The finance industry has a reputation for being reserved for those in the know. Clearly, that doesn’t just apply to connections, but acronyms. Well, not anymore. From EBITDA to MOIC here’s the need-to-know terminology for PE insiders.

Alternatives: Alternative asset classes refer to investment options outside of traditional categories like stocks, bonds, and cash. These include private equity, venture capital, but also assets like cryptocurrencies, derivatives, hedge funds, and real estate.

Co-Investment: An additional investment from limited partners, on top of the existing private equity injection.

Due Diligence: The process that companies undertake to ensure a standard of care, which usually includes investigating the legal, operational, strategic, and financial aspects of an investment opportunity.

EBITDA: An acronym for “Earnings Before Interest, Taxes, Depreciation, and Amortization”. A common financial analysis metric, this can show how well a company is managing to make money from its everyday operations.

ESG: The label for “Environmental, Social, and Governance” factors, which governments, watchdogs, and companies use to evaluate how sustainable and ethical a company or investment is.

Exit: The point at which a private equity firm successfully relinquishes its strategic position. Most commonly, this is through a private sale, a secondary sale to another private equity firm, or an initial public offering (IPO).

Fund of Funds: An investment fund that invests in multiple private equity funds, providing investors with exposure to a diversified portfolio of private equity investments.

Hold Period: This is how long a private equity firm holds an investment before exiting. This is usually a long-term timeframe, generally between three and five years.

IRR: Also known as the discount rate, the “Internal Rate of Return”, measures how profitable a potential investment might be as well as any actual, realized investments.

LBO: A “Leveraged Buyout” occurs when a private equity borrows money – usually through loans or bonds – to finance an acquisition. Assets of both the purchasing and purchased company are often used as collateral.

LP: A Limited Partner is an investor who provides financing for ventures, without offering management or strategic services, in exchange for a proportionate share of any profit.

Mezzanine Financing: A hybrid of debt and equity financing, often used in substantial mergers, acquisitions, and leveraged buyouts.

MOIC: The “Multiple on Invested Capital” is a ratio of an investment’s proceeds compared to the original amount invested, which can be used to measure the financial success of a project.

Portfolio Company: A company in which a private equity firm has made an investment. It can be either public or private.

SPAC: Also known as a blank check company, a “Special Purpose Acquisition Company” is a public firm created specifically to merge with or buy other businesses. These firms raise money through IPOs with generally vague ambitions, and the funds are used only when shareholders have approved a proposed acquisition target.

VC: Venture Capital is a type of private investment, aimed at early-stage companies and startups. The term usually refers to financial assistance, although it can often include the provision of expertise or other resources.