Revenue is the greatest predictor of a company’s overall trajectory.

Make it strategic in your capital raise formula.

How Debt Equity Works

As a founder, the most sacred tool in your tool kit is equity. Especially as you continue to grow. That equity represents much more than your ownership percentage - it reflects how much control you have in the business’ destiny.

The way we see it, you should have as much control over how and when that equity is granted as possible.

Most simplistically, Proven Ventures purchases equity or convertible rights to equity as well as rights to payments set at a percentage of monthly revenue down the road. As revenue is paid back to Proven Ventures, equity is dynamically returned back to the founders.

These payments come with a return cap, typically around 3x.

Why revenue as the repayment? More cash flow is best for you and presents a North Star for us to work toward. By tying payments that are derived from the portfolio company’s revenue, we ensure alignment to consistent, stable revenue growth. The percentage of revenue means we are aligned in good times and bad. 

As a fund, we maintain a small amount of our originally purchased equity. This pure equity, most closely resembling traditional venture capital, allows us to participate if there is an outsized exit later. Meanwhile, it gives our portfolio companies access to immediate risk capital.

Benefits to Co-Investors and Future Investors:

  • For the company, having previously taken on debt equity can mean that it has avoided diluting its equity early on. For new investors, this can mean that their investment has the potential to retain more value, as the company has not been as diluted by prior rounds of financing.

  • Companies that have taken on debt equity often have more stringent financial tracking and management practices to meet the terms of their debt agreements. This can provide venture investors with a clearer understanding of the company’s financial health and projections.

  • If a company has successfully utilized debt equity for growth, it's a positive signal to future investors about the company's viability and management's ability to leverage capital efficiently. It suggests that the company has a clear path to generating revenue and possibly reaching profitability, reducing the risk for additional investors.

Benefits to Founders and Employees:

  • Taking on debt equity can be a strategic move for founders looking to leverage their company's future cash flows for growth without diluting their ownership. It can serve as a testament to their confidence in the company’s business model and its potential to generate sufficient revenue to cover debt obligations and fuel expansion.

  • Utilizing debt equity can offer founders more flexibility in how they manage their company’s finances and growth, with potentially fewer restrictions than those imposed by equity investors. Founders can maintain greater control over their company's direction and decisions, as debt lenders typically do not require a seat on the board or a say in daily operations.

  • Debt equity allows founders to secure necessary capital without giving up as much ownership stake in their company as they might with traditional equity financing. This approach can be especially attractive in early stages when the valuation of the company might be lower, allowing founders to retain more control and benefit from the company's future growth.

Meet:
The Debt Equity Calculator.

This calculator helps focus on the tangible benefits of opting for debt equity as part of your capital raise. By inputting your total investment sought, pre-money valuation, and the investment amount from Proven Ventures, our calculator will reveal:

  • The percentage of the business sold through the financing round.

  • The portion of equity that is redeemable, allowing you insights into future buyback opportunities.

Moreover, assuming a scenario where your company achieves $5,000,000 in annual gross revenue, we extrapolate the potential acquisition price based on current market multiples for SaaS businesses.

This highlights how much more you could earn, beyond your investors, by leveraging the redeemable equity portion of your financing.

Use revenue to YOUR advantage.

Debt Equity and Your Bottom Line

Debt Equity and Your Bottom Line





Results:

  • Retain ownership and control.

  • Alignment to growth.

  • Redemption cap below SaaS multiples.