The spreadsheet our fund uses to model Indie-VC-structure investments with founders
For Kiah Hochstetler, COO of Goodworks Ventures, the ideas of the summit were missing one thing: concrete and objective–numbers.
Revenue-based investment (RBI) sounds great, but what are the real financial consequences associated with it? How do you know if a company can afford RBI?
Kiah enlisted excel-guru Stephon Smith, founder of Modulus Financial, and just a month later they shared the first version of this model, which is tailored to the Indie.VC V3 RBI + equity redemption structure.
Their tool is brilliant in its simplicity. Just like a loan, it shows the ‘serviceability’ of a revenue share investment for a company. It even accounts for debt the company may also owe along the way.
Within a month of the Alternative Capital Summit, we were actively modeling potential RBI deals with founders.
Our conversations went from a subjective, “we’re aligned around an RBI structure,” to an objective, “here’s how this would actually work.”
Because equity funding only allows a single path to liquidity, the founder’s true motivations for growing the company are glossed over as inconsequential. Using this model brought a refreshing level of trust and objectivity to the economics of a deal.
Neither side was doing their own exit valuation math. The founder wasn’t forced to paint an artificial picture of a nine or ten-figure exit. We weren’t incentivized to maximize our ownership to mitigate exit math heartburn.
Both sides of the table are incentivized to maximize information symmetry.
The founder has to ensure they can withstand the payments associated with the RBI and are excited about the growth they’re signing up for. The investor has to be confident that they believe in the projected growth that will result in a competitive return.
It doesn’t get much more transparent than working off of the same spreadsheet as founders, with founders.
Stephon and Kiah, you’ve seriously moved our fund’s RBI proficiency forward. Hopefully, sharing this model will do the same for other funders and founders.
>>>View the Instructions Here (and use the comment feature if you get hung up or have suggestions for the model).