Payback Plans

Not every funded startup continues on the venture path to a high payoff from the sale of the business. 

For those startups, investors using an early-exit term sheet can find a path out of the deal.

There are several options for the startup to pay back the investors.

The company can use a revenue share agreement.

While the funds may not be available immediately for payback, the company can pay out of incoming revenue over time.

This is typically 2-3% of top-line revenue and is paid monthly.

In many cases, this will take more than a year to pay off.

Other options include the following:

– The CEO can put the company up for sale and pay off the investors with the proceeds.
– The CEO can pay off the debt or assume the note with a personal guarantee.
– Other investors in the company can buy out the early-exit investors as well. 
– The follow-on investors can pay off the debt to remove the investors from the cap table. 
– The company could declare a dividend to the investors and pay it out over time. 

The purpose of the early-exit term sheet is to provide the investor a path out of the deal.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.