P/E Ratio

Price/earnings ratio.

Par

The nominal amount assigned to a security by the issuer. For an equity security in the USA, par is usually a very small amount that no longer bears any relationship to its market price, except for preferred stock, in which case par may be used to calculate dividend payments. For a debt security, par is the amount repaid to the investor when the bond matures (usually, corporate bonds have a par value of $1,000, municipal bonds $5,000, and federal bonds $10,000); which is also called ‘face value’ or ‘par value.’ Referred to in some countries as ‘nominal value’.

Par Bond

A bond selling at its face value.

Pari Passu

Equably, rateably, without preference. Generally used in the USA to describe securities that are to be treated as being of equal priority or preference.

Participating Preferred Stock

Preferred stock that entitles the holder not only to its stated dividend and liquidation preference, but also allows the holder to participate in dividends and liquidating distributions declared on common stock.

Partnership

A form of conducting business in which the parties carry on their business for their joint benefit.

Patent

The exclusive right, granted by a government for a limited time period, to exclude others from making, using, or selling the claimed invention.

Patent Pending

(USA) A statement or notice typically found on an article of manufacture or related documentation indicating that a patent has been applied for but not yet granted.

Pay to Play

A provision in venture financing documents that states that if one of the venture investors declines to participate in a later financing round up to its pro rata ownership share of the company, it will forfeit certain of the beneficial terms of its investment, such as anti-dilution protection, pre-emptive rights, etc.

Payment in Kind (PIK)

A feature of a security permitting the issuer to pay dividends or interest in the form of additional securities of the same class.

Penny Stock

(USA) A stock that trades for less than $1.00 per share. Because they are assumed to be especially volatile, penny stocks are subject to heightened regulation. In the UK, the term ‘penny share’ refers generally to shares trading with a wide spread and is not limited to shares with low trading values.

Piggy-Back Registration Rights

(USA) Contractual rights granted to security holders, giving them the right to have their holdings included in a registration statement if and when the issuer files a registration statement. See ‘Demand Registration Rights’ and ‘Registration Rights’.

Pink Sheets

(USA) Pinksheets LLC is a privately owned company based in New York that provides broker/dealers, issuers, and investors with electronic and print products and information (including quotes) relating to the over-the-counter securities that are not listed on the OTC or Nasdaq Bulletin Board. The name is derived from the fact that historically the information was printed on pink paper. See ‘OTC’ or ‘Nasdaq Bulletin Board’.

PIPE

A private investment in a publicly traded company (literally, ‘private investment public equity’).

Pipeline

The aggregate of securities that are in the process of registration and expected to come onto the market. An offering is ‘in the pipeline’ once the registration process has begun.

Pit

See ‘Ring’.

Placement Agent

A person or entity that acts as an agent for the issuer in privately placing securities, typically a broker/dealer.

Placing

A form of issue of securities in the UK, typically with a predetermined number of non-retail investors.

Placing with Clawback

A form of placing of securities in the UK subject to recall of securities to satisfy the entitlements (to the extent exercised or taken up) of existing shareholders to purchase such securities.

Plain English

(USA) The SEC rules requiring issuers to write the cover page, summary, and risk factors section of prospectuses in simple language to make prospectuses more clear, concise, and understandable.

Pledging

Offering assets to a lender as collateral for a loan.

Poison Pill

The most famous anti-takeover device. It normally takes the form of granting existing stockholders (other than stockholders who acquire more than a certain percentage of the company) the option (which can only be exercised upon certain events) to buy more stock on very favourable terms as a way of diluting the position of the person trying to take control. See ‘Anti-Takeover Provisions’, ‘Blank Cheque Preferred Stock’, ‘Shark Repellent,’ and ‘Staggered Board of Directors’.

Pooling of Interests Accounting

(USA) A method of accounting for a business combination permitted in the USA prior to July 2001, in which the assets and liabilities of the combining companies were added together at historical cost, and the acquiring company generally was not required to reflect as good will any excess of the amount paid over historical cost of the seller’s assets and liabilities.

Power of Attorney

A legal document that enables one person to legally act on behalf of another person.

Pratt’s Guide

A directory of USA venture capital firms, the types of investments that they typically make, and the industries in which they specialise.

Pre-emptive Right

The right of an investor to participate in a financing to the extent necessary to ensure that, if exercised, its percentage of ownership of the company’s securities will remain the same after the financing as it was before.

Preferred Stock

Stock that has a ‘preference’ over common stock, including priority in receipt of dividends and upon liquidation. In some cases it also has redemption rights, preferential voting rights, and rights of conversion into common stock. Venture capitalists generally make investments in the form of convertible preferred stock.

Preferred Stock, Cumulative

See ‘Cumulative Preferred Stock’.

Pre-IPO Capital/Fund

‘ Late-round’ venture capital financing in connection with a company’s expansion phase as it solidifies its market share. A ‘Pre-IPO Fund’ is a venture capital fund focusing on late-round financing. See ‘Development Stage Capital/Fund’ and ‘Mezzanine Capital/Fund’.

Preliminary Prospectus

The form of prospectus used to solicit indications of interest in an issuer’s securities prior to the effectiveness of a registration statement. In the USA it contains a legend printed in red ink (hence, it is sometimes called a ‘red herring’) indicating its preliminary nature and that it does not contain final pricing information. In the UK, such a document is also referred to as a ‘pathfinder’ prospectus.

Premium

Shares of a new issue trade at a premium if their market price rises above their initial offering price.

Pre-money or Pre-money Valuation

The valuation of a company immediately before investors put new funding into the company. Used as the basis for calculating the investors’ price per share and percentage of the equity for the new investment.

Pricing Call

The discussion between the company and the underwriters of a public offering during which the price of the securities to be sold is determined. This discussion typically occurs after the market close on the evening immediately preceding the date on which the securities are to be publicly sold.

Primary Distribution/Shares

A distribution (i.e., public offering) of securities by the issuer itself, as distinct from a distribution by an existing stockholder. See ‘Secondary Distribution/Shares’.

Private Client

A UK regulatory term covering retail investors, charities, and trusts.

Private Company

See ‘Closed Corporation’.

Private Letter Ruling

(USA) A letter sent by the Internal Revenue Service in response to a request for clarification or interpretation of a tax law as it applies to a specific question or situation.

Private Offerings, Resale and Trading through Automated Linkages (PORTAL)

A market created by The Nasdaq Stock Market, Inc. for the trading of certain foreign and domestic securities through an automated quotation and communications system that facilitates private offerings, resales, trading, clearance, and settlement of securities offered to Qualified Institutional Buyers under Rule 144A. See ‘Qualified Institutional Buyer’ and ‘Rule 144A’.

Private Placement

The offer and sale of securities not involving a public offering. The definition of public offering varies from country to country. A private placement typically at least implies that the stock will be placed only with a limited number of private investors. In the USA, a private placement is one that is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933. Referred to in the UK as a ‘private placing’. See ‘Placing’ and also ‘Public Offering’ for comparison.

Private Placement Memorandum (or Private Offering Memorandum, Private Offering Circular, or Offering Circular)

A document used to describe securities being offered on a private basis that are exempt from the registration requirements of national competent authorities, or in the USA exempt from registration under the Securities Act of 1933. It may contain much of the same information that would be included in a prospectus. See ‘Prospectus’.

Pro Forma

A Latin term meaning ‘for form’. Pro forma financial statements are prepared based upon certain assumptions. For example, if a company is raising funds in an offering in order to acquire another company, it may be required to prepare pro forma financial statements showing the financial position of the combined companies as if the acquisition had been consummated.

Prospectus

A document that must be delivered to recipients of offers to sell securities and to purchasers of securities in a public offering and that contains a detailed description of the issuer’s business. In the USA, it is included as part of the registration statement filed with the SEC and with documents required by stock markets, stock exchanges, and national competent authorities.

Prospectus Directive

A directive of the European Commission requiring the implementation into the national law of all member states of the European Union of a set of common standards for securities prospectuses. A key feature of this directive is that of ‘mutual recognition’, such that a prospectus that has been approved by the appropriate competent authority of one member state is mutually recognised by the competent authorities of all other member states.

Public Float

See ‘Float’.

Public Offering

An offering of stock to the general investing public. The definition of a public offering varies from country to country, but typically implies that the offering is being made to more than a very restricted number of private investors; that road shows promoting the offering will be open to more than a very restricted audience; or that the offering is being publicised. For a public offering, registration of prospectus material with a national competent authority is generally compulsory. See ‘Private Placement’.

Public Orphan

A company that is publicly held, but where there is so little trading activity or analyst coverage that the company’s stock has limited liquidity and the company has limited ability to raise addition capital. A public orphan effectively has all the regulatory burdens of being public but none of the benefits.

Punitive Financing Round

See ‘Down Round’.

Purchase Accounting

The normal method of accounting for a business combination, in which the acquiring company treats the acquired company as an investment, adding the acquired company’s assets and liabilities to its own balance sheet based upon their fair market value on the date of acquisition. Any excess of the amount paid over the fair market value of net assets is goodwill.

Purchaser Representative

(USA) A person who acts on behalf of a purchaser of securities who otherwise would not be deemed to be an Accredited Investor under Regulation D of the Securities Act of 1933. The Purchaser Representative must be knowledgeable in financial and business matters such that he or she is capable of evaluating the merits and risks of the prospective investment. A Purchaser Representative should be acknowledged in writing by the investor in order to qualify under Regulation D.

Put Option

A contract that gives the holder the right to sell specified securities at a specified price during a specified period of time. See ‘Call Option’.