Investment Vehicles | MainVest

Our Investment Vehicles

The MainVest Investment Vehicle Philosophy

MainVest’s philosophy on investment vehicle structuring consists of these core principles:

  1. It’s your business, not the banks’: Small business owners know what is best for their business. We believe raising capital should not result in losing control or being beheld to the needs of institutional finance.
  2. Learn from failure, don’t fear it: Small business owners are already taking enough risk. We believe crowdfunded investments should not be personally guaranteed (i.e. risk losing your house or other assets if your business does not succeed). Investor returns, of course, should reflect this risk.
  3. An investment is more than just money: Small businesses should have access to investors that care about not just the success, but the mission of your business.
  4. Build your business, not a bureaucracy: Investments should not add complicated busy-work and resource-heavy burden. MainVest’s goal is to set you up to get capital that works for you, so you can work on building the best business in town.
  5. Your business is special: MainVest will work with you to help you customize your investment vehicle and tailor its terms to fit your business needs.

When raising capital on MainVest, the entrepreneur has the choice of three different investment vehicle categories depending on his or her needs.

Term Loan

Investment Vehicle Summary

A term loan is the most straightforward method of small business financing. A term loan is a short to long term instrument with a predefined interest rate, maturity date, and principal payback schedule.

Example A $200,000 term loan that matures in five years and is “interest only” for the first year and then pays principal and interest back over the next four years.


Pros

Simply put, it’s simple. If you have pre-existing cash flow and/or are confident that cash flow generation will begin in parallel with launch, the term loan might be for you.

Cons

For investors, the incentive for term loan investments are strictly financial. Their return doesn’t fluctuate based on the success of the business, and therefore they are less incentivized to actively support business growth.

Revenue Sharing Note (RSN)

Investment Vehicle Summary

A RSN is a debt-like instrument that has the following predefined terms: total return, maturity date, and percent of revenue paid back to investors.

Learn More About the Revenue Sharing Note

Example A $200,000 RSN that matures in 5 years and 5% of revenue is paid back quarterly until a total 50% return (i.e. the "cap") has been hit. In this example, the business is expected to pay back a total amount of $300,000 by paying 5% of their revenue to investors over five years. If at the end of the 5-year period, the $300,000 has not been paid, then the business has to pay the remaining balance at that time.


Pros

Returns to investors fluctuate on the monthly or quarterly revenue of the business, allowing flexibility around seasonal ventures and environmental variables. There is less cash flow risk. The investor is incentivised to support the business to achieve the highest rate of return.

Cons

After reaching the cap, investors have no financial incentive to continue to evangelize and support your business.

Equity-alternative Revenue Note (EaRN)

Investment Vehicle Summary

An EaRN Note is like a RSN, but more long-term and has more potential upside for the investor. We believe this potential upside translates into customers who are significantly more invested in the businesses they invest in.

Learn More About the EaRN Note

Example A $200,000 EaRN that matures in 10 years and 5% of revenue is paid back quarterly until a total 25% return (i.e. the “cap”) has been hit. Upon reaching the “1.25x cap”, the company then pays a smaller percentage (e.g. 2%) on revenue until the maturity of the EaRN is reached.


Pros

We created the EaRN note to provide small businesses with an investment vehicle that fosters investors who want to work to help their businesses grow, without the entrepreneur having to give up control of their venture. The investor has a long-term incentive to support the business and, if the business is very successful, can get significantly more upside. It also shares the benefits of a traditional RSN. The EaRN is designed to be the perfect vehicle for businesses looking for investors who care.

Cons

It’s a longer term investment that may not be a fit for some businesses.