A fundraising file mixes Belgian law, financial English and fund jargon. Pre-money is your company's value before the investor comes in, and it is what sets the percentage the investor gets. The other terms in this glossary tell you what you give up, to whom, and at what price you will be able to exit.
I have grouped the terms by family rather than alphabetically. You do not come across them in alphabetical order, but in the order of a deal: value first, then money, then clauses.
What does pre-money mean?
Pre-money is the valuation agreed before the new investor comes in. Post-money is that value plus the amount raised. The fund's stake is always calculated on the post-money.
In percentage terms, it works like this. With €1M raised on a €4M pre-money, the post-money is €5M and the investor holds 20%. If you held 100%, you keep 80%.
Your percentage falls, but the theoretical value of your stake stays the same: 80% of €5M is worth as much as 100% of €4M. Dilution becomes a real cost when the negotiated pre-money is too low, or when clauses (ratchet, anti-dilution, liquidation preference) take back with one hand what the valuation gave with the other.
That is what annoys me most in fundraising announcements. A high pre-money paraded as a win, without the price of the clauses that come with it.
The calculation for three amounts
| Pre-money | Amount raised | Post-money | Fund's stake | Stake kept (if 100% before) |
|---|---|---|---|---|
| €4M | €1M | €5M | 20% | 80% |
| €4.5M | €1.5M | €6M | 25% | 75% |
| €3M | €2M | €5M | 40% | 60% |
The third row is built for the example. It shows that a fund can reach 40% without the pre-money being absurd, simply because the amount requested is high compared with the starting value.
What is a covenant?
A covenant is a financial commitment written into a loan agreement. The company undertakes to respect a ratio (leverage, interest cover, minimum equity) or not to carry out certain operations without the bank's consent.
I drafted them for eight years, on the bank side, in Namur. A covenant is not a threat in itself. It becomes a problem when the threshold is set on an over-optimistic budget and a single bad year breaks it. The bank can then renegotiate, ask for collateral or, depending on the agreement, demand repayment.
Funds that hold equity do not have covenants in the banking sense. Their equivalent is the list of reserved matters in the shareholders' agreement: borrowing, an acquisition or the owner's pay that need their approval at board level.
What does quasi-equity mean?
Quasi-equity covers financing that is not capital, but that lenders partly treat as equity. Three families:
- the subordinated loan, repaid after other debts if things go wrong;
- the convertible loan or bond, which can become shares on terms set at the outset;
- mezzanine, between debt and equity, often with a variable return or a conversion right.
For the owner, the point fits in one sentence: it strengthens the balance sheet in the bank's eyes without diluting, as long as it is not converted. ORSA, for instance, publishes a Smart Bond, a 5- to 10-year subordinated loan with part of its return tied to EBITDA (source: ORSA). Several Walloon invests also offer subordinated and convertible loans. The detail is in the page on the subordinated loan.
Which terms come up in a term sheet?
The table below lists the clauses I see most often, with what they trigger for you.
| Term | What the clause says | What you do |
|---|---|---|
| Drag along | Above a threshold, majority holders can force minority holders to sell on the same terms | Check the threshold and the floor price |
| Tag along | The minority holder can sell on the same terms as a majority holder who sells control | Ask for it if you become a minority |
| Good / bad leaver | Buyback price of your shares if you leave the company: market or reduced | Have every bad leaver case listed one by one |
| Anti-dilution | The investor gets extra shares or an adjusted price if a later round is priced lower | Prefer weighted average to full ratchet |
| Ratchet | A shareholder's stake varies with performance or the price of a future deal | Put a figure on the worst case before signing |
| Pre-emption | Existing shareholders buy shares being sold first, at the third party's price | Check the exercise deadlines |
| Approval clause | A new shareholder's entry needs consent | In a Belgian SRL (private limited company), it applies by default (art. 5:63 of the Code) |
The details and effects in figures are in the pages on exit clauses and on the letter of intent and term sheet.
What is an invest, an evergreen fund, a closed-end fund?
An invest is a Walloon investment company rooted in a province, often owned by the Region and private shareholders: Noshaq, Sambrinvest, Namur Invest, Invest.BW, IMBC. An evergreen fund has no fixed lifespan. A closed-end fund has one, and must sell before it ends.
What do MBO, MBI and OBO mean?
Three forms of buyout. An MBO is a takeover by the company's own managers, an MBI by an outside manager. An OBO lets the owner-shareholder sell part of their shares to a holding company in which they remain a shareholder, alongside an investor. All three often go through a holding that takes on debt (an LBO).
And the tax shelter?
It is an income tax reduction for individuals who subscribe to new shares in a small company: 30% or 45% for a company under 4 years old, 25% for a growing company aged 5 to 10, up to €100,000 per year per person (source: SPF Finances, the Belgian federal tax administration).
These definitions stay general. The exact meaning of a clause depends on how it is worded in your file (Code of Companies and Associations), and a corporate lawyer reads it better than any glossary.
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From 2009 to 2017, Cédric spent eight years in the corporate lending department of a Belgian bank in Namur, on the side that turns files down and writes the covenants. He then became financial controller at an industrial SME in Hainaut just as a provincial invest took a stake in its capital. Based in Gembloux, he rereads the terms published by Walloon and Brussels funds and invests every month.