The ultimate Deal Glossary
Reference · The Pivot Deal Glossary
Deal language,
translated for founders.
More than fifty terms you will hear when you raise money, sell a company or take one public — each explained the way an experienced friend would explain it over coffee, with a real-world example and the trap to watch for.
The first time most founders sit across from a buyer, they discover that the other side speaks a dialect. Words like “basket”, “peg” and “no-shop” sound harmless. Each one can move real money from your side of the table to theirs.
On the other side of most large transactions sit advisory teams such as the mergers and acquisitions group at Goldman Sachs or the M&A advisory practice at J.P. Morgan, who use this vocabulary every day. You don’t need to become a banker. You do need to know when a phrase in a term sheet is quietly changing what you’ll actually receive.
To keep the examples concrete, many of them follow one company: Harbor Metrics, a fictional B2B software business with $10 million in annual recurring revenue that has just received its first acquisition offer.
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Section 01
Valuation: what the company is “worth”
The headline number in an offer is rarely the number that reaches your bank account. These terms explain the gap.
Enterprise value
Also: EV
The price for the business itself, as if it had no cash in the bank and no debt. It’s the number buyers compare across companies, because it ignores how each one happens to be financed.
ExampleA buyer offers Harbor Metrics “$60 million”. That is almost always enterprise value, not what the shareholders split.
Equity value
Also: purchase price for the shares
What the owners actually sell: enterprise value, plus cash in the company, minus debt and anything the buyer treats as debt. This is the number that gets divided among shareholders.
ExampleHarbor has $3M of cash and a $5M loan. $60M EV + $3M − $5M = $58M equity value.
Watch for: buyers labelling deferred revenue, unpaid bonuses or tax bills as “debt-like” to shrink this number.
Revenue multiple
Also: ARR multiple, EV/ARR
A shorthand for price: enterprise value divided by annual recurring revenue. Useful for comparing deals, dangerous if treated as a fixed rule. Growth, retention and margins decide where in the range a company lands.
Example$60M for $10M of ARR is a 6x ARR multiple. A slower-growing competitor might get 4x; a faster one, 9x.
EBITDA & adjusted EBITDA
Earnings before interest, tax, depreciation, amortisation
A rough proxy for the cash profit a business generates. “Adjusted” means one-off items have been added back to show the true run-rate — which is where most arguments start.
ExampleHarbor spent $400k on a one-time office move. Adding it back lifts EBITDA from $1.6M to $2.0M — worth $4M of value at a 10x EBITDA multiple.
Watch for: every add-back needs a receipt. Buyers rebuild this number from source documents.
Synergies
Also: deal benefits
The extra value a buyer expects from combining two companies — selling to each other’s customers, cutting duplicate costs, merging products. Buyers rarely want to pay you for synergies they’ll create themselves.
ExampleA larger analytics vendor could sell Harbor’s product to its 2,000 customers. That’s why it can outbid a financial buyer who can’t.
Working capital adjustment
Also: the peg, NWC true-up
A price correction after closing. Both sides agree a “normal” level of short-term assets minus liabilities (the peg). If the business is delivered with less than that, the price goes down; with more, it goes up.
ExampleThe peg is $1.0M. At closing, working capital is $700k. Harbor’s sellers hand back $300k.
Section 02
SaaS metrics: how buyers judge the engine
Software buyers care less about last year’s revenue than about how reliably it repeats and how cheaply it grows.
ARR & MRR
Annual / monthly recurring revenue
The subscription revenue you can expect to repeat, expressed per year or per month. One-off setup fees, consulting and usage spikes don’t count — and buyers will strip them out if you include them.
ExampleHarbor bills $830k a month in subscriptions: about $10M ARR. Its $600k of annual onboarding fees sits outside that number.
Net revenue retention
Also: NRR, NDR
Take the revenue your customers paid a year ago. How much do those same customers pay today, after upgrades, downgrades and cancellations? Above 100% means your existing base grows on its own.
ExampleLast year’s customers paid $8M. Today they pay $9.2M even after some left: NRR is 115%.
Gross revenue retention
Also: GRR
The same calculation, but ignoring upgrades. It shows how much revenue you keep before any expansion — the floor under the business.
ExampleOf that $8M, $7.2M is still there before upsells: GRR is 90%. Strong NRR with weak GRR means a few big customers are hiding losses elsewhere.
Churn (revenue vs logo)
Also: gross churn, logo churn
Revenue churn measures the money that leaves; logo churn measures the customers who leave. A company can lose many small customers with little revenue impact — or one big one that hurts badly.
ExampleHarbor lost 40 of 400 customers (10% logo churn) but only 4% of revenue, because they were all on the smallest plan.
Rule of 40
Growth + profit margin
A quick health check: add your growth rate to your profit margin. If the total is 40 or more, you’re balancing growth and efficiency well. It’s a conversation starter, not a valuation formula.
ExampleHarbor grows 30% with a 12% EBITDA margin: a score of 42. A rival growing 60% while losing 35% scores 25.
Burn multiple
Cash burned ÷ new ARR
How many dollars of cash you burn to add one dollar of new recurring revenue. Lower is better; it tells a buyer whether growth is bought or earned.
ExampleBurning $3M to add $2M of new ARR gives a burn multiple of 1.5x — solid. At 4x, buyers start asking hard questions.
CAC payback
Customer acquisition cost payback period
How many months of gross profit it takes to earn back what you spent winning a customer. Short paybacks mean growth funds itself.
ExampleHarbor spends $12k to win a customer who generates $1k of gross profit a month: a 12-month payback.
Customer concentration
Also: revenue concentration
How much revenue depends on a handful of customers. If one account can walk away with a big slice of the business, a buyer will either pay less or tie part of the price to that customer staying.
ExampleOne bank pays Harbor $2.5M a year — a quarter of ARR. Expect a buyer to read that contract line by line.
Section 03
AI terms: what buyers are really paying for
“AI-powered” can add a large premium to a valuation. These are the words buyers use when they test whether it should.
Data moat
Also: AI defensibility
The part of an AI product a competitor can’t copy by signing up for the same model. Usually it’s proprietary data, deep workflow integration, or a feedback loop that makes the product better with every customer.
ExampleHarbor’s forecasting model is trained on six years of client data it has the right to use. A new entrant with the same model but no data can’t match its accuracy.
AI wrapper
Also: thin AI layer
A product whose intelligence comes almost entirely from someone else’s model, with a nice interface on top. Wrappers can be good businesses — but they’re easier to replicate and usually worth less.
ExampleA tool that sends contracts to a public model and formats the summary is a wrapper. The same tool trained on 100,000 annotated contracts starts to be something more.
Model dependency
Also: vendor risk, provider concentration
How exposed the product is to one AI provider changing its prices, terms, quality or roadmap. The more critical the dependency, the more a buyer will discount for it.
ExampleIf one provider raises prices 30% overnight, does Harbor’s gross margin drop five points or fifteen? A buyer will ask.
Inference cost
Also: cost per task, cost per call
What it costs to run the AI each time it does something — answers a question, scores a transaction, drafts a document. For AI-heavy products, it can be one of the biggest costs that grows with every new customer.
ExampleEach Harbor forecast costs $0.04 in compute. At 2 million forecasts a month, that’s $80k — nearly 10% of revenue.
Acqui-hire
Also: talent acquisition
A deal where the buyer mainly wants the team, not the product. Common in AI, where experienced researchers are scarce. The product is often wound down after closing.
ExampleA large platform buys a 12-person AI lab for its research team and shuts down the app within six months.
Watch for: much of the value may be paid as retention packages to individuals rather than as price to shareholders.
AI roll-up
Also: AI-enabled consolidation
Buying several companies in a fragmented, traditional market and using AI to run them more efficiently together. It changes how you’re valued: as a platform to build on, or as one more bolt-on.
ExampleA fund buys eight regional bookkeeping firms and automates 60% of their manual work with a shared AI system.
Section 04
The process: from first call to signed contract
A typical sale moves through the same documents in the same order. Knowing which ones bind you — and which don’t — protects your leverage.
| Stage | Key document | Binding? | Typical timing |
|---|---|---|---|
| 1. Preparation | Teaser, financial model | No | Weeks 1–8 |
| 2. First approach | NDA, then CIM | NDA: yes | Weeks 8–12 |
| 3. First bids | IOI | No | Weeks 12–16 |
| 4. Final bids | LOI with exclusivity | Mostly no; exclusivity yes | Weeks 16–22 |
| 5. Confirmatory diligence | Data room, QoE report | — | Weeks 22–30 |
| 6. Signing & closing | SPA / merger agreement | Yes | Weeks 30–36 |
Sell-side adviser
Also: M&A adviser, banker
The firm hired by the seller to run the sale: prepare materials, find buyers, create competition and negotiate terms. Fees are usually a success percentage of the deal value.
ExampleHarbor hires a boutique adviser on a 3% success fee. If competition lifts the price from $50M to $60M, the fee pays for itself several times over.
Teaser
Also: blind profile
A one- or two-page anonymous summary sent to potential buyers to test interest before revealing the company’s name.
Example“B2B forecasting software, $10M ARR, 30% growth, Nordic headquarters” — no name until an NDA is signed.
NDA
Non-disclosure agreement
A confidentiality contract signed before you share anything sensitive. Good ones also stop buyers from poaching your staff or contacting your customers.
ExampleA competitor signs the NDA, sees Harbor’s pricing, then walks away. A non-solicit clause stops them hiring Harbor’s sales lead for 18 months.
CIM
Confidential information memorandum
The full story of the business for serious buyers: market, product, customers, financials and growth plan. It’s your best chance to frame the company before buyers frame it for you.
ExampleHarbor’s 45-page CIM leads with its 115% NRR, because that’s the metric most likely to justify a higher multiple.
IOI
Indication of interest
A first, non-binding bid — usually a price range and a few conditions. It helps the seller decide which buyers to take to the next round.
ExampleFive IOIs arrive between $45M and $65M. Harbor invites the top three into the data room.
LOI
Letter of intent, term sheet
The proposed deal in writing: price, structure, timeline and exclusivity. Mostly not legally binding — but in practice, the terms you accept here are very hard to improve later.
ExampleAn LOI says “$60M” but buries a $15M earn-out in the structure paragraph. That paragraph matters more than the headline.
Exclusivity / no-shop
Also: lock-up period
A promise to stop talking to other buyers for a set period while one buyer finishes its checks. Once you sign it, your competitive tension disappears.
ExampleHarbor grants 45 days of exclusivity, not the 90 the buyer asked for — enough time to finish diligence, not enough to stall.
Data room
Also: VDR, virtual data room
A secure online folder holding every document a buyer needs: contracts, financials, IP, HR, security. A well-organised one keeps the deal moving; a messy one invites price cuts.
ExampleHarbor uploads all 400 customer contracts before the LOI, so the buyer can’t use “missing documents” to reopen price later.
Quality of earnings
Also: QoE report
An independent accounting review that tests whether your reported profit is real and repeatable. Buyers commission one; smart sellers commission their own first.
ExampleHarbor’s own QoE finds a revenue-timing issue early, so it’s fixed before a buyer can turn it into a $2M price cut.
SPA / definitive agreement
Share purchase agreement, merger agreement
The binding contract that actually completes the deal. Every headline term from the LOI is turned into legal obligations, along with the protections the buyer will ask for.
ExampleHarbor’s SPA runs to 90 pages. The schedules listing exceptions to its promises run to another 60.
Signing vs closing
Also: simultaneous vs split sign-and-close
Signing is when the contract is agreed. Closing is when money and ownership actually change hands. A gap between them — for regulatory approval or financing — is a period of risk for the seller.
ExampleHarbor signs in March but needs a competition-authority approval, so it closes in June. A good contract limits what the buyer can renegotiate in between.
Section 05
Getting paid: where the headline number goes
Two offers with the same headline can be worth very different amounts. Here is how Harbor’s $60 million offer actually breaks down.
| Component | When it arrives | Certainty | Amount |
|---|---|---|---|
| Headline enterprise value | — | — | $60.0M |
| Plus cash, minus debt | — | — | −$2.0M |
| Equity value to shareholders | $58.0M | ||
| Cash at close | Closing day | High | $40.0M |
| of which held in escrow | 18 months later, if no claims | Medium | ($4.0M) |
| Earn-out (maximum) | Years 1–2, if targets are hit | Low to medium | $12.0M |
| Equity rollover | When the buyer later exits | Uncertain | $6.0M |
| Cash in shareholders’ hands on day one | $36.0M |
The takeawayA “$60M deal” delivers $36M on day one. The other $22M depends on time, performance and someone else’s future exit. Compare offers on cash at close first, then price the rest for risk.
Cash at close
Also: upfront consideration
The money paid on the day the deal completes. It’s the only part of the price that’s truly certain, which makes it the first number to compare between offers.
ExampleOffer A: $60M with $40M at close. Offer B: $55M with $50M at close. For many founders, B is the better deal.
Earn-out
Also: contingent consideration
Part of the price paid later, only if the business hits agreed targets after the sale. It bridges a gap when buyer and seller disagree about the future — but you no longer control the company that has to hit them.
ExampleHarbor gets $12M more if ARR reaches $16M within two years. If the buyer moves the sales team elsewhere, that target may become unreachable.
Watch for: how the metric is calculated, who controls the budget, and what happens if the buyer is itself sold.
Equity rollover
Also: reinvestment, “second bite”
Instead of taking all your proceeds in cash, you reinvest part of them into the buyer’s company. Common with private equity buyers, who want founders to stay invested.
ExampleHarbor’s founders roll $6M into the buyer’s holding company. If it sells for three times its value in five years, that stake becomes $18M — or less, if it doesn’t.
Escrow
Also: indemnity escrow
Part of the price held by a neutral third party after closing, as a reserve in case the buyer discovers something that breaches your promises.
Example$4M (10% of cash at close) sits with an escrow agent for 18 months, then is released if no valid claims are made.
Holdback
Also: deferred payment
Like escrow, but the buyer keeps the money itself until conditions are met. Easier for the buyer, riskier for you, because you’re relying on them to pay it out.
ExampleThe buyer holds back $1M until Harbor’s biggest customer renews its contract.
Asset deal vs share deal
Also: asset purchase vs stock purchase
In a share deal, the buyer takes over the whole company — history and all. In an asset deal, it picks only the parts it wants, such as the product and customers. The choice affects tax, contracts and which liabilities stay behind.
ExampleIn an asset deal, every Harbor customer contract may need to be reassigned — and a few customers may need to consent.
Section 06
Legal protections: who carries the risk after closing
These clauses decide how much of the price is still at risk once the champagne is gone.
Reps & warranties
Representations and warranties
The formal promises you make about the business in the contract: the accounts are accurate, you own your code, there’s no hidden lawsuit. If one turns out to be untrue, the buyer can claim money back.
ExampleHarbor promises it owns all its software. A former contractor later claims part of the code. That’s a potential breach.
Disclosure schedule
Also: disclosure letter
The list of exceptions to your promises. Anything you disclose here can’t later be used against you. It is the seller’s best protection — and the most underrated document in the deal.
ExampleHarbor lists the contractor dispute in its disclosure schedule. The buyer knew, so it can’t claim for it later.
Indemnification: cap & basket
Also: indemnity, deductible, threshold
The rules for paying back the buyer if a promise was wrong. The cap is the most you can ever owe. The basket is the minimum loss before any claim counts, so small issues don’t turn into disputes.
ExampleCap: 10% of the price ($5.8M). Basket: $300k. A $200k problem costs Harbor’s sellers nothing; a $9M problem costs them at most $5.8M.
W&I / RWI insurance
Warranty & indemnity / reps & warranties insurance
An insurance policy that pays the buyer if your promises turn out to be wrong, so the claim goes to the insurer instead of you. It can shrink escrows dramatically, but it won’t cover problems everyone already knew about.
ExampleWith a policy in place, Harbor’s escrow falls from 10% of the price to 1%, and $3.4M more arrives at closing.
MAC clause
Material adverse change / effect
Lets the buyer walk away if something seriously damages the business between signing and closing. The fight is always about what counts as “serious” and what’s excluded, such as general market downturns.
ExampleHarbor’s biggest customer cancels a week after signing. Whether that’s a MAC depends entirely on how the clause is drafted.
Reverse break fee
Also: reverse termination fee
A payment the buyer makes to you if it fails to close — often because regulators block the deal or its financing falls through. It prices the risk you take by agreeing to sell to them.
ExampleA strategic buyer with antitrust risk agrees to pay Harbor $5M if the competition authority blocks the deal.
Drag-along rights
Also: drag rights
Lets a required majority of shareholders force the rest to sell on the same terms, so a buyer can acquire 100% of the company without chasing every small holder.
ExampleHolders of 75% of Harbor’s shares approve the sale. A former employee with 0.5% must sell too.
Tag-along rights
Also: co-sale rights
The mirror image: if the majority sells, minority shareholders have the right to join on the same terms rather than being left behind with a new owner.
ExampleHarbor’s founders try to sell only their own stake. The angel investors use tag-along rights to sell alongside them.
Section 07
Buyers & strategy: who is on the other side
Different buyers value the same company differently. Knowing which kind you’re talking to tells you what they’ll pay for.
| Strategic acquirer | Financial sponsor (PE) | |
|---|---|---|
| Buys because | Your product, customers or team fit its business | It expects to sell the company later at a profit |
| Pays for | Synergies it can unlock | Cash flow, growth and an exit path |
| Founder after the deal | Often integrated; role may shrink | Often stays to run the business |
| Typical structure | More cash, sometimes stock | Cash plus rollover, often debt-funded |
Strategic acquirer
Also: trade buyer, corporate buyer
A company in your industry or a neighbouring one that wants what you have. Because it can create synergies, it can often pay more — but usually only when it’s competing with other bidders.
ExampleAn accounting software vendor buys Harbor to add forecasting to its product for 50,000 existing customers.
Financial sponsor
Also: private equity, PE buyer
An investment firm that buys companies to grow them and sell them again, typically within three to seven years. It often uses debt to fund part of the purchase.
ExampleA PE fund buys 70% of Harbor, keeps the founders running it, and plans to sell in five years.
Platform vs bolt-on
Also: add-on acquisition
A platform is the first, central company a buyer acquires to build around. Bolt-ons are smaller companies added to it later. Platforms usually get more attention — and better prices.
ExampleBought as a platform, Harbor gets a 7x multiple. Bought as a bolt-on to a bigger platform, the same company might get 5x.
Recapitalisation
Also: partial exit, recap
Selling part of your company — often a majority stake — while keeping some ownership. You take money off the table without fully exiting.
ExampleHarbor’s founders sell 60% for cash, keep 40%, and share in the upside when the investor sells.
Take-private
Also: public-to-private
Buying a listed company and removing it from the stock market — usually by private equity. Even for private founders, these deals matter, because they reset what similar companies are worth.
ExampleA listed competitor of Harbor is taken private at 8x revenue. That deal becomes a reference point in Harbor’s own negotiations.
Competitive tension
Also: running a process
The effect of having several credible buyers at once. It’s the single biggest driver of price and terms — and the thing a single inbound offer never gives you.
ExampleHarbor’s first inbound offer was $45M. With three bidders competing, the final price reached $60M.
Section 08
Going public: SPACs and other listing routes
Not every exit is a sale. These terms come up when a company reaches the public market through a blank-check vehicle.
SPAC
Special purpose acquisition company, blank-check company
A listed shell with no business of its own. It raises money from public investors, then has a fixed window to find a private company to merge with.
ExampleA SPAC raises $200M at $10 per unit and has 24 months to find a target. Harbor is one company it approaches.
De-SPAC
Also: business combination
The merger itself: the SPAC combines with the private company, which becomes publicly listed as a result.
ExampleHarbor merges with the SPAC and begins trading under its own ticker the following week.
Trust account & redemptions
Also: redemption rights
A SPAC’s cash sits in trust until the merger. Before it closes, investors can choose to take their money back instead of staying in. High redemptions mean far less cash reaches the company.
ExampleInvestors redeem 80% of the $200M trust. Harbor expected $200M of fresh capital and receives $40M.
PIPE
Private investment in public equity
Extra money raised from institutional investors alongside a SPAC merger, usually to make up for redemptions and guarantee the company gets enough cash.
ExampleA $60M PIPE lifts Harbor’s proceeds from $40M to $100M, making the listing worth doing.
Sponsor promote
Also: founder shares
The shares the SPAC’s organisers receive for setting it up — commonly around a fifth of the SPAC’s shares. They dilute everyone else, including the company that merges in.
ExampleOn a $200M SPAC, the sponsor holds 5 million shares it paid almost nothing for — worth $50M at $10 each.
Lock-up
Also: lock-up period
A period after listing during which founders and early investors can’t sell their shares, usually six to twelve months. It stops insiders selling the moment the company goes public.
ExampleHarbor’s founders own $80M of stock on listing day — but can’t sell any of it for 180 days.
Buyers rarely lower the price. They change the structure — and let the vocabulary do the rest.
Pivot Capital Review
Reader questions
Common questions about deal terms
Which terms should a founder understand first?
Equity value, cash at close, earn-out and exclusivity. Together they tell you what you’ll actually receive, when, and how much negotiating power you still have.
Is a letter of intent legally binding?
Mostly not — but exclusivity and confidentiality clauses usually are. In practice, price and structure rarely improve after an LOI is signed, so treat it as the real negotiation.
What is the difference between escrow and a holdback?
Both delay part of the payment. Escrow money sits with a neutral third party; a holdback stays with the buyer. Escrow is safer for the seller.
Why do earn-outs cause so many disputes?
Because the seller is paid for results in a company the buyer now controls. Budget cuts, reorganisations or a change in accounting can all affect whether targets are hit.
Do I need an M&A adviser?
Not always, but for most sales above a few million, an adviser who can create competition between buyers tends to improve both price and terms by more than their fee.
Harbor Metrics is a fictional company, and all figures in its examples are illustrative. Typical timings and percentages vary widely by deal size, sector and market. Pivot Capital Review is an editorial publication; nothing on this page is investment, legal or tax advice.