Deal structuring
Better Bath Better Body closed a $400,000 investment from a club investor through a gross revenue royalty structure. Richard C. Richard says one investor contact can sometimes fill all of a company's capital needs for the next two to four years. A panel example in another talk showed a company that could sell for $90 while the founders took home only $2. Structure decides who gets paid and when.
The hub collects videos, short answers and one guide. One video covers a sidecar fund that cannot put more than 20% of its capital into any one company. Another covers a deal for 14 franchise locations at 5,000 per location, versus about a quarter of a million to launch one from the ground up. Short answers explain notes versus SAFEs, promotes, waterfalls, earnouts, MFN clauses and preferred equity. The guide covers a preferred return and waterfall.
15 videos, 7 questions and 1 guide on this topic.
Guides
- How to Structure a Deal With a Preferred Return and WaterfallMy first co-GP deal had an unusual structure.
Videos with summaries and takeaways
- Hot Seats on Pitch Decks, Deal Structures and Due DiligenceA one-pager with a timeline helps a sponsor with a long track record present a new platform as credible.
- Hot Seat Webinar: Anchor Investors, Deal Structure, OutreachA protein business raising capital for a Nebraska beef plant, and a senior housing operator who raised 75 million, bring questions to Richard C.
- Strategic Choke Points, Deal Flow and Deal StructureA strategic choke point is an asset that, once acquired, makes it hard for anyone else to get the same position.
- 10 Growth Strategies for Capital Raisers, Founders and Family OfficesRichard C.
- 5 Changes to a Deal Structure and Investor Pitch That Improved RaisesA one pager has one job, which is to earn the next conversation.
- Creative Investment Structures: Co-GP, Sidecar Funds, SPVs and Priced RoundsCarlos, who runs real estate for a family office, likes to control the whole capital stack.
- Real Estate Deal Structures, Private Credit and Risk: Investor PanelA private lender on the panel showed how sponsors close the equity gap on a $100 million deal.
- Family Office Resources: Strategy, Values, Deal Flow and StructureA family office should design its own game board, according to this talk from a speaker with 15 years running an investor club and 13 books written.
- Deal Structure, Distribution and What Wins With InvestorsRichard C.
- Angel Investor Mandate: Seed Deals, Notes and Price Rounds in Silicon ValleyIan invests less than a million dollars per deal, between 100k and a million, in seed stage high technology companies.
- How Investors Value Startups Today: Notes, EBITDA and Franchise DealsInvestors on this panel say valuation has become more disciplined since the frothy deals of 2022 and 2023.
- Flexible Deal Structures and How to Engage InvestorsA $400,000 investment in Better Bath Better Body closed last week through a structure based on a share of gross revenue.
- Why Deal Structure Matters When Raising Capital: Richard C. WilsonA $400,000 investment in Better Bath Better Body closed through a structure the company described as a gross revenue royalty, and Richard C.
- How Smart Investors Find and Create Value in DealsTake meetings even when a deal is not an obvious fit, because the conversation can turn into a valuable relationship later.
- Real Estate Investment Tax Strategies to ResearchRichard C.
Questions answered
- What is the difference between a convertible note and a SAFE?A convertible note is commonly described as a loan that later converts into equity, often with interest and a maturity date.
- What is a promote and how is it calculated?A promote is the back end profit that goes to the sponsor or operating partner after the investors who put in the money have received their preferred return.
- How does revenue-based financing work for growing companies?Revenue-based financing gives a company capital in exchange for a share of its sales until the investor is repaid.
- How do I structure an earnout in an acquisition?Tie part of the purchase price to how the business performs after closing.
- How does a distribution waterfall work?A distribution waterfall is the order in which a deal pays out cash.
- What is a most favored nation clause for investors?A most favored nation clause, or MFN, says that if the sponsor gives another investor better terms, you can ask for those terms too.
- What is preferred equity and how does it work?Preferred equity sits in a deal's capital stack between the bank loan and the common equity.
- Should I bootstrap or raise outside capital?Start by mapping what the business can fund today and what it needs to reach its next meaningful milestone.
- What is the easiest way to raise capital for a small business?Start with one group of investors who already understand your business or have a natural reason to learn about it.
- Can I raise capital without giving up equity?Start by defining the amount you need, what it will fund, and when the business needs it.
- What is the difference between debt and equity financing?Debt financing gives a business capital it must repay under agreed terms, equity financing gives investors an ownership interest.
Tools for this topic
Common questions
What is the difference between a convertible note and a SAFE?
A convertible note is a loan that later converts into equity, so it carries interest and a maturity date. A SAFE is not a loan, has no interest or repayment date, and gives the investor a right to future equity.
How does a distribution waterfall work?
A waterfall is the order in which a deal pays out cash, and money fills one tier before it moves to the next. A common order is return of capital first, then a preferred return, then a split between investors and the sponsor.
How does revenue-based financing work for growing companies?
The company receives capital in exchange for a share of its sales until the investor is repaid. With a gross revenue royalty, the company pays a percentage off the top line and the investor gets money back faster than with straight equity.
