Search Fund Jargon Translator

Clear, plain-English definitions of ETA and dealmaking terms, with practical notes and examples.

Letter of Intent (LOI)

A non-binding document that outlines the preliminary terms of an acquisition agreement between a buyer and a seller.

Due Diligence

The comprehensive investigation and audit of a business that a buyer undertakes before completing an acquisition to confirm all relevant facts and financial information.

EBITDA

A measure of a company's overall financial performance, used as an alternative to net income in some circumstances. It is a proxy for operating cash flow.

Seller's Discretionary Earnings (SDE)

A measure of a business's total financial benefit to one full-time owner-operator. It's calculated by taking EBITDA and adding back the owner's salary and other discretionary expenses.

Confidential Information Memorandum (CIM)

A detailed document prepared by a seller or their advisor that provides prospective buyers with an in-depth look at the business being sold.

Non-Disclosure Agreement (NDA)

A legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to.

Indication of Interest (IOI)

A preliminary, non-binding proposal from a potential buyer to a seller, indicating a potential valuation range and interest in pursuing an acquisition.

Capital Call

The process by which a fund manager (like a search funder) requests committed capital from their investors to make an investment.

Preferred Equity

A class of ownership in a company that has a higher claim on its assets and earnings than common stock. It generally pays a fixed dividend.

Common Equity

A class of ownership that represents a residual claim on the company's assets and earnings after all other stakeholders (debt holders, preferred equity holders) have been paid.

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