Getting started with investing can feel intimidating — especially when all the documentation is full of technical terms and words you’ve never heard before. The daunting vocabulary of the private markets inadvertently serves as a barrier to first-time investors. Here at Accrete, we’re focused on welcoming everyone, so we want to make sure you feel comfortable making your investing decisions. Whether you’re an investor vocabulary expert or in need of a refresher, we’ve picked out some of our favorite terms (and coincidentally, some of the most confusing) that will have you feeling like a longtime investor in no time. Follow along to help boost your financial literacy:
Accredited Investors: those who are legally qualified to invest in private equity opportunities, compliant with Rule 501 of Regulation D of the Securities Act of 1933 and the Dodd-Frank Act which set criteria for necessary income and net worth amounts. Check out our post for more information.
Alternative Investment: a type of financial asset that falls outside the traditional investing means (as in stocks, bonds, and cash), including private equity, venture capital, cryptocurrency, hedge funds, arts and antiques, real estate, and more. Learn more about alternative investments on our blog.
Asset Class: a group of investment types that share similar characteristics, both in the regulations they are subject to and how they behave in the market.
Assets Under Management (AUM): the total market value of all the assets that an individual or entity, like a mutual fund or private equity firm, has control over.
Blockchain: a type of shared database that stores data and records in blocks linked together in chronological order, often serving as a ledger for transactions.
Buyout: when an established public company is bought and delisted from the public market.
Buying Power: the money an individual has available to invest.
Cryptocurrency: a digital currency grounded in blockchain technology that can be used to buy goods and services without verification from a bank.
Direct Investment: a targeted investment into an individual, privately held company.
Distribution: a cash payout to investors for their investment’s appreciation.
Equity: the value of a company’s shares, minus debts and liabilities.
Fund: a pool of capital investments that firms will oversee for long-term growth potential, often from many investors.
Fund of Funds: an investment strategy where a fund invests in a portfolio of other funds rather than an individual, direct investment.
Growth Equity: an investment in a mature, growing company.
Investment Memorandum: a rationale for why a firm is investing in a company, sent to the firm’s investors.
Initial Public Offering (IPO): when a privately held company lists its shares on the public markets and is subsequently traded freely.
Internal Rate of Return (IRR): a metric that calculates an investment’s rate of return, excluding external factors like inflation and risk.
Liquidity: access to cash or ability to raise cash if needed.
Minimum Investment: the smallest investment amount that will be accepted in a new investment opportunity.
Multiple on Invested Capital (MOIC): a gross metric that evaluates how much value a particular investment has generated.
Private Equity: a form of alternative investment, which refers to the direct investment of capital into privately held companies through growth equity, venture capital, or buyouts, away from volatile public markets. Learn more about private equity.
Seed-stage: the early stage when startups are raising funding for their company, likely from friends, families, and angel investors.
Unicorn: a privately held startup company that is valued at over $1 billion.
Venture Capital: a form of private equity in which investors finance startups with long-term growth potential.
Now that we’ve caught you up to speed on all the private equity lingo, we hope you’ll consider joining Accrete in leveling the investment playing field.