An initial investment in a company that provides a certain amount of equity, with the intent to buy more of the company at a later date, especially when a certain regulatory hurdle has been met. In the early 1980s, it became relatively common for bank holding companies to make stake-out investments in out-of-state banks before interstate banking was allowed to any significant extent. This brought stake-out investments under the regulation of the Federal Reserve, which limited stake-outs to 5% equity. The bank holding companies made these stake-out investments under the assumption that interstate banking would eventually be allowed, which it finally was with the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
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An investment that provides an initial stake in a company in anticipation of additional investments in the same firm.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.