Evergreen Funding
Candlefocus EditorThis structure can be done in various forms depending on the needs of the company and the expectations of the investors. There are three main ways a company can execute an evergreen funding system:
1. Convertible Debt: For companies that don’t have enough leverage to negotiate favorable valuations and take risk off the table, convertible debt is the best option. Convertible debt is also a great option in re-structurings and recapitalizations. This form of evergreen funding allows investors to invest money in the form of debt, with the principal being converted into equity after the company’s valuation reaches a higher milestone.
2. Equity Investment: Equity investments are lump sum investments, split into various tranches, which go into the company at different times. This is ideal for companies that are on track for high growth, and that investors believe in their ability to deliver.
3. Revenue-Based Financing: This type of evergreen funding ties debt repayment to the company’s revenue, allowing the company to be flexible in paying back the investors. This is the most natural form of evergreen funding, and it allows growth-stage companies to get additional financing without giving up equity or diluting their ownership substantially.
Overall, evergreen funding is an innovative and increasingly common way of providing funds to companies. The key benefit is that it allows companies to get the funds they need as soon as possible, thereby limiting the risk of financing their growth. Meanwhile, the investors gain assurance that their funds will be repaid. It’s a win-win for both parties and is a great way to provide the funds necessary for companies to grow and thrive.