Why Redeemable Equity?
Surv needed access to friends and family capital and its service-based business model did not fit VC criteria. As a startup, Surv did not generate enough revenue or have a long enough financial history to fit lending criteria. It was incredibly challenging for the startup team to access traditional sources of capital and they had to seek alternative, less dilutive sources such as revenue-based financing. In 2020, Capacity provided critical seed capital by participating in the $1M pre-seed round with a $200k redeemable equity investment.
Surv used the pre-seed capital to expand into new markets along the East Coast, including Tennessee, and double its headcount. This capital unlocked meaningful revenue growth and the opportunity to raise a $2.5M community seed round on Wefunder. As of July 2022, SURV has raised $1.1M in commitments out of its $2.5M target preferred equity round at a $15M pre-money valuation. The company will continue to focus on sustainable growth instead of hyper growth to reduce cash needs and reinvest capital from its cash flow.
As of Q2 2022, Surv has consistently made monthly revenue-based payments to Capacity since June 2021 and paid nearly 25% of the 2x return cap. The investment has a 0.5x MOIC and Capacity expects it to produce a 2x MOIC via revenue-based payments while still maintaining 3.4% in equity upside for the rapid growth VC scenario.
- Company: Surv
- Investor: Capacity Capital
- Investment Date: March 2020
- Investment Amount: $200K
- Initial Ownership: 10%
- Residual Ownership: 1%
- Redemption Amount: 3.75% of gross revenue
- Repayment Cap: 2.5x ($500K) reduced to 2x ($400K) following converted equity of 3.4% in January 2022
- Grace Period: 3 months (deferred by 12 months during COVID)
- Payment Schedule: Monthly
- Conversion Trigger: $1M preferred equity round
- Board Seat: None