Glossary: the words investors use, in plain English

Investors and lawyers use a compressed vocabulary. None of it is complicated once it is unpacked, and no honest investor minds being asked. If a term you have been handed is not here, ask us.

Money and measurement

EBITDA — Earnings before interest, taxes, depreciation and amortization. A rough proxy for the cash a business generates from operations before financing and accounting choices. Most valuation conversations at this size start here.

SDE (seller's discretionary earnings) — EBITDA plus the owner's salary and personal expenses run through the business. Used for owner-operated companies where the owner's compensation is a choice, not a market rate. A buyer normally deducts the cost of replacing the owner.

Gross margin — Revenue minus the direct cost of delivering it. The number that tells you whether a price is right; the one most small manufacturers and contractors track least reliably.

Working capital — Current assets minus current liabilities: the cash tied up in receivables and inventory before your customers pay. Growth consumes it, which is why growing companies can be profitable and broke at the same time.

Runway — How many months the business can operate on the cash it has.

Burn — Net cash going out each month. Relevant on the startup track; rarely relevant for a profitable company.

Valuation

Enterprise value — What the whole business is worth, independent of how it is financed.

Equity value — Enterprise value minus interest-bearing debt, plus surplus cash. What the shares are worth.

Multiple — The number applied to EBITDA or SDE to get enterprise value. In this size band, commonly 3× to 5× for a business with real management depth; lower when the owner is the business; higher with contracted recurring revenue.

Minority discount — The reduction applied because a minority holder cannot force a sale or control distributions. Real, and usually a point of negotiation.

Pre-money / post-money — The agreed value of the company before, and after, the new investment goes in. A startup-track term.

Cap table — The list of who owns what, including options and warrants, fully diluted.

Instruments

Common shares — Ordinary ownership: votes, dividends when declared, last in line if things go wrong.

Preferred shares — A class that sits ahead of common on dividends and on a wind-up. In our members' deals they usually carry a fixed dividend and a buy-back or redemption right, and few or no votes.

Cumulative dividend — An unpaid dividend accrues rather than disappearing, and must be caught up before common dividends are paid.

Redemption / buy-back right — The right (or obligation) for the company to repurchase the shares after a set date at a set price. This is what gives a minority investment a defined end without a sale.

Liquidation preference — Who gets paid first, and how much, if the company is sold or wound up. A "1× non-participating" preference returns the investor's money first; then the rest goes to common.

Revenue-based note — Capital repaid as a fixed percentage of monthly revenue until a cap (often 1.5×–2.0× the amount advanced). Flexes with the business; no fixed instalment.

Shareholder loan — A loan from an investor to the company, usually subordinated to the bank.

Warrant — The right to buy shares at a fixed price for a fixed period. Attached to a loan, it gives the lender equity upside without equity today.

Convertible note / SAFE — Money now, shares later, converting at the next priced round, usually at a discount. Startup track.

Subordinated / mezzanine debt — Debt that ranks behind the senior lender and is priced accordingly.

Vendor take-back (VTB) / seller note — The seller finances part of the purchase price and is paid over time. Common in succession deals; it also means the seller carries risk after closing.

Agreements and mechanics

Term sheet — A short, mostly non-binding summary of the proposed deal. Get the economics and the control terms in it before lawyers start.

Shareholders' agreement — The contract among owners: what needs consent, how shares transfer, what happens on death, disability, deadlock or a sale.

Drag-along — If enough shareholders agree to sell, they can require the rest to sell too.

Tag-along — If a majority sells, minorities can require the buyer to take their shares on the same terms. The protection minority investors care about most.

Right of first refusal (ROFR) — Existing shareholders get first chance to buy shares someone wants to sell.

Pre-emptive right — The right to buy into a future issue of shares to avoid dilution.

Anti-dilution — Adjusts an investor's position if shares are later issued at a lower price.

Reserved matters / consent rights — The short list of decisions requiring investor agreement. Read this list carefully; it is where "minority" is actually defined.

Observer seat — Attendance at board meetings without a vote.

Intercreditor / postponement agreement — The document in which your senior lender and the new investor agree who ranks where. Frequently the slowest piece of a closing; start it early.

Covenant — A promise in a loan or investment agreement: maintain a ratio, deliver statements on time, do not take on new debt.

Escrow / holdback — Part of the money held back until a condition is met.

Earn-out — Part of the price paid later, contingent on performance.

Personal guarantee — The owner personally promises to repay if the company cannot. Standard in bank lending; rare in our members' investments.

Process

Due diligence — The investigation before investing: financial, commercial, legal, operational, plus references and a site visit. Four to six weeks is typical here.

Quality of earnings (QofE) — An accountant's report testing whether reported earnings are real and repeatable. Usually reserved for larger deals at this size.

Data room — The (usually digital) folder where diligence documents live.

Knockout — A criterion that ends the conversation regardless of everything else: an excluded industry, a reporting issuer, a closed geography.

Accredited investor / self-certified investor — Categories under Ontario securities law defining who may participate in private placements. Every member of this group qualifies under one of them and re-attests annually.

Succession

MBO (management buyout) — The existing management team buys the company.

MBI (management buy-in) — An outside manager buys in and takes an operating role.

EOT (employee ownership trust) — A Canadian structure in which a trust holds shares for employees; the associated capital-gains exemption was made permanent in 2026, subject to detailed conditions.

ESOP — The longer-established US employee-ownership vehicle. More mature than the EOT, and materially more expensive to set up and run.

Estate freeze — Fixing the value of the current owner's interest in preferred shares so future growth accrues to the next generation.

LCGE (lifetime capital gains exemption) — The Canadian exemption on gains from qualifying small business corporation shares. Qualifying is not automatic and often requires planning well in advance.

Succession plan — A written answer to: who runs it, who owns it, how they pay for it, and when. Roughly nine in ten Canadian owners do not have one.