Financial product comparison tool

Capital

(equity)

Revenue sharing

Loan

(lending)

Investor perspective

Hold equity stakes for 5-7 years or indefinitely, awaiting an exit opportunity

Start seeing a return on investment within a few months of the start of the funded activity

Collect payments at a fixed interest rate; return on investment is limited by current low interest rates

Return on investment

In the event of a successful exit (IPO or sale), a multiple of 10 is targeted, but it is possible that the amount invested will not be recovered.

Target of 5-15% average annual return; investment repaid in recent years

Commercial interest rates; capital recovered with interest over the term of the loan

Risk to the investor

Risk of total loss of invested capital, pending an exit permitted by the liquidity of the shares

The risk gradually diminishes as royalty payments accumulate; the risk on the amount invested approaches 0 after 4 years.

Traditional credit risk for a company, decreasing as payments are made; recovery of losses through the sale of assets in the event of default

Control of funders

Implies shareholder roles, and potentially membership of the board of directors or key committees; potential willingness to replace existing managers

No ownership of equity shares; no status as a shareholder or member of the board of directors; no desire to play a role in the governance of the company.

No direct interference in the governance of the company, but the possibility of exercising control clauses over it in the event of default on repayment.

Guarantees provided by financiers

Guarantee taken on the company and the founders' assets, management package based on objectives

The founders' shares may be transferred if the objectives are not achieved

Investment in managers' ability to develop the business.

Seats on the board of directors, shareholder agreements, and strict covenants

The company's assets and often the assets of the main shareholders are used as collateral (pledge, mortgage, security interest + guarantee).

Exit

The exit is random and depends on market conditions and capital market perceptions, as well as the outcome of negotiations with buyers or M&A intermediaries.

Investors begin exiting immediately upon payment of the first royalties and accelerate as payments increase until the end of the contract.

The exit takes place upon repayment of the loaned capital or by exercising the covenants, which means enforcing the guarantees or selling the founders' shares or assets.

Community of interest

The investor's agreement is necessary for many management and strategic decisions.

The parties' interests are aligned, a win-win agreement

Investors seek liquid investment, risk of conflict