3/24/2020 Revenue Share and Profit Share — Republic

Announcing

Revenue Share
Revenue Share (and Profit Share) are fundraising instruments
suitable for a wider array of companies and businesses.

For companies

For lenders

For companies

Raising money in exchange for equity isn’t the right model for all companies. That’s why we’re
introducing the Revenue Share instrument. It empowers you in two key ways:

It lets you raise money while protecting your equity share, and
It lets you base your repayment plan on the success of your company: the loan gets paid
back at the rate the company grows, not by a predetermined schedule.

The Revenue Share is a debt security (loan) fundraising instrument that provides lenders
recurring payments based on the company’s financial results. These are commonly known as
“revenue share” or "profit share" deals.

Companies can offer a set percentage of sales revenue or a percentage of a well-defined net
profit metric from their business and pay it to lenders as a form of interest payment on the loan
on a quarterly or annual basis.

How it works
For example, a company might offer $1M worth of debt. To repay that debt, a crowd of lenders
will receive
Republic 20% of the company’s net profit every year, once the gross revenue exceeds a
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certain amount (tipping amount), until the loan and a premium are repaid. For their combined

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$1M investment, each lender will get a pro-rata share of the to be distributed profits. This
annuity will continue until a set return is met, as defined by the investment contract.

The time it takes to repay the loan and the set return can either be a set amount of time or be
a series of payments over the course of many years — as long as the company continues to
produce net profits over the tipping amount.

Example: The Three Broomsticks

Let’s say The Three Broomsticks pub wants to raise $1M for their new expansion. They
like the freedom that revenue sharing offers, and are excited about tapping into the
support of their customers and community.

They set the terms:

Instrument: Revenue Share

Loan amount: $1,000,000

Tipping point: $100,000 gross revenue Per Year

Revenue sharing percentage: 20% of their net profits

The set return: 2.5x principal.

The time it takes to repay the loan: 72 months (6 years).

If and when they reach $100,000 in gross revenue in a fiscal year, they start paying 20%
of that gross profit ($20,000) every year to their lenders, pro-rata, until the payout equals
the set return, in this case 2.5x the principal ($2.5M). This amount gets paid out over 72
months; depending on the terms of the agreement, if the set return isn’t paid out by that
time, the difference is made up in a last payment.

There is no guarantee that any company will hit their tipping point. Investors may have to
wait for the full term of the loan to receive a return, and if the company fails, will not
receive any.

Buy out clauses give you even more options

Companies using a profit or revenue sharing contract can also structure a clause that allows
them to buy out a lender’s interest at any time with a set payment amount. For example, the
company in the previous example could, at any time, pay the crowd of lenders enough money
to provide
Republic usesan aggregate $3M cash repayment for the initial $1M investment as a buy-out, and 
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Download:

 Revenue-Profit-Share - Republic.docx

Interested in fundraising?

Raise funds

For lenders

The Revenue Share gives non-accredited investors a chance to diversify their portfolios with
recurring payout investments.

As a debt security fundraising instrument (loan), the Revenue Share provides lenders
recurring payments based on the company’s financial results in exchange for their loan.
Companies can offer a set percentage of sales revenue or a percentage of a well-defined net
profit metric from their business and pay it to the lenders on a quarterly or annual basis as a
form of interest payment on the loan.

Why should lenders participate in a Revenue Share?

As a lender, you get to bet on the success of the company, while receiving a defined payment
when the company takes in revenue or profit. This differs from equity-based agreements like
the Crowd SAFE, where a return only occurs when the company exits via an IPO or
acquisition. The tradeoff for reduced risk is a fixed upside: unlike in a Crowd SAFE equity
agreement, here once the payback multiplier is reached, the loan expires and no further
returns are paid out.

Pro Con

 Cash payments  May take years to come

 Fixed return  Upside limited

 Higher priority than equity in the event of

 Unsecured loans
dissolution
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 No need to wait for a liquidity event  No ability to own part of the company

How it works: an example

For example, a company can offer $1M worth of debt in the company, and to repay that debt, a
crowd of lenders will receive 20% of the company’s net profit every year, once the gross profit
exceeds a certain amount (tipping amount), until the loan and a premium are repaid. For their
combined $1M investment, each lender will get a pro-rata share of the to be distributed
profits. This annuity will continue until a set return is met, as defined by the investment
contract. The time it takes to repay the loan and the set return can either be a set amount of
time or be a series of payments over the course of many years-as long as the company
continues to produce net profits over the tipping amount.

Example: Hooli

Let’s say you lend Hooli $1,000 as part of their $100,000 raise for an expansion program.
You like the company, and you see a great investment opportunity.

Let’s say these are the terms of the Revenue Share: (For example)

Tipping point: $100,000 gross revenue per fiscal year

Revenue sharing percentage: 20% of their gross revenue per fiscal year

The set return: 2.5x

The time it takes to repay the loan: 72 months (6 years)

If and when they reach $100,000 in gross revenue, they start paying 20 % of their gross
revenue every year to their lenders. Since you invested $1,000 of $100,000, you receive
$200 as your annual return for the first year (1% of the $20,000 owed to lenders). The
payments continue as long as Hooli maintains gross revenue above $100,000 per fiscal
year, and will vary depending on what Hooli’s annual gross revenue is. If the annual
return does not provide a 2.5x return by the end of the 72nd month, Hooli will pay you the
remainder of your return to ensure you were paid $2,500 over the 72 month period. This
amount gets paid out over the 72 month period; depending on the terms of the
agreement, if the set return isn’t paid out by that time, the difference is made up in a last
payment.

There is no guarantee that any company will hit their tipping point. Investors may have to
wait for the full term of the loan to receive a return, and if the company fails, will not
receive
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Risks for lenders

Lenders find recurring cash payments an attractive investment. However they should be
conscious that no payments will be made if the terms of the security are not met. Additionally,
lenders should look to the security to see what will happen to the loan in the event of the
company having a change of control or going public. Generally, profit sharing agreements
take the form of an unsecured loan, meaning in the event the issuing company fails, lenders
will have no guarantee of a return of capital. Like all investments, lenders should do their own
research into the company and determine whether the investment is appropriate for them.

FAQ

 What's the difference between a revenue share agreement and the Crowd SAFE?

 Do I get equity in the company?

 What if the company doesn't hit its tipping point?

 What's the minimum return on investment I can expect on my loan?

Glossary of terms

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