Investor Connect Podcast

Payback Plans

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Not every funded startup continues on the venture path to a high payoff from the sale of the business. 

For those startups, investors using an early-exit term sheet can find a path out of the deal.

There are several options for the startup to pay back the investors.

The company can use a revenue share agreement.

While the funds may not be available immediately for payback, the company can pay out of incoming revenue over time.

This is typically 2-3% of top-line revenue and is paid monthly.

In many cases, this will take more than a year to pay off.

Other options include the following:

  • The CEO can put the company up for sale and pay off the investors with the proceeds.
  • The CEO can pay off the debt or assume the note with a personal guarantee.
  • Other investors in the company can buy out the early-exit investors as well. 
  • The follow-on investors can pay off the debt to remove the investors from the cap table. 
  • The company could declare a dividend to the investors and pay it out over time. 

The purpose of the early-exit term sheet is to provide the investor a path out of the deal.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Direct download: Payback_plans.mp3
Category:general -- posted at: 6:00am CDT