Investment structures

Vested for Growth investments are customized to meet your business’s unique needs, and often feature one of the following three types of financing.

Subordinated debt

Subordinated debt, or sub-debt, typically supplements, and is subordinate to, bank debt (but not to previous owners, or to family and friends). These straightforward loans are appropriate when the investor has collateral, a strong management team, and a solid growth plan. Sub-debt doesn’t dilute ownership, and is relatively inexpensive.

In higher-risk deals, sub-debt can be combined with royalty (see below) or warrants (which allow the investor to purchase stock in the future at an agreed-upon price) to compensate for the investor’s risk.

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Subordinated debt + royalty

This innovation is appropriate when the company has a strong management team and a solid growth proposition but elements of risk that go beyond what is appropriate for a bank loan. 

It combines the subordinated debt above, with a revenue-based “kicker” to compensate for the added risk. Instead of owning a percentage of the business (as would be the case with an equity investor), the royalty investor takes a percentage of the company’s revenue for a fixed time period.

This type of investment doesn’t dilute ownership, and does align the business’s payments with its ability to pay. As the company grows, the payment to the investor grows in proportion. If the company has a hard month, or hard quarter, the payment shrinks to accommodate.

It is flexible, provides performance-based returns, aligns the interests of the capital with the interests of the business owner, and prevents ownership from having to sell the company to satisfy outside shareholders.

Expected returns are more than from subordinated debt, but less than from equity.

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This mechanism involves repayment only through the royalty "kicker" mentioned above. However, it is different in that a “multiple” is determined at the time of investment, and a percentage of revenue is paid monthly until that multiple is achieved.

For example, if VFG invests $300,000 and agrees to a 2X multiple, the company would pay a percentage of monthly revenue until its total payments reach $600,000. If the company grows quickly, the returns are achieved more quickly. If the business takes longer to achieve its goals, the investment is returned over a longer period.

This structure is particularly useful for companies that have solid growth plans, but are unsure of exactly when the expected revenue will materialize. It can also be used when there is short-term uncertainty, such as with a merger or acquisition.

By basing the repayments on the company's performance, the owner avoids a fixed monthly obligation and instead pays commensurate to its revenue. In this way, pure royalty has a shock-absorbing quality that can help companies weather hard times and stay focused on problem solving.

Please contact us to learn more.