Investor types and capital terms

How to use this index

These are the terms that appear across Module 1 and recur throughout the rest of the Academy. They are defined as they are used in practice in African markets, which occasionally differs from the textbook definition — where that is the case, the difference is noted rather than smoothed over.

Two habits make a term sheet far easier to read. First, separate terms that describe price from terms that describe control and terms that describe queue position. Valuation and dilution are price. Board seats and consent rights are control. Liquidation preference and security are queue. Founders routinely negotiate hard on the first group and accept the other two, which is usually the wrong emphasis.

Second, ask of every unfamiliar clause: what does this do if things go badly? Most terms are inert in a good outcome and decisive in a poor one. That is precisely why they are in the document.

Terms that behave differently in African markets

A few definitions travel poorly. Exit in a developed market implies a menu of routes; here it frequently means a trade sale or nothing, which is why contractual mechanisms such as put options appear far more often than they would in Europe or the US.

Valuation carries a currency assumption that is rarely stated. A number agreed in local currency and a number agreed in dollars are different deals, and which one governs on exit is a term worth settling explicitly rather than discovering later.

Development finance is often described as cheap capital, and in pricing terms it is. But the mandate obligations attached — reporting, impact measurement, sometimes procurement or employment conditions — are real costs carried for the life of the facility. Cheap is not the same as light.

And working capital is used loosely to mean any short-term cash need. Funders use it precisely: the capital tied up in inventory and debtors net of creditors. A request framed as working capital that is actually funding a loss will be identified as such quickly, and the framing damages credibility more than the underlying problem does.

Index of terms

Angel investor

An individual investing personal money into early-stage businesses, usually in small amounts and often bringing operating experience alongside the capital.

Blended finance

A structure combining capital with different return expectations — commercial, concessional and grant — so that a transaction becomes fundable that purely commercial capital would not support alone.

Carried interest

The share of a fund's profits paid to the fund manager, conventionally around 20%, earned only after investors have received their capital back.

Capital stack

The ordered set of funding sources available to a business, arranged by what each funder is paid and where they rank if the business fails.

Development finance institution (DFI)

A government-backed or multilateral institution investing with a development mandate — job creation, climate, regional growth — alongside a financial return.

Dilution

The reduction in an existing shareholder's percentage ownership when new shares are issued to an investor.

Drag-along right

A provision allowing majority shareholders to compel minority shareholders to join a sale of the company, preventing a small holder from blocking an exit.

Due diligence

The investigation an investor or acquirer conducts before committing — commercial, financial, legal, tax and operational.

Exit

The event through which an equity investor realises their return: a trade sale, a public listing, a secondary sale to another fund, or a buyback.

General partner (GP)

The manager of a fund, responsible for raising capital, selecting and executing investments, and returning proceeds to investors.

Growth capital

Equity invested into an established, revenue-generating business to expand it, usually as a minority stake.

Limited partner (LP)

An investor who commits capital to a fund but takes no part in its investment decisions — typically pension funds, endowments, DFIs, insurers and high-net-worth individuals.

Liquidation preference

A term determining who is paid first, and how much, when a company is sold — and therefore how sale proceeds are split between investors and founders.

Mezzanine finance

Capital ranking between senior debt and equity, priced above bank debt and often carrying an equity component.

Minority stake

An ownership position below 50%, which does not confer control — though negotiated consent rights can give a minority investor influence over specific decisions.

Post-money valuation

The agreed value of a company immediately after an investment, equal to the pre-money valuation plus the new capital invested.

Pre-money valuation

The agreed value of a company immediately before an investment is made.

Private credit

Non-bank lending to private companies, typically at higher rates than bank debt and with more flexible structures.

Put option

A right allowing an investor to require the company or its founders to buy back their shares, usually after a set period — a contractual exit route where market exits are uncertain.

Runway

The period a business can continue operating on its available cash before it must raise again or reach breakeven.

Secondary sale

A sale of existing shares from one investor to another, rather than the issue of new shares by the company.

Senior debt

Borrowing ranking ahead of other creditors and of equity for repayment, usually secured and carrying the lowest cost of external capital.

Trade sale

The sale of a company to a strategic or corporate buyer, the most common exit route in markets where public listings are infrequent.

Venture capital

Equity invested into early-stage companies whose model is not yet proven, where the investor expects most of the portfolio to fail and a few to return the fund.

Working capital

The capital funding day-to-day operations — inventory, debtors and creditors — as distinct from capital expenditure on long-term assets.