Later Stage: A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume. Later stage funds often provide the financing to help a company achieve critical mass in order to position its

Lead Investor: Also known as a bell cow investor. Member of a syndicate of private equity investors holding the largest stake, in charge of arranging the financing and most actively involved in the overall project.

Lemon: An investment that has a poor or negative rate of return. An old venture capital adage claims that "lemons ripen before plums."

Leverage: The practice of borrowing to add to an investment position when one believes that the return from the position will exceed the cost of borrowed funds. Both institutional and individual investors can use leverage. It is not uncommon to see hedge fund managers utilize leverage in order to increase returns. Leverage can have the effect of magnifying returns as well as losses.

Leveraged Bond Fund: An investment strategy designed to profit primarily from principal appreciation by utilizing leverage to purchase government bonds and to a lesser extent, fixed-income derivatives. The holding period is normally short to medium term and low volatility may be anticipated.

Leveraged Buyout (LBO): A takeover of a company, using a combination of equity and borrowed funds. Generally, the target company's assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds, using the assets of the company as collateral, in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares.

Limited partner clawback: This is a common term of the private equity partnership agreement. It is intended to protect the general partner against future claims, should the general partner of the limited partnership become the subject of a lawsuit. Under this provision, a fund's limited partners commit to pay for any legal judgment imposed upon the limited partnership or the general partner. Typically, this clause includes limitations in the timing or amount of the judgment, such as that it cannot exceed the limited partners' committed capital to the fund.

Limited Partners: Usually investors in a limited partnership with no management activity or responsibility. The liability or risk is limited to the amount of invested capital with no personal assets at risk. A limited partner has limited liability.

Limited Partnerships: An organization comprised of a general partner, who manages a fund, and limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, the general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners receive income, capital gains, and tax benefits.

Liquidation Preference: The amount per share that a holder of a given series of Preferred Stock will receive prior to distribution of amounts to holders of other series of Preferred Stock of Common Stock. This is usually designated as a multiple of the the Issue Price, for example 2X or 3X, and there may be multiple layers of Liquidation Preferences as different groups of investors buy shares in different series. For example, holders of Series B Preferred Stock may be entitled to receive 3X their Issue Price, and then if any money is left, holders of Series A Preferred Stock may be entitled to receive 2X their Issue Price and then holders of Common Stock receive whatever is left. The trigger for the payment of the Liquidation Preference is a sale or liquidation of the company, such as a merger or other transaction where the company stockholders end up with less than half of the ownership of the new entity or a liquidation of the company.

Liquidation: 1) The process of converting securities into cash. 2) The sale of the assets of a company to one or more acquirers in order to pay off debts. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Liquidity: The ease of converting an invested asset to cash or liquid capital. Lack of liquidity can limit an investor as to the timing of withdrawals from a particular account or strategy. For example an investor may have to give 45 days notice to withdraw cash from a particular investment vehicle.

Liquidity Event: An event that allows a VC to realize a gain or loss on an investment. The ending of a private equity provider's involvement in a business venture with a view to realizing an internal return on investment. Most common exit routes include Initial Public Offerings [IPOs], buy backs, trade sales and secondary buy outs. See also: Exit strategy

Liquidity Premium: An extra component of yield or return required to compensate the investor for the possibility that an adequate retail market may not develop for a security.

Lock-up - The period of time, often one year, during which hedge-fund investors are initially prohibited from redeeming their shares. This is a long-biased investment strategy. It's an approach taken by fund managers who tend to hold considerably more long positions than short positions.

Lock-up Period: The period of time that certain stockholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups of at least 180 days from large shareholders (1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners and such large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed.

Long/Short Equity - A directional investment strategy that involves equity-oriented investing on both the long and short sides of the market. The objective is not to be market neutral. Managers have the ability to shift from value to growth, from small to medium to large capitalization stocks, and from a net long position to a net short position. Managers may use futures and options to hedge. The focus may be regional, such as long/short US or European equity, or sector specific, such as long and short technology or healthcare stocks. Long/short equity funds tend to build and hold portfolios that are substantially more concentrated than those of traditional stock funds.

Lower quartile: The point at which 75% of all returns in a group are greater and 25% are lower.