Describes the order in which investment returns is allocated to investors. Once one tier’s allocation requirements are met, the remaining amount is subject to the requirements of the next tier and so on.

There are typically four tiers:

1.  Return of capital

2. Preferred return

3. Catch-up tranche

4. Carried interest

Venture Capital. Private equity investing in early-stage start-up companies that require capital. They are deemed high risk/ high reward since they tend to focus on companies that have high long-term growth potential but may not yet have generated revenues.

The overall value of a fund’s assets and liabilities. Valuations gauge a company’s performance, financial health, and future earnings prospects, with price to earnings (P/E) ratio and return on equity (ROE) among the most common metrics.

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In a private equity fund of funds, the ‘master’ fund (in which you invest) will invest in a range of private equity funds, these are termed underlying funds or assets.

The difference between committed capital and paid-in capital – the remainder that investors have agreed to invest but haven’t yet paid into the fund.

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Similar to a letter of intent ahead of an investment, it is a non-binding agreement that details the basic terms and conditions of an investment. Once the parties agree on the details set out in the term sheet, a more detailed legally-binding contract is drawn up.

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Refers to separate fund raising rounds a company typically holds as it reaches different stages of growth. The terms reflect the stock being issued by the company. Initial funding (seed funding or venture capital) is typically followed by additional funding rounds (A, B, C, D etc), which allow outside investors to invest cash in exchange for equity in the growing company. 

Sometimes, companies also have a pre-seed round. This is the earliest stage in the funding cycle of a start-up, where money is raised from venture capital firms, angel investors, or friends and family to support initial validation/development of the business idea. 

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More on the different funding stages and their role in scaling climate tech.

Return on investment. A company’s net income over a specified period (e.g. a financial year), divided by the amount its shareholders have invested. An ROI is gauge of a company's profitability and performance compared to its peers - a higher score generally suggests that it is more efficient at generating a return from investment.

Makes equity investments in companies not listed on public markets

Investment in a company that is not listed on a stock exchange. Investors typically commit significant amounts of money for long periods of time.

Spreading risk by adding different types of assets (or funds in a FoF) in a portfolio, with the expectation that they will behave differently in any given scenario.

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An entity in which a private equity firm or holding company invests (holds equity).

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Also called: carry or carried interest. An incentive fee paid to the General Partners if the fund performs successfully. This fee is typically a percentage of the fund’s profits that exceed an agreed level (or ‘hurdle rate’). 

How much money the investors have put into the fund to date.

The return on an investment once costs (taxes, inflation and other fees) have been deducted. See also gross return.

Multiple on Invested Capital. Measures the value created by an investment (value at exit date) relative to the initial investment size (equity contribution). Alongside the IRR, it is among the most commonly used performance metrics in private equity. While the MOIC represents the growth in the value of an investment on an absolute basis, the IRR indicates the yield an investment generates on an annualized basis.

The fees paid for having a fund professionally managed by an investment manager.

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Limited Partnership Agreement. A legal document that sets out the core terms and governance structures of a private equity fund. It outlines the roles and responsibilities of limited partners (LPs) and general partners (GPs), as well as other key details such as fees, fund duration and capital call parameters.

Limited Partner. In funds that are structured as partnerships, the investor is an LP, while the private equity firm is the General Partner (GP). LPs invest in the fund and share in its profits with limited liability (their liability is capped at the amount they invest). At Carbon Equity, we act as an LP on our investors’ behalf. The capital raised from investors is used to invest in these companies.  

Describes the typical performance chart of a venture capital fund over time. The pattern resembles the letter ‘J’, with returns declining in the early, more risky stages of investment (due to acquisition costs or losses) but then increasing rapidly in the later years, as the fund matures and companies develop.  

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The time period you expect to hold an investment. This can either be a specific date for maturity or a more generalized short- medium- or long-term time horizon.

Internal rate of return. A metric used to estimate the profitability of investments or performance of funds over time. Think of it as the rate of growth that an investment is expected to achieve annually (although the actual rate of return is rarely the same each year so will usually differ from its IRR). Generally, the higher the IRR the more attractive the investment.

The IRR is often more volatile in the early years when a fund is investing - increasing as start-ups are revalued higher at a capital raise and falling again as investments are made. Once the fund is fully invested, the IRR should rise more steadily.

A document that provides a reasoned argument for a particular investment strategy. It typically outlines the investment goals, any trends that support the investment, and potential risks and returns.

An agreed portion of the committed capital, which investors give at the beginning of the fund’s life.

An impact thesis for a climate-focused venture capital (VC) or investment fund outlines the fund’s strategic approach to driving measurable environmental and social benefits while achieving financial returns. It serves as a guiding framework to articulate how the fund aims to create impact, align stakeholders, and attract mission-aligned investors.

Investing to deliver specific and measurable social or environmental outcomes as well as financial returns. It is more focused than ESG investing, which considers a company’s ESG factors and more traditional financial metrics.

the period during which investments are sold to make a profit. It starts once the investment period has been completed and typically lasts 3 to 7 years. The focus shifts from making new investments and subsequently growing them, to realizing their value (i.e. making the highest returns possible for investors, as well as making capital distributions). 

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The return (money paid) on an investment before any deductions (fees and expenses).

See related term: net return 

Equities that are expected to offer the investor sustained capital growth (where a company’s earnings grow at an above-average rate). It’s common to distinguish between growth stocks and income stocks - the former are expected to provide capital gains and the latter high income.

When an organization falsely presents an environmentally responsible image by providing misleading information or using green PR and marketing techniques.

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More on how we avoid greenwashing and assess the impact of climate tech companies here. 

A General Partner is one of the investors who both owns and manages a business structured as a partnership. The GP is responsible for managing the fund, making investment decisions, and overseeing the fund's day-to-day operations. Unlike Limited Partners (LPs), who are investors in the fund and liable only to the extent of their investment, the GP may have unlimited liability for the business's debts and obligations.

Fund-of-funds. A fund that invests in a portfolio of other funds, rather than directly into operating companies.

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More on how portfolio fund investing works at Carbon Equity.

The length of time for which a private equity fund asks investors to commit money. A typical lifecycle is 10 -12 years and comprises these core stages: 

1. Raising capital and building the team

2. Investment period: A fund usually makes its investments during the first 3-5 years. During this time, it might also reserve some capital for follow-on investments in its most promising companies, even after this period ends. During the investment period, the fund manages and focuses on building value in the portfolio companies.

3. Exiting the investments, the harvest period: Once the investment period wraps up, the fund moves into the harvesting phase. Here, the focus shifts from building value to returning money to investors (LPs). Typically, the fund holds investments for 4 to 7 years before exiting. These exits can happen through selling to another private equity fund (secondaries), strategic sales to companies, or going public via an IPO.

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While funds aim to wind down within 10 years, it’s pretty common to ask for an extension to allow for smooth, well-timed exits of the remaining portfolio companies. This ensures everything is wrapped up properly.

A fund is a pool of money and resources contributed by investors and managed by professionals to achieve specific goals or support a particular investment strategy.

How it works: Investors contribute to the fund, and fund managers use this pooled capital to make investments aligned with the fund’s purpose.

Purpose: Each fund has a defined mission or thesis, such as advancing sustainable technologies, acquiring companies, or developing infrastructure projects

Management: Professional managers handle investment decisions, oversee performance, and distribute returns to the investors over time.

Underlying fund: This refers to a fund that another fund invests in, often as part of a diversified portfolio approach (e.g., Carbon Equity is a climate tech fund-of-funds investing in multiple underlying funds). In essence, a fund is a professionally managed pool of capital designed to achieve financial or impact-driven goals.

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Sometimes, “fund” is also used to refer to an investment firm managing one or more funds. In this context, the firm itself is responsible for raising capital, managing investments, and overseeing the overall strategy and performance of the funds under its management. For example, people might call a private equity firm or venture capital firm “a fund” because of the funds it manages.

Provides additional financing after the initial funding rounds, to support continued growth and development. Investors typically make these additional contributions in stages as companies achieve milestones or demonstrate significant progress.

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Considers ethical factors when assessing the performance, values and activities of an organization. Also known as sustainable investing, it assesses how an organization manages ESG risks, and the impact the business has on the environment and society. 

A common misconception is that ESG investing simply means investing in positive solutions that help make our world a better place. ESG investing is about the E, S and G risks that can have a negative impact on the future financial performance of a company. Externalities, including the CO2 emissions from oil and gas companies, are only accounted for in a company’s ESG scores based on their expected impact on future returns.

Most ESG ratings only focus on scope 1 and 2 emissions (emissions produced by the company’s own activities), and not scope 3 (emissions from the use of products themselves). Therefore, the total impact of those emissions on the climate, our economies and societies are not accounted for. 

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More on ESG investing and its impact.

Refers to a broad shift in technology and societal behaviors to replace an existing source of energy with another.

The current transition is moving us away from fossil-based energy production (including oil, natural gas and coal) and consumption towards renewable energy sources, e.g. wind and solar. Key drivers of this transformation include the increasing use of renewable energy, the rise of electrification, and advancements in energy storage.

While power generation and personal vehicles are often the focus due to their significant contribution to CO2 emissions, a successful energy transition must also address the 'hard-to-abate' sectors, such as heavy trucking, iron and steel, shipping, and aviation.

Analysis of the current financial state and future prospects of a company ahead of investment. A thorough investigation and analysis of a target company, it aims to minimize the risks and maximize the returns.

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More on Carbon Equity’s impact due dilligence here.

Distributions in private equity refer to the payments that investors (limited partners, or LPs) receive from a fund as it realizes gains from its investments. These payments typically come from profits earned when a fund sells (or exits) an investment, such as a company or an asset, at a higher value than what it was purchased for.

Key points about distributions:

1. Where they come from: Distributions usually come from the sale of portfolio companies, dividends from investments, or other cash-generating events.

2. When they happen: They occur periodically throughout the life of the fund, often after successful exits or liquidity events.

3. Types of distributions: They can be cash payments or, less commonly, shares of a company that was sold or taken public.

4. Return of capital and profits: Distributions often include both the return of the original invested capital and the profits (gains) generated on top of that.

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In short, distributions are how investors get their money back—along with potential profits—after a private equity fund successfully grows and sells its investments.

Decarbonization is the process of reducing or eliminating carbon dioxide (CO₂) emissions across various sectors, including energy, transportation, industry, and food production, to combat climate change and transition to a sustainable future.

For example, in :

1. Energy: Replacing fossil fuels with renewable energy sources like solar, wind, and hydro, while improving energy efficiency and storage‍

2. Transportation: Electrifying vehicles, adopting sustainable fuels, and optimizing public transit to cut emissions from mobility.‍

3. Industry: Developing cleaner manufacturing processes, low-carbon materials, and technologies like carbon capture and storage.‍

4. Food production: Implementing sustainable agriculture practices, scaling alternative proteins (plant-based, lab-grown), reducing food waste, greening supply chains, and shifting to low-carbon diets.‍

5. Buildings: Making homes and offices energy-efficient with better materials, designs, and technologies.‍

6. Carbon Management: Capturing, storing, or reusing CO₂ emissions to reduce their presence in the atmosphere.

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Decarbonization involves rethinking and transforming systems at every level—reducing emissions while supporting the global shift towards net zero.

In Value-add infrastructure, the capital is used to finance projects where some of the design and preparations still need to be done. As such, it will typically take a little more time before the actual project is established. These projects are in an earlier stage and potentially involve newer technologies. These kinds of investments have moderate risk profiles and result in a higher impact in the climate fight as the capital is really mostly used to bring new climate technologies live which will create more GHG abatement.

Refers to investments that expand or develop new projects rather than acquire existing ones. These projects are often already fully designed and ready-to-build in terms of licenses, location, an operational team, etc., although there may be room to improve upon contracts with better terms.

These projects are often in later development stages, with moderate risk and higher potential returns (10-12% net IRR). Core plus investments contribute more to climate impact than the core approach as capital supports new infrastructure development.

See related terms: Core infrastructure and Value-add infrastructure.

Read more about Climate infrastructure as an investment strategy

Refers to investment in stable, existing infrastructure assets, with the lowest risk/return profile. These assets have no tech or construction risk and have stable capital structures with contracted or regulated revenues. While offering steady returns (typically 4-6% net IRR, mainly from cash yield), they have limited climate impact because the capital invested is not used to build additional projects - only to purchase existing infrastructure. 

See related terms Core plus infrastructure and Value-add infrastructure.

Read more about Climate infrastructure as an investment strategy

Committed capital is the total amount of money investors promise to a private equity fund. But here’s the thing—it’s not handed over all at once. Instead, the fund manager (known as the GP) asks for the money in smaller chunks, called capital calls, whenever it’s needed—like when there’s a new investment opportunity or expenses to cover.

How it works:

1. Agreement: Investors pledge a specific amount of money to the fund when they join.‍

2. Capital calls: Funds are drawn over time. The GP requests portions of the committed capital, typically as investment opportunities arise.‍

3. Uncalled capital: Some money stays on standby. The portion of the committed capital not yet drawn is often referred to as “dry powder” and can be called at any time.
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Think of committed capital as a promise to back a fund over its lifespan (typically 8-12 years), with your money working when and where it’s needed to make the most impact.

Instead of becoming a Limited Partner of a fund, a co-investor typically invests directly in a portfolio company. They make a passive, minority investment alongside a private equity fund manager or venture capital firm, and on the same terms.

The term is also used when a General Partner/fund manager uses their own money to invest in a private equity fund. This aims to ensure alignment of interest or ‘skin in the game’.  

Technology that assist in reducing greenhouse gas emissions and adapting to climate change impacts. This includes both environmentally sound technologies and the know-how required to use, manage, and adapt them effectively.

This definition, from the United Nations Framework Convention on Climate Change (UNFCCC), highlights both the cutting-edge innovations (like renewable energy systems) and the practical know-how needed to make a difference.

At Carbon Equity, we break this down into seven key sectors where we see the most potential for impact:

1. Energy Production: Think solar, wind, and smarter ways to store and distribute clean energy.

2. Industry: Making manufacturing and heavy industries greener, cleaner, and more efficient.

3. Food & Land Use: From sustainable farming to rethinking how we grow and produce food for the planet.

4. Transportation: Transforming how we move—electric vehicles, alternative fuels, and better infrastructure.

5. Buildings: Creating smarter, energy-efficient homes and offices for a sustainable future.

6. Carbon Management: Capturing and reusing carbon emissions to keep them out of the atmosphere.

7. Enablers: The tech and tools (like AI and financing platforms) that support and amplify all of these efforts.

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Check out our Climate Tech Hub to explore each sector in more detail and see how they’re reshaping our world.

Assets under management. The total market value of all financial assets managed by a person or entity, typically on behalf of investors.

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When investors in a fund are asked to transfer a portion of the money they’ve promised to contribute.

When you commit capital (‘subscribe’) to a fund, you don’t stump up the agreed amount upfront. Instead, the money is drawn down when the fund needs it (usually to make investments or cover costs). This way, investors can continue earning returns on their capital in the meantime, by putting it to work in short-term investments.

Rules for capital calls are typically outlined in the fund's Limited Partnership Agreement and are legally binding.

·   Committed capital: the total amount investors commit to invest over the life of the fund.

·   Initial drawdown: an agreed portion of this committed capital, which investors give at the beginning of the fund’s life.

·   Paid-in capital: how much money the investors have put into the fund to date.

·   Uncalled capital: the difference between committed capital and paid-in capital –the remainder that investors have agreed to invest but haven’t yet paid into the fund.

So, capital calls convert ‘uncalled capital’ into ‘paid-in’ capital. 

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See related terms: committed capital, initial drawdown, paid-in capital, and uncalled capital. 

CapEx refers to the money a business spends on buying or improving physical assets like buildings, machinery, or equipment—things that help the business operate. CapEx is not immediately charged all at once against the profits of an organization, its cost is gradually recorded over time through depreciation. This method reflects how the asset contributes to the business over time, instead of impacting profits all at once.

The amount of carbon dioxide (CO₂) emissions associated with the activities of an entity. It includes direct emissions e.g. from fossil-fuel combustion in transportation, manufacturing, and heating, as well as emissions needed to produce the electricity associated with goods and services consumed. It also includes emissions of other greenhouse gases such as methane, nitrous oxide and chlorofluorocarbons (CFCs).   

A carbon footprint is usually expressed as a measure of weight, i.e. tons of CO₂ per year.

Where companies compensate for their carbon footprint by reducing or removing CO2 and other greenhouse gas emissions elsewhere (e.g. by planting trees or investing in renewable energy schemes).

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