Start up Investing for VC Investors
VC Investments in a Revenue Sharing Agreements (RSA)
This document describes a venture capital (VC) style investment structured as a Revenue Sharing Agreement (RSA) with no cap on the equity multiple and a minimum true-up of 3X. This hybrid model combines the upside potential of traditional VC with the downside protection of structured finance.
Investment Structure Summary
Investor Type: Venture Capital Firm / Accredited Investor
Instrument: Revenue Sharing Agreement (RSA)
Key Terms:
– Investment Amount: VC provides upfront capital to the operating company.
– Revenue Share: A negotiated percentage of gross revenue is paid to investors on a quarterly or monthly basis.
– No Cap on Return Multiple: No maximum limit on earnings through revenue share distributions.
– Minimum True-Up Clause: Ensures investor receives at least 3X return by a specified date (e.g., 5–7 years), via cash or equity.
How It Works in Practice
Initial Investment:
– The VC invests, for example, $1 million into a growth-stage business.
2. Ongoing Revenue Sharing:
– The company agrees to pay 10% of gross revenue to the investor until the investment reaches or exceeds a 3X multiple.
– Since there’s no cap, the investor continues earning beyond 3X if the company performs well.
3. True-Up Clause at Maturity:
– At the end of 5 years, total payments made to the VC are reviewed.
– If the VC has receive $3 million or more: No action needed.
– If the VC has received $2.6 million: The company must true-up $400,000 via cash or a capital event.