We’ve always known that as our portfolio grows we would continue to build out our offering to our founders. The partnership strategies that KnowCap deploys keys in on the network effects that our ecosystem model provides for bother partners & founders.
One of the key components of that are the partnerships that we can enter into is one that makes the lives of our founders less “complicated.” The income gap that occurs from when an aspiring entrepreneur decides that they want to start a business and the point where they actually have replaced their former salary can be treacherous.
You have to gain buy-in from your entire support system. You may have to take on some hourly part-time work or live completely on savings. Banks won’t give you a loan that serves to pay for living expenses as your company gets off the ground…don’t even think about VCs this early on unless you have connections into the venture funding space.
Faced with these realities, most people either whittle down their decisions to two key options.
1. Not to form a company to solve problems for a key customer segment
2. Remain at their full-time positions until the company can spin off enough revenue to pay for their salaries.
We built KnowCap to give them another option that they can take to speed up the process to working on their business full-time. We support them with the competency gaps they face (because no one can know everything about everything), but we’ve always wanted to be able to close the income replacement gap as well.
Fortunately, we met Will Stringer of Chisos.
What is Chisos
Chisos is a self-proclaimed investor in Idea Stage and Side Hustle businesses. The organization invests at some of the earliest stages to empower aspiring entrepreneurs to “take the leap.”
They have pioneered the CISA (Convertible Income Share Agreement) investment funding model which allows entrepreneurs the flexibility to accept $25,000-$50,000 in funding and pay it off as they exceed a specific income threshold.
This is different in that it allows you to reserve capital earned in your business for reinvestment into the growth of the company. Rather than taking a percentage of all top-line revenues of the company, repayment on a Chisos CISA is based on the founder’s income. Along with a number of other founder-friendly features, this funding mechanism serves as the most favorable option for many early-stage entrepreneurs.
This intentional approach to the CISA model is what made it an easy decision to partner with Chisos and refer all of our founders to them to help fund their companies.
Competency Gap + Income Replacement Gap
When you examine the issues at the idea-stage very few compare with the competency gap and the income replacement gap.
Ideally, as a founder you want to be able to overcome both, however, for many entrepreneurs, this is simply not possible.
If you want to cover the competency gap, you need capital in order to hire experienced operators in areas where you aren’t sure how to perform at an elite level.
Fortunately, that is the key value proposition of KnowCap’s Knowledge Capital investment model. Instead of founders needing to raise funding to hire world-class talent, they can skip that step and apply for one of our flagship programs where we supply that talent in exchange for equity. Cutting out the venture capital middlemen at the earliest stages.
If you want to cover the Income Replacement Gap, you have to either raise funding quickly via debt or equity models, you can begin drawing from savings, or you can remain in your full-time position. Realistically, most idea-stage entrepreneurs only have the final option to choose from. Having savings that can support a full-time salary is a place of privilege that few actually get to attain.
Chisos allows you to take a fourth option. Largely unheard of until they launched. This means that you can work on your company full-time without the worry of late payments on bills or having to pull from emergency savings. In a sense, Chisos pays you to build a company.
When combined these two elements can be a large reason why a company doesn’t reach its full potential or grow as fast as the market will allow. Entrepreneurs are fighting a battle with two-hands tied behind their backs. With this partnership, we aim to liberate them and allow them the freedom to build a company that will change the world.
How our partnership will work
KnowCap’s partnership with Chisos will be bi-directional and independent. We’ll be referring our founders into the Chisos funding program and they will be introducing their portfolio companies to our flagship programs.
Each partner will evaluate the referred founders through their own proprietary “underwriting” process and make a decision on whether the investment will go through.
Because there is a de-risking element to solving the Competency and Income Replacement Gap issues, by receiving an investment in both companies, a founder will be giving up less equity than if approached by KnowCap or Chisos separately.
This is a key piece of the partnership that should make investors in later funding rounds jump up with joy. Less equity means more cap table space for downstream investors.
Long term we hope to establish a deeper partnership where Chisos runs their CISA model for a fund that is funded for KnowCap, specifically intended for founders within the KnowCap ecosystem.
If you want to learn more about KnowCap’s flagship programs, click here.
If you want to learn more about Chisos and their groundbreaking funding model, click here.