Glossary

If a later round is priced below an earlier one, anti-dilution provisions compensate the earlier investors with additional shares or a lower conversion price. A full ratchet resets their price entirely to the new, lower level, while a broad-based weighted average adjusts it in proportion to how much was raised at the lower price.

Broad-based weighted average is the market norm. A full ratchet, by contrast, shifts the cost of a down round almost entirely onto founders and employees, and its presence in a term sheet says a good deal about the balance of power when it was signed.

In a blind pool, investors commit to a fund for ten years or more and leave the selection of investments to the manager. They gain diversification and are spared deciding deal by deal, in exchange for giving up visibility and control over what their money backs.

Paligan does not run a blind pool, so each investment is presented on its own and co-investors decide on every deal individually.

A capitalisation table lists every shareholder, the class and number of shares they hold, and the instruments that will turn into equity later, such as convertible loans and employee options. A fully diluted view shows ownership as if all of those had already converted.

The cap table is also a history of how a company has been financed and whom it has let in, which is why we read it closely in due diligence and why later investors do the same.

Carried interest, or carry, rewards the manager for performance. It is paid only on gains, and in most structures only after investors have received their capital back, sometimes with a minimum return (the hurdle) on top.

In a fund, carry is usually calculated across the whole portfolio, so gains on the winners are netted against losses on the rest. In a deal-by-deal structure it is calculated per deal, which ties the manager's reward directly to each investment and means a loss in one deal does not reduce the carry earned on another.

Co-investors join a round that someone else has sourced, assessed and negotiated. In Paligan's deals they invest through the deal's SPV alongside Paligan, which puts its own money into every deal it brings.

Most of our co-investors are Swiss family offices and finance professionals who want access to early-stage companies and prefer to decide one investment at a time.

A convertible loan agreement (CLA) lets investors put money in before a valuation has been agreed. At the next qualifying round the loan, often with accrued interest, converts into equity at whichever is lower: the price implied by the cap or the round price less the discount.

Because a CLA is debt, a Swiss company burning cash can become over-indebted on paper, so most Swiss CLAs include a subordination agreement (Rangrücktritt). We use CLAs often, sometimes in several tranches before a priced round, and we hold them to the same diligence as an equity investment.

Every round, option grant and note conversion issues new shares, so each existing shareholder owns a smaller slice. Dilution is no loss in itself, since a smaller share of a more valuable company can be worth more than a larger share of a less valuable one.

It becomes a problem when it arrives unexpectedly, which is most common with stacked convertible loans whose caps and discounts only show their full effect at conversion. A founder should know what the cap table looks like after every instrument has converted before signing the next one.

Buyers usually want all of a company, and a drag-along prevents a small holder from blocking a sale the majority supports. The clause sets the threshold that triggers it and normally requires the dragged shareholders to receive the same price and terms.

For minority investors the details decide its fairness: the threshold, whether liquidation preferences are respected in the waterfall, and whether a minimum price applies before the drag can be used.

Due diligence tests whether the case for an investment holds up. It typically covers the business model and unit economics, the market, financial statements and forecasts, legal structure and contracts, intellectual property, the cap table and the founders themselves.

At early stage there is little history to audit, so much of the work is judgment: understanding what is truly uncertain about the business and whether the terms compensate for it. We apply the same depth whether the instrument is equity or a convertible loan.

The lead negotiates the valuation and the term sheet, carries most of the due diligence and often takes a board seat or observer role. Other investors join on the terms the lead has agreed, which is why the quality of the lead tends to matter more than the size of the round.

A round without a credible lead often drifts, because nobody owns the negotiation and nobody feels responsible for the company once the money is in.

A 1x non-participating preference gives the investor either their money back or their share of the proceeds, whichever is higher. A participating preference pays the money back and then a share of what remains, which can take a large part of a modest exit away from founders and common shareholders.

Preferences barely matter in a large exit and decide almost everything in a small one, so they are the term to read first whenever the likely outcome falls short of a clear success.

Most venture funds charge around 2 percent a year on committed capital during the investment period, regardless of performance. Over a fund life of ten years or more, fees can absorb a meaningful part of what investors commit before any returns are made.

Deal-by-deal structures typically replace or reduce the annual fee with a one-off fee per transaction, together with the costs of setting up and running each vehicle.

In an MBO, the people running a business become its owners. Managers rarely have the capital to buy outright, so the purchase is typically funded by a mix of their own equity, bank or private debt, outside investors and often a vendor loan from the seller.

The appeal is continuity, since the buyers know the business better than any outsider, but they can also overpay or underestimate what the debt will demand of the company once they own it. Structuring and independent advice matter most at that point.

The post-money valuation determines the share of the company new investors receive, since their investment divided by the post-money gives their ownership. CHF 1 million invested at a CHF 5 million post-money valuation buys 20 percent.

Some instruments, including the post-money SAFE, fix the investor's ownership against the post-money figure, which shifts the dilution from later notes onto the founders.

The pre-money valuation sets the price per share of a round, calculated by dividing it by the number of shares outstanding before the round, usually on a fully diluted basis. A company valued at CHF 4 million pre-money that raises CHF 1 million has a post-money valuation of CHF 5 million, and the new investors own 20 percent.

What counts toward the share count matters as much as the headline number. If an option pool or converting notes are placed inside the pre-money, existing shareholders absorb that dilution and the effective price for new investors falls.

Private credit covers direct loans, asset-backed lending, mezzanine and other structured debt negotiated privately between borrower and lender. Returns come mainly from interest and fees, and protection comes from collateral, covenants and seniority in the capital structure.

We look at private credit deal by deal, with the same diligence and the same co-investor network we use for venture. The structures that interest us most aim for returns closer to equity with risk that behaves more like fixed income.

A pro-rata right lets an existing investor buy enough of a new round to keep their stake at the same percentage. For funds it is a central tool, because reserves are planned around exercising these rights in the companies that perform best.

We rarely follow on, so we judge each later round as a new investment at the price on offer, whether or not a pro-rata right exists. Under Swiss company law, existing shareholders also hold a statutory subscription right (Bezugsrecht) to new shares, which has to be waived or restricted for new investors to come in.

The SAFE was introduced in Silicon Valley as a lighter alternative to the convertible note. Like a convertible loan it converts at a discount or a valuation cap, although it carries no interest and no maturity date, and it is not debt.

In Switzerland the convertible loan agreement remains the more common instrument. Investors meeting SAFEs in cross-border deals should check whether the cap is set on a pre-money or post-money basis, since that decides who absorbs the dilution from later notes.

In a secondary, the buyer pays the seller and the company's balance sheet is unchanged. Secondaries give founders, early employees and early investors liquidity before an exit, and they let new investors enter a company that is not raising.

They are often priced at a discount to the last round, and the reason behind the sale usually tells you more than the price. Transfer restrictions, rights of first refusal and the tag-along and drag-along clauses in the shareholders' agreement determine how freely shares can change hands.

A special purpose vehicle is a legal entity created for one purpose only. At Paligan, every investment sits in its own SPV: co-investors subscribe to the vehicle, and the vehicle holds the stake in the company.

The structure ring-fences each deal, so the outcome of one investment has no bearing on another. It also keeps the company's cap table clean, because the founders deal with one shareholder instead of twenty. The cost is that every vehicle has to be set up, administered and eventually unwound, which is part of the price of investing deal by deal.

If a founder or a large investor finds a buyer for their stake, a tag-along right lets smaller shareholders join the sale at the same price and on the same terms. It protects them from being left behind with a new controlling shareholder they did not choose.

Tag-along and drag-along usually appear together in the shareholders' agreement, where one protects the minority and the other protects the majority's ability to sell.

The term sheet covers valuation, the amount raised, the instrument, investor rights and governance. Most of it is non-binding, although clauses on confidentiality and exclusivity usually bind both sides.

It is where the economics of a deal are decided, because the shareholders' agreement and subscription documents that follow translate the term sheet into law and rarely move far from it. The time to negotiate is therefore before it is signed.

Ticket size is shorthand for how much one investor puts into one round. A fund treats tickets as units of portfolio construction, while a co-investor in a deal-by-deal model treats each ticket as a standalone decision.

Minimum tickets matter in practice, because they decide who can participate and how many investors end up in a vehicle.

A typical schedule runs four years with a one-year cliff, so nothing vests in the first year, a quarter vests at the first anniversary and the rest vests monthly or quarterly. Unvested shares can be bought back, usually at nominal value, if the person leaves.

For investors, founder vesting protects against backing a team that later breaks apart, and good-leaver and bad-leaver clauses decide what happens to the shares depending on why someone leaves.