a new company.

Opportunity-Specific Funds: OSFs raise funds from third party investors on a deal-by-deal basis so that LPs are given specific information about each target company before funds are committed. Some GPs have turned to opportunity-specific fundraising in sub-Saharan Africa as a way to address risk aversion amongst LPs committing to the region for the first time.