Deal Scenarios

Vested For Growth provides the flexible capital business owners need to set their companies up for success. By modifying the investment structure to match the natural cycles and rhythms of the business, repayment schedules match revenues and the company is allowed to grow at a strategic pace, not dictated by the demands of your capital structure.

Here are a few examples of deals VFG would be appropriate for. The numerical values are for illustration purposes only, and actual figures naturally range company by company. Typical rates on subordinated debt run from 10% to 12%, and the revenue sharing (royalty) rate runs from 0.5% to 3% depending on the size of your business at the time of investment.

1. Large New Customer:
Your business has received great news, you've just landed an enormous new customer. This is a big leap in revenue for you and the company, and at great margins to boot. However you now need capital to fulfill on this order. Perhaps you need inventory, or new machinery, or an upfront investment in personnel.

Your needs are approximately $750,000 and your bank is willing to provide $600,000, leaving you with a $150,000 gap you need to fill. Thankfully, you have excess collateral available such as real estate or equipment. This could occur because your banking partner is willing to lend 70% of the purchase price of the real estate or equipment, but it appraises at a much higher value than the purchase price, leaving accessible value available in the asset.

If fully collateralized, VFG could provide a simple subordinated debt instrument to provide you the capital you need to grow into the new revenue. With a long amortization schedule monthly payments can be affordable if needed to help support healthy cash flow.

2. Business growth after rough year:
Due to rough economic times, your business had a rough time last year, or perhaps the year before. However you have adapted your business model and activity is picking up again. And in order to take advantage of the current opportunities, you need capital.

But because of blemishes on your recent profit and loss statements, the bank is limited in what capital it can provide to you. Additionally, you have exhausted your available collateral and the bank is unable to provide more financing based on assets. However, your growth plan is solid, you have a great team in place, and recent performance has been strong. Even better, you can demonstrate which sales are likely to come from which customers over the next year.

Yet, you don't have enough personal equity to contribute. And, you don't want to take on an outside equity investment and be forced to sell the business down the road. Or perhaps the existing equity holders simply don't want to dilute their ownership position.

The royalty rate is defined up front, and is determined by both the size of your business and this size of the investment. The typical range is from 0.5% to 3%. For the sake of this example, 2% of your top line will be shared for three years with VFG, during which time the business grows and becomes fully bankable. At that time you refinance with a bank, VFG's investment is repaid, and you lower your cost of capital. In the meantime you had access to the capital you needed to grow, business has improved as a result, and profits have increased.

3. Acquisition:
Your company is doing well, and has a fantastic opportunity to buy a competitor or complementary businesses. The acquisition will result in both cost synergies and cross selling opportunities to further propel sales from both customer bases. Margins are already strong, and will only stand to improve from the merger.

However, acquisitions take capital and while the bank is being helpful there is only so much they can provide while adhering to bank policies and regulations. You and/or your fellow owners have personal equity to contribute, but it still isn't enough to close the deal.

VFG can provide the extra capital needed to complete the acquisition. While this could fall under the Debt + Royalty structure above, it could also be completed with a Royalty Only structure. Instead of (or perhaps in addition to) taking on an outside equity partner, VFG and the business can agree on a required "return multiple" on the investment, and your newly grown business pays only a percent of the top line, no fixed debt service, until that multiple is reached.

This allows for the acquisition to close, and because the payment is dependent on business performance it allows room for the unexpected to occur. Perhaps the cost synergies don't materialize as quickly as hoped, or perhaps merging the two organizational cultures proves more difficult than anticipated. Perhaps a customer at the acquired business had unknown plans to take their business elsewhere, or the cross selling programs are simply pushed out to the future due to customer business cycles.

In any case, a pure royalty structure adapts to the ever-changing conditions you face. The business would only pay a certain percentage of revenue, and do so until the multiple is met. It could take two years, it could take five years. VFG's patient capital allows to room for the business to tackle the challenges, setting you up for long term success.

To discuss how VFG financing could work for your business, contact us. We're always happy to explore the possibilities. And if VFG isn't a fit, we'll do our best to refer you to someone who can help.