Tringas: Earnest Capital blocks arbitrary prepayments but guarantees formulaic buy-downs
Tyler Tringas · Tyler Tringas: How Earnest Capital Hopes to Re-Invent Startup Investing · Jul 8, 2020 · at 1:03:09
Tyler Tringas clarifies Earnest Capital's prepayment restriction clause during an interview with Nathan Latka.
0:00 / 0:38exact quote · 39.0s
720p mp4 · rendered on demand · StarZero watermark
“The founders are allowed to make that payment. They're not allowed to prepay in the sense of just dumping money at us. So what they can't do is just say, here's a check, 300 grand, boom, like we bought you down, right? And again, the reason for that is let's say they negotiate an acquisition, right? And they know they're about to get acquired for a huge sum of money. Absolutely. They're going to go like, write me the biggest check they possibly can and buy me down as much as possible. What they can do and what we cannot prevent is per the formula, if the business is profitable, right? If the founder earnings are generated and they are in the books, they are absolutely entitled to pay us the full amount. We get a percentage of that and they, we can't prevent them from paying us that.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Tyler Tringas
Tringas: New software deployment age favors niche products over mega-companies
“It's not the case that You know, a handful of software companies are going to scoop up all of the opportunity. What we're seeing and something that I've written about is, is this new deployment age of software.”
Tringas: VC feedback is mostly optimized to make founders go away
“Don't ever listen to the feedback that VCs give you. It's mostly optimized for you to just leave them alone and refer other people to them. It's not real advice. Like mostly don't take it.”
Tringas: Traditional convertible notes and SAFEs fail profitable, non-fundraising startups
“Most of the early stage instruments, convertible notes and safes really are orientated around the idea that you will raise another round. And if you don't raise another round, They either do stuff that's, you know, not great, like accumulate interest indefinit…”
Tringas: Earnest Capital equity is typically reducible by up to two-thirds
“It's usually reducible by two thirds. So, so if we had written a check that entitled us to say nine percent of ConvertKit, you know, Nathan absolutely would have, you know, paid us down to about three percent and we would be very happy to still have that three…”
Tringas: Shared earnings instruments will eventually qualify for capital gains treatment
“And so we do believe that, you know, over time this will continue to be categorized more and more as equity risk, which the tax code tends to reward with capital gains treatment.”
Tringas: The modern American dream is running a remote, profitable software business
“The general idea of the American dream, right, the being successful, the white picket fence, all that sort of, like, just baseline level of success that many people aspire to, I think is really converging around the idea of running a, you know, profitable, rem…”