November 10, 2023

Capital raising jargon explained

Many popular investments have their own jargon, we explain key Capital Raising terminology so you can focus on potential investments

Capital raisings jargon explained

Capital raisings can offer investors significant opportunities, but they can also expose participants to a whole new world of jargon. We explain the key terminology you may come across, so you can focus on finding the right investment.


Allotment and Delivery vs Payment – refers to settlement of issuance. After final price and size are determined, the issuer will allot shares/debt to investors accounts. Sometimes settlement needs to happen through a method called Delivery vs Payment (DvP), which refers to the transfer of legal entitlement for money at the same time.  Depending on the deal type, allotment or settlement can happen days or even months after the bookbuild period.

Angel Investor – Generally high net wealth individuals who invest funds directly into new or emerging businesses.

Assets Under Management – AUM is total value of assets managed by an institution or person on behalf of clients.

Audit – Independent examination of a company’s financial statements to ensure transparency and accurateness of financial disclosures.

Bookbuild  – refers to the process of gauging and registering investor interest when a capital raising is launched. The bookbuild process usually runs from a few hours to a few days depending on the size and the ease of the expected raise.  Before entering the bookbuild process, the brokers or deal managers will prepare key information about the issuer, such as past financial performance and future growth strategies. During bookbuild, they will present these to investors, and based on investors’ demand, decide key terms of the raise, i.e., the exact price, trading margin, and amount of the raise.

Hedge Fund – a private fund that pools capital from investors and typically uses leverage to invest in one of more of a diverse range of securities and strategies, including short and long positions, arbitrage, derivatives, commodities, currencies and convertible securities to generate returns.

Information Memorandum and Prospectus – key documents required for the disclosure of detailed information about the capital raise. A prospectus is a legal document a company must prepare for investors if they are going to offer shares/notes to the public, such as in an IPO; and Information Memorandum is the document required if the offer is private or not offered to the general public. These documents are intended to provide investors with as much information as possible regarding the investment, although an Information Memorandum is subject to less disclosure requirements because they are not intended for the public. After the price and size of the capital raising are determined, investors will receive a Replacement Prospectus to reflect any changes to original terms. Investors should always read the Information Memorandum or Prospectus and obtain any professional advice before they make an investment decision.

Financial Statements – Typically found in a prospectus or annual report, financial statements provide information on the balance sheet of a company as well as inflows and outflows of cash and how company funds are being spent. They also contain the terms and conditions of debt instruments like bonds.

Lead Manager / Arranger – The people who are tasked with the capital raising. They are usually investment bankers or capital market specialists, and are also referred to as joint lead manager, or joint arranger if multiple organisations are engaged for the task. They are responsible for doing due diligence on the issuer, compiling information, creating publicity materials that are compliant with regulatory requirements, running the bookbuild process and allocating equity or debt to individual investors. In return they receive a fee for their service, usually calculated as a percentage of the total amount raised.

Liquidity – Refers to how quickly a security can be bought or sold on a secondary market without impacting its trading price.

Management Fees – generally paid out of fund assets to its manager in return for managing the fund.

Oversubscribed – investors deciding to participate in the deal need to commit an amount to subscribe to the issue. When there are more subscriptions than what is on offer, or in other words, demand exceeds supply, the deal will be oversubscribed. In some instances, companies or issuers anticipating oversubscription may leave room for additional bids and raise slightly more than the expected amount. For example, a bank may announce it expects to raise A$750 million under a capital note offer, but eventually allocates A$1.5 billion to the final issue. In this case, the issuer takes advantage of oversubscribtions to raise additional debt.

Performance Fees – Additional compensation paid to a manager based on the performance of a fund or a client’s investment portfolio.

Pooled Investment Vehicle – An entity where investors purchase an interest in a fund and a manger invests the proceeds. Investors typically share in the profits and losses in proportion to their interest in the fund.

Private Equity Fund – A fund which is typically managed by a private equity firm and provides investors access to different investment strategies like buyouts, growth equity and venture capital.

Scale back – Investors receive fewer shares or a lower capital allocation than what they bid for.  When oversubscription occurs, issuers or companies usually don’t have capacity to accommodate and meet all bids from investors. It results in the final allocation of issued notes/equities to investors to be scaled according to total supply and demand. This dynamic also underpins many oversubscription situations as investors may upsize their bid in expectation of a scale back.

Secondary Market – A market where existing securities can be bought and sold by investors, rather than directly from the issuing company.

Syndicated Brokers – Similar to Leader Managers and Arrangers, Syndicated Brokers are also involved in the capital raising process. Their primary role is to distribute the issuance through their network of clients. For most capital raising opportunities, be it IPO or debt issuance, investors must participate through their Syndicated Brokers.

Term sheets – A non-binding document to facilitate a capital raising. It contains key terms and conditions of the raising, and it forms a basis for negotiations during the bookbuild process.  It will usually cover items such as issuer entity, price and amount of raising, any covenants, and investors’ rights.

Trading margin – The annualised total percentage return a security gives in the form of income and capital over and above a benchmark, such as the Bank Bill Swap rate (BBSW)

Valuation – Refers to how much the company is worth, and it determines price per share that investors will pay to buy into the equity. For equity raisings, there are also pre-money valuations and post-money valuations, which refer to a company’s value before and after the money is raised.  In debt raising, investor returns are calculated as yields, and the price of an issued bond is referred to as the margin above a benchmark, such as Australian Bank Bill Swap Rate or the government bond future.

Venture Capital Fund – Typically invest in businesses in exchange for equity. Funds may focus on specific industries like biotech or robotics, or in companies at different stages of development (for example, early, mature, or later stage).

Important Information

The information contained in this article is gathered from multiple sources believed to be reliable as of the end of October 2023 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, we recommend that you consider whether it is appropriate for your circumstances and that you seek independent legal, financial and taxation advice before acting on any of this information. ©2023 NAB Private Wealth is a division of National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. NAB does not guarantee the accuracy or reliability of any information in this article which is stated or provided by a third party. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article. You may be exposed to investment risk, including loss of income and principal invested.

You should consider the relevant Product Disclosure Statement (PDS), Information Memorandum (IM) or other disclosure document and Financial Services Guide (available on request) before deciding whether to acquire, or to continue to hold, any of our products.

All information in this article is intended to be accessed by the following persons ‘Wholesale Clients’ as defined by the Corporations Act. This article should not be construed as a recommendation to acquire or dispose of any investments.

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