Glossary

Angel investor

An angel investor, also called a business angel, is a private individual who invests in companies during the startup stage or early product-development phase.

Business angels often invest during the pre-seed, seed, and sometimes growth capital stages.

Due Diligence (DD)

Due diligence (DD) is a detailed investigation carried out by financiers or investors before a possible transaction or investment.

It often includes financial, commercial, IT, legal, and tax reviews.

EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.

It is a measure of a company's operating profitability before financing costs and non-cash accounting charges are taken into account.

EBITDA is often used as a valuation benchmark for a business and is frequently used by private equity investors to assess potential acquisition targets.

Equity

Equity refers to shareholders' equity or share capital.

Exit

An exit is the moment when shareholders realise the value of their investment, for example by selling the company or taking it public through an IPO.

Fund

A fund is an entity that pools capital from multiple investors, often called limited partners, and invests that capital over the life of the fund.

The fund is managed by a fund manager or general partner.

Growth Capital

Growth capital is a type of investment in companies that need capital to accelerate growth.

Unlike buyout capital, it is not primarily used to buy out shareholders in mature companies.

Impact investing

Impact investing means investing in companies, organisations, or projects that deliver a measurable positive contribution to the environment.

Informal investor

An informal investor invests personal capital in other companies to help them grow.

Internal Rate of Return (IRR)

The Internal Rate of Return (IRR) is the average annual return earned on an investment made by an investor.

At fund level, IRR is measured on the capital that has actually been invested.

IRR should not be confused with effective return, which is calculated over committed capital. For many investors, effective return gives a better picture of actual performance because it also reflects the opportunity cost of capital that has not yet been invested.

Investor ready

Investor ready describes whether a company is prepared to start looking for an investor.

Investment period

The investment period is the period during which the fund manager is allowed to invest the committed capital.

Leverage

Leverage is the use of debt when structuring and financing investments, with the aim of increasing the return on the invested equity.

Management Buy-In (MBI)

A management buy-in (MBI) is a type of acquisition in which a company is taken over by someone who was not previously involved in that company.

Management Buy-Out (MBO)

A management buy-out (MBO) is a transaction in which the existing management team buys out the current owners and becomes a shareholder in the company.

This type of transaction can be particularly suitable for private equity or venture capital financing.

Pre-money versus Post-money in Venture Capital

In investment rounds, founders often come across many new terms in a short period of time. Two of the most important in venture capital are pre-money and post-money valuation.

Pre-money valuation is the value of the company before the new investment is added. Post-money valuation is the value of the company immediately after the investment has been made.

Pre-seed financing

Pre-seed financing is funding provided in the earliest stage of a company's life. At this point, there is often only an idea for a product or service, and the financing is used to fund initial development.

This stage is often financed by the founders themselves, together with family, friends, and fools (FFF). Entrepreneurs may also be able to access grants, tax schemes, or certain crowdfunding platforms in this phase.

Private Equity

Private equity means investing in companies that are not listed on a stock exchange.

It is often seen as the successor to venture capital, because private equity typically invests after a company has moved beyond its fastest growth phase. As a result, private equity investors often focus on more mature and relatively stable businesses.

Seed capital

Seed capital is financing provided to a startup before it generates revenue. The product or service has usually been developed, and the company is looking for capital to bring it to market and start growing.

Seed financing is generally smaller in size than venture capital.

Series A

Series A, also called Series A financing, is usually the first major round of venture capital financing. The name refers to the class of preferred shares sold to investors in exchange for their investment.

It is often the stage at which a venture capital investor enters the company. Series A rounds are commonly between EUR 500,000 and EUR 10,000,000, and investors often receive a stake of roughly 10% to 40%.

Series B

A Series B round is the financing round that follows Series A.

The amount raised is generally larger than in Series A, and some private equity investors may enter at this stage.

Startup valuation

Unlike the valuation of a mature company, which is often based on historical figures from the previous two or three years, a startup usually has limited or no historical financial data.

Startup valuation therefore relies more heavily on growth potential, market opportunity, traction, team quality, and comparable deals.

Term Sheet

A term sheet is an essential document at the start of negotiations with an investor in the venture capital world.

It outlines the main conditions of a proposed investment and forms the basis for further negotiations.

Valley of Death

The Valley of Death is the difficult period between a promising idea and commercial success.

It is the stage where many entrepreneurs risk running out of time, traction, or funding before the business becomes sustainable.

Venture Capital

Venture capital, or VC, is capital provided to companies to finance rapid growth.

Banks are traditional lenders that, especially in the SME market, tend to rely on historic cash flows and collateral. When an entrepreneur asks a bank to finance fast growth, that request is often not fully approved.

Fast-growing companies generally carry higher risk, which often falls outside a bank's profile. Venture capital investors are willing to finance that growth, but because of the higher risk they usually expect strong returns and often receive an ownership stake in the company in return, although there are exceptions.