VC Minute – quick advice to help startup founders fundraise better
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With regard to fee-based lenders versus something like the RBI model that we did with GCVF, when you actually do the math on fee-based lenders, like ClearBank and Shopify, and they make it very hard to do this math intentionally, the APR and what you’re actually paying for that capital are astronomical.
For someone who’s just getting off the ground, yeah, something like Shopify Capital or ClearBank might be a great option. Often, you’re one or two clicks away from that information.
With GCVF, there was a diligence process. There was a fair amount of back and forth. It probably took us a month to close the deal.
For us, we were far enough, and I was sort of sophisticated enough in my take on how to raise capital for the business that GCVF was a better partner for us because the deal terms were better.
What was really the selling point to me was that even just going through the diligence process was helpful. Having Jamie comb through my books and say, “Hey, man, here’s what we’re seeing. Here’s what we like. Here’s what we don’t like.” That was a great exercise in and of itself, and then to have him and the rest of the GCVF partners take a really hard look at the business and help me grow it along the way. That was a huge value addition.
It really ended up being a win-win. Those guys got a great return on their investment. I have a great group of partners and advisors. What’s great about our partnership is that I have bought back all the equity. I still talk to those guys every month. They are still totally invested in the brand because of our relationship, because of how that went, and because we’re able to prove that model together. They have no real vested interest anymore in whether or not we succeed, but they’re still on my board of advisors. I still talk to them every month.
With regard to the deal terms, I’m totally okay with being transparent with them.
The deal terms were a $100,000 initial investment. After 16 months, we started paying them back 5 percent of our revenue, until we had paid back 300,000 dollars. That initial $100,000 was 8 percent equity. And as we started paying that back, we bought that equity down.
That worked for us for a number of reasons. One was that 16-month resting period, which was great for cash flow, right? That was a time when I could take the 100K and throw it into marketing, inventory, and making a hire. That was an immediate value addition with a delay, and we had to pay it back. That was hugely beneficial for us.
The other part of that period that was really unique and helpful for us was that we structured it at 60 months, which is a little, I guess, abnormal because of our sales cycle and because of the structure and the sales curve of the ski season.
I was able to start paying them back when money started coming in that year. So I think they made the investment in September, and I started paying them back the following spring when we were flush with cash. That was a great time for us to start that payback period.
When we modeled this out and modeled the growth of the business, this was going to be a pretty favorable APR for us. I think, in terms of deal terms, it was going to work out really nicely for both of us. We ended up growing so fast, I think we paid this back in, like, 2 and a half years. So their IRR in the deal, I think, was, like, over 70 percent or something. I haven’t done the math yet, but it was a lot.
But I’ll say this: I’m okay making that payment because what that means is, yeah, we ended up with, I guess, relatively poor debt structure terms. But the only reason that happened is because we’re growing so quickly. So, in doing this deal, it was really a decision of, okay, the only way this goes poorly for us from a financial perspective is if we’re really succeeding on the front end.
If all of a sudden we’re not taking in a lot of revenue, then our payback period extends. So there was this flexibility built in there that was really, really advantageous for us, obviously from a cash flow perspective. But as I said before, just from a cognitive stability and emotional standpoint, it was a really phenomenal outcome.
About Glade Optics
Glade Optics designs premium ski goggles, helmets, and sunglasses from their headquarters in Breckenridge, Colorado. Winner of Ski Magazine’s Goggle of the Year, Freeskier’s Editor’s Choice Award, and Blister’s “Best of” Award, Glade’s equipment is designed with the best materials and construction available—at an unbeatable price point. See what all the hype is about at shopglade.com.
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