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Terms & Definitions
General Partner (GP):
The partner in a limited partnership responsible for all management decisions of the partnership. The GP has a fiduciary responsibility to act for the benefit of the limited partners (LPs) and is fully liable for its actions.
Hurdle Rate:
The internal rate of return that a fund must achieve before its general partners or managers may receive an increased interest in the proceeds of the fund. Often, if the expected rate of return on an investment is below the hurdle rate, the project is not undertaken.
Incubator:
An entity designed to nurture business concepts or new technologies to the point that they become attractive to venture capitalists. An incubator typically provides both physical space and some or all of the services - legal, managerial and/or technical - needed for a business concept to be developed. Incubators are often backed by venture capital firms, which use them to generate early-stage investment opportunities.
IRR (Internal Rate of Return):
A typical measure of how VC Funds measure performance. IRR is technically a discount rate - the rate at which the present value of a series of investments is equal to the present value of the returns on those investments.
Later Stage:
A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume.
Limited Partner (LP):
An investor in a limited partnership that has no voice in the management of the partnership. LP's have limited liability and usually have priority over GP's upon liquidation of the partnership.
Management Buy-Out (MBO):
A venture capital or private equity firm will often provide funding to enable current operating management to acquire or to buy at least 50 percent of the business they manage. In return, the private equity firm usually receives a stake in the business.
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