Glossary of Investment Terms

The investment world is filled with specialized terminology that can be overwhelming for newcomers and even experienced investors encountering new areas. This comprehensive glossary provides clear, concise definitions of essential investment terms covering private markets, public markets, regulatory concepts, and financial instruments, along with the SEC filings embarc tracks. Where embarc has a full guide on a term, the term links to it.

General Investment Terms

Accredited Investor

An individual or entity that meets SEC criteria, allowing them to invest in private placements closed to the general public. Individuals qualify through income ($200,000, or $300,000 with a spouse or partner, in each of the last two years), net worth over $1 million excluding a primary residence, or since 2020 by holding a Series 7, 65, or 82 license or being a knowledgeable employee of a private fund. Entities qualify through, among other tests, $5 million in assets or investments.

Asset Class

A category of investments with similar characteristics and behavior, such as stocks, bonds, real estate, or alternative investments.

Due Diligence

The comprehensive research and analysis process investors conduct before making an investment decision, including review of financials, management, market, and risks.

Family Office

A private firm that manages the investments and affairs of one wealthy family (single family office) or several (multi-family office). Single family offices are generally excluded from adviser registration; multi-family offices usually register and file Form ADV.

Liquidity

The ease with which an investment can be converted to cash without significantly affecting its market price.

Portfolio

A collection of investments held by an individual or institution, typically diversified across different asset classes and securities.

Private Market Terms

Key Private Market Concepts

Private Placement

A securities offering sold directly to a select group of investors rather than through a public offering.

Private Equity

Investment in private companies or buyouts of public companies, typically involving significant ownership stakes and active management.

Venture Capital

Investment in early-stage, high-growth potential companies in exchange for equity ownership.

Carried Interest

The share of profits that general partners in private equity or venture capital funds receive, typically 20% of fund profits after LPs get their capital back and any preferred return.

Dry Powder

Uninvested committed capital available to private equity or venture capital funds for new investments.

IRR (Internal Rate of Return)

The annualized rate of return on an investment, commonly used to measure private equity and venture capital performance.

LBO (Leveraged Buyout)

The acquisition of a company using a significant amount of borrowed money to meet the cost of acquisition.

SPAC and Public Market Terms

SPAC (Special Purpose Acquisition Company)

A publicly traded company formed specifically to raise capital through an IPO for the purpose of acquiring or merging with an existing company.

De-SPAC

The process by which a SPAC completes its business combination with a target company, taking the target public.

PIPE (Private Investment in Public Equity)

A private placement of shares in a publicly traded company, often used to provide additional capital during SPAC mergers.

SPAC Sponsor

The entity, usually an LLC controlled by a few principals, that forms and runs a SPAC and earns the "promote," founder shares typically equal to 20% of post-IPO equity. See the SPAC sponsor list.

Underwriter

The investment bank that manages a securities offering, such as an IPO, and sells it to investors for a fee. In a SPAC IPO, part of the fee is usually deferred until the merger closes. See the SPAC underwriter list.

Redemption Rights

The right of SPAC public shareholders to redeem their shares for a pro rata share of the trust account (about $10 per share plus interest) at the business combination vote, whether they vote for or against the deal, and at any extension vote or liquidation.

Warrant

A derivative security that gives holders the right to purchase shares at a specific price within a certain time frame.

Regulatory and Legal Terms

SEC Regulations

Regulation D

SEC rules providing exemptions from registration for private placements: Rule 504 (up to $10 million in 12 months) and Rule 506(b) and 506(c) (no dollar limit).

Regulation A

SEC exemption allowing companies to raise up to $20 million (Tier 1) or $75 million (Tier 2) in 12 months from both accredited and non-accredited investors, through an offering statement on Form 1-A that the SEC qualifies.

Regulation CF

SEC exemption letting companies raise up to $5 million in 12 months from the public, including non-accredited investors, through a registered funding portal or broker-dealer.

Blue Sky Laws

State-level securities regulations designed to protect investors from fraudulent investment schemes. For most Reg D, Reg A Tier 2, and Reg CF offerings, federal law limits states to notice filings, fees, and anti-fraud enforcement.

Form D

The notice filed with the SEC within 15 days after the first sale in a Regulation D offering. It names the issuer, its executive officers and directors, the exemption claimed, the amount offered and sold, the number of investors, and any sales commissions and the brokers paid them. Private funds file one too. Browse Form D offerings in the embarc dashboard's Reg D screener.

Qualified Purchaser

An individual (or family-owned company) with at least $5 million in investments, or most other entities with at least $25 million, who may invest in private funds relying on Section 3(c)(7) of the Investment Company Act, which have no 100-investor cap.

Form C

The disclosure document a company files with the SEC for a Regulation CF offering, covering the business, officers and directors, use of proceeds, financial statements, the securities offered, and the funding portal and its fee. See Reg CF offerings.

Form 1-A

The offering statement for a Regulation A offering, which the SEC must qualify before sales. See Reg A issuers.

Funding Portal

An SEC-registered intermediary and FINRA member that hosts Regulation CF offerings. Unlike a broker-dealer, it cannot give investment advice or hold investor funds. See the funding portal list.

Placement Agent

A broker-dealer paid to find investors for a private placement or private fund. Form D lists each one paid commissions and the states where it solicited.

Safe Harbor

Legal provisions that reduce or eliminate liability under certain circumstances, often found in securities regulations.

Fund Structure Terms

General Partner (GP)

The entity that manages a private equity or venture capital fund and makes investment decisions.

Limited Partner (LP)

Investors in a private equity or venture capital fund who provide capital but have limited involvement in management decisions.

Management Fee

The annual fee paid to fund managers, commonly 1.5% to 2% of committed capital during the investment period and of invested capital or assets under management after it.

Hurdle Rate

The minimum rate of return a fund must achieve before the general partner can receive carried interest.

Clawback

A provision requiring general partners to return previously received carried interest if the fund's overall performance falls below specified thresholds.

SPV (Special Purpose Vehicle)

A legal entity, usually an LLC or LP, formed to pool investors into a single deal or asset. SPVs often file their own Form D as a pooled investment fund and appear in their manager's Form ADV. See special purpose vehicles explained and SPVs in the embarc dashboard.

Fund Family

A group of funds run by the same manager, such as a numbered series of flagship funds with their parallel, feeder, and co-investment vehicles. Grouping them shows a manager's full footprint; see fund families in the embarc dashboard.

Form ADV

The form investment advisers file with the SEC or states. Part 1A reports regulatory facts such as assets under management, clients, owners, disciplinary history, and private funds; Part 2 is the plain-English brochure given to clients. Registered advisers update it at least annually. See advisers in the embarc dashboard.

Exempt Reporting Adviser

An adviser exempt from SEC registration because it advises only venture capital funds, or only private funds with less than $150 million in U.S. assets under management. It still files a shortened Form ADV Part 1A, which is public.

Schedule D

The supplementary schedule of Form ADV Part 1A. Its private fund section lists each fund an adviser manages, with the fund's type, gross asset value, number of beneficial owners, minimum investment, Form D file number, and service providers such as auditors, custodians, administrators, and prime brokers. See private funds in the embarc dashboard.

Valuation and Financial Terms

Key Valuation Concepts

Pre-Money Valuation

The value of a company before receiving new investment capital.

Post-Money Valuation

The value of a company after receiving new investment capital (pre-money valuation plus investment amount).

Enterprise Value

The total value of a company, including equity value plus debt minus cash.

Multiple of Invested Capital (MOIC)

A measure of investment returns showing how many times the original investment has been returned.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization - a measure of a company's operating performance.

Cap Table

A table showing the ownership structure of a company, including shares, options, and investor stakes.

Dilution

The reduction in existing shareholders' ownership percentage when new shares are issued.

Investment Process Terms

Term Sheet

A non-binding document outlining the key terms and conditions of a potential investment.

Lead Investor

The primary investor in a funding round who takes responsibility for setting terms and coordinating other investors.

Pro Rata Rights

The right of existing investors to maintain their ownership percentage by participating in future funding rounds.

Anti-Dilution Provisions

Contractual rights protecting investors from dilution in future financing rounds at lower valuations.

Liquidation Preference

The order and amount that investors receive proceeds when a company is sold or liquidated.

Exit and Liquidity Terms

Exit Strategies

IPO (Initial Public Offering)

The first sale of shares to the public by a private company, creating public market liquidity.

Strategic Acquisition

The purchase of a company by another company for strategic reasons rather than financial returns.

Secondary Sale

The sale of private company shares to other investors before a liquidity event.

Lock-Up Period

A contractual restriction preventing shareholders from selling their shares for a specified time period.

Drag-Along Rights

Rights allowing majority shareholders to force minority shareholders to participate in a sale of the company.

Tag-Along Rights

Rights allowing minority shareholders to participate in a sale initiated by majority shareholders.

Waterfall Distribution

The order in which proceeds from an investment are distributed among different classes of investors.

Risk and Performance Terms

Alpha

A measure of investment performance relative to a market benchmark, representing excess return above the benchmark.

Beta

A measure of an investment's sensitivity to market movements, with 1.0 indicating movement in line with the market.

Sharpe Ratio

A measure of risk-adjusted return, calculated as excess return over the risk-free rate divided by standard deviation.

Downside Protection

Investment features or strategies designed to limit losses during market downturns.

Volatility

The degree of variation in an investment's returns over time, often measured as standard deviation.

Conclusion

This glossary provides a foundation for understanding investment terminology across various asset classes and market segments. Investment language continues to evolve as new products, regulations, and market structures emerge, so staying informed about terminology is important for all market participants.

Use this reference guide when reviewing investment documents, participating in discussions, or conducting due diligence on investment opportunities. Understanding these terms will help you communicate more effectively with investment professionals and make more informed decisions about your investment portfolio.