Private Equity and Venture Capital Glossary

Offering memorandum

A legal document that provides details of an investment to potential investors.


See Original issue discount.

Operating cash flow

The cash flow produced from the operation of a business, not from investing activities (such as selling assets) or financing activities (such as issuing debt). Calculated as net operating income (NOI) plus depreciation.


The way a concept is presented. Sometimes entrepreneurs’ presentations are strong on optics but weak in content.

Option pool

A group of options set aside for long term, phased compensation to management and employees.


See Stock options.

Original issue discount (OID)

A discount from par value of a bond or debt-like instrument. In structuring a private equity transaction, the use of a preferred stock with liquidation preference or other clauses that guarantee a fixed payment in the future can potentially create adverse tax consequences. The IRS views this cash flow stream as, in essence, a zero coupon bond upon which tax payments are due yearly based on “phantom income” imputed from the difference between the original investment and “guaranteed” eventual payout. Although complex, the solution is to include enough clauses in the investment agreements to create the possibility of a material change in the cash flows of owners of the preferred stock under different scenarios of events such as a buyout, dissolution or IPO.


A startup company that does not have a venture capitalist as an investor.

Outstanding shares

The total amount of common shares of a company, not including treasury stock, convertible preferred stock, warrants and options.


When demand exceeds supply for shares of an IPO or a private placement.