Category Archives: Links

Creative Way of Financing Your Startup

I was reading a post from Don Dodge tonight about the New England Venture Summit and the key take away is that investors are still investing.  Beyond waht Don is telling us, I’m advising a few companies right now that are in the midst of their capital raise and there is certainly money out there, you just need to know where to look and have the numbers/benchmarks/metrics to prove that you are worthy of investment at this point.

One quote I’d like to paraphrase here is:

Management Investment Partnership – John Giannuzzi of Sherbrooke Capital introduced an interesting concept for aligning the interests of VCs with entrepreneurs. Sherbrooke asks its founder entrepreneurs to invest with them and invest 10% of the first round capital raised. For example, if a company is raising $2M, the founders would take $200K of the round, with 15% ($30K) up front and the balance financed over time. The company issues a 3 year note to the founders for the remaining $170K. If the founders meet their projections at the end of year one they get one third of the note forgiven and get the stock for free. If they miss their numbers they would pay for the stock…just like the VC. If the founders meet their projections in all three years they get the entire note forgiven and keep the stock for free. In essence the founders get to own 10% of the round for 15 cents on the dollar if they meet their targets. If they don’t meet their targets they get to buy the stock at the same price as the VCs.

I don’t know much about Sherbrooke Capital as in further research into them, they invest within Health and Wellness, an area I admittently know nothing about.  The program that they offer founders is very interesting and certainly creative.  I like that the founding team has to put skin in the game, but I wonder if previously invested monies count?

As a founder of companies, I’ve invested early.  To get a company off the ground, myself (and in some cases, the founding team) has put in quite a bit of capital to get it to the Seed or even Series A stage.  At this point, I’m usually “done” investing my own personal money and looking to raise equity financing… I wonder how entreprneurs are reacting to Sherbrooke’s philosophy.

From an investor standpoint (if I was to wear a Sherbrooke hat), this is genius.  It incentivizes founders to stay in addition to, allows them quick reward for hitting their projections and goals.

Interesting concept.

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