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CEO of Rustic Crust
"They took the time to really get to know our business, and offered a loan that fit our unique needs … it made sense."
Learn more about why VFG invested in Rustic Crust.
Vested for Growth provides three "types" of financing. However these represent only typical examples. The key feature of VFG investments is that they are truly customized to meet the unique needs of the business.
With higher-risk deals, sub debt can be combined with warrants (a right to purchase stock in the future at an agreed-upon price) in order to boost the return to compensate for the given risk.
Subordinated debt + royalty
Royalty financing typically consists of the subordinated debt instrument above, but includes a revenue-based "kicker" to compensate for the uncollateralized nature of the deal. When a royalty investor finances a company, instead of taking a piece of the ownership structure they share in a piece of the revenue stream for a fixed amount of time, typically five years with an option for pre-payment after year three.
Not only does this not dilute ownership, it has the advantage of aligning payments with the company's ability to pay. As the company grows, the payment grows in proportion. If the company has a hard month, or hard quarter, the payment shrinks to accommodate. The better the company does, the better the investor does. If the company doesn't do as well, VFG doesn't do as well. It is a flexible instrument that provides performance-based returns, aligns the interests of the capital with the interests of the business owner, and prevents the company from having to sell itself to satisfy outside shareholders.
Expected returns are more than with subordinated debt, but less than with equity.
For example, if under this structure VFG invested $300,000 and agreed to a 2X multiple, the company would then pay a percentage of monthly revenue until total payments reached $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 of time.
This structure is particularly useful for companies that have solid growth plans, but are unsure of exactly when the expected revenue will materialize. By basing the repayments purely on the company's performance, the owner avoids a fixed monthly obligation and instead pays only what is appropriate for that period.See an example, or, contact us to learn more.
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