Equity Is Not Always the Answer
Had a few things come into clarity yesterday.
I've had a lot of people praise the success of the Harlan County Brewery raise. I believe the sole factor of success in that raise were the terms. They chose to raise on a 2x revenue share on 10% of profits. If they structured it as pure equity they wouldn't have gotten anywhere close to 250k in my opinion.
Yesterday in an interview with a potential SAM, she had a great critique of our campaigns. She pointed that many companies are raising equity, but aren't "venture scale". Companies that don't aspire to grow quickly and exit will struggle raising equity. Investors aren't dumb. They can connect the dots.
Today a random entrepreneur friend, Malte or Shore Buddies (https://wefunder.com/shore.buddies) hit me up and expressed his concern over only raising $11k on his round.
I immediately pitched the revenue share idea. It makes sense. He's got a profitable business, with a compelling product, with real traction -- but he's not on a path of "scale and exit" and that seems very obvious.
The relative interest from me as an investor follows this logic:
"if you do this on equity, I might invest $500 because I love what you're doing.
"if you do this on a revenue share, I might invest $2,500 because I'm very confident I would make that money back and I feel great about it"
I think we should be more intentional in sharing this line of thought with founders. If a business isn't on the "scale and exit" track, does equity make sense? It's worth asking the question.
There's an alternative. Our revenue share product has extreme relevance and is under utilized.
Main Street, consumer products, CPG etc etc should more seriously consider this as an option, and we aren't talking about it.
A side note on this. One of my best friends in San Diego is the founder of Amplified Ale Works (who successfully raised $500k on Wefunder). He structured his deal with equity and debt. He offered a 1.3X profit sharing, coupled with a convertible note at a $10M cap. That's what he needed to do to convert the $50k+ checks from his network and it worked.
Would love to see Wefunder explore these routes more actively -- and we on the BD / Ops teams have the ability to influence this directional guidance with founders.