revenueloan presentation to the angel capital assn
DESCRIPTION
Randall Lucas' presentation about RevenueLoan to the Angel Capital Association, on Feb 4, 2011.TRANSCRIPT
Revenue Based Financein two acts
Angel Capital Association, Seattle04 February 2011
Randall LucasRevenue Loan
Thursday, February 10, 2011
Act I: How to rip off Tom Cruise
or, Why Movie Investing is a “Risky Business”
Thursday, February 10, 2011
Act I: How to rip off Tom Cruise
or, Why Movie Investing is a “Risky Business”
Thursday, February 10, 2011
Act I: How to rip off Tom Cruise
or, Why Movie Investing is a “Risky Business”
Thursday, February 10, 2011
Step 0: Find some investors.
Thursday, February 10, 2011
Step 0: Find some investors.
• Unsophisticated ones.
Thursday, February 10, 2011
Step 0: Find some investors.
• Unsophisticated ones.
• (er, not like present company)
Thursday, February 10, 2011
Step 0: Find some investors.
• Unsophisticated ones.
• (er, not like present company)
• (You’re all much too smart...)
Thursday, February 10, 2011
Step 0: Find some investors.
• Unsophisticated ones.
• (er, not like present company)
• (You’re all much too smart...)
• (... or you will be after this presentation)
Thursday, February 10, 2011
Step 1: Use a Traditional Equity (or Partnership) Structure
Thursday, February 10, 2011
Step 1: Use a Traditional Equity (or Partnership) Structure
• Either way, what you sell the investors is a claim on the residual profits of the enterprise.
Thursday, February 10, 2011
Step 1: Use a Traditional Equity (or Partnership) Structure
• Either way, what you sell the investors is a claim on the residual profits of the enterprise.
• Let’s say we sell off 70% of the equity for $10 M.
Thursday, February 10, 2011
Step 1: Use a Traditional Equity (or Partnership) Structure
• Either way, what you sell the investors is a claim on the residual profits of the enterprise.
• Let’s say we sell off 70% of the equity for $10 M.
Thursday, February 10, 2011
Step 1: Use a Traditional Equity (or Partnership) Structure
• Either way, what you sell the investors is a claim on the residual profits of the enterprise.
• Let’s say we sell off 70% of the equity for $10 M.
Investors70%
YOU30%
Thursday, February 10, 2011
Step 2: Bundle Together Several Projects
Thursday, February 10, 2011
Step 2: Bundle Together Several Projects
• You trade more equity for talent contracts (actors, directors, etc.)
Thursday, February 10, 2011
Step 2: Bundle Together Several Projects
• You trade more equity for talent contracts (actors, directors, etc.)
• You trade another 20% ownership to the talent. But you’ve still got a hefty chunk.
Thursday, February 10, 2011
Step 2: Bundle Together Several Projects
• You trade more equity for talent contracts (actors, directors, etc.)
• You trade another 20% ownership to the talent. But you’ve still got a hefty chunk.
Thursday, February 10, 2011
Step 2: Bundle Together Several Projects
• You trade more equity for talent contracts (actors, directors, etc.)
• You trade another 20% ownership to the talent. But you’ve still got a hefty chunk.
20%
Investors70%
YOU10%
Thursday, February 10, 2011
Step 3: Have a Hit Movie
Thursday, February 10, 2011
Step 3: Have a Hit Movie
• Implementation is left as an exercise to the reader.
Thursday, February 10, 2011
Mission: Accomplished?
Thursday, February 10, 2011
Mission: Accomplished?
• Let’s say you spent the $10 M, grossed $110 M, and should have a profit of $100 M to distribute to the owners.
Thursday, February 10, 2011
Mission: Accomplished?
• Let’s say you spent the $10 M, grossed $110 M, and should have a profit of $100 M to distribute to the owners.
• ... but in Hollywood, it’s awful fun to be a hit-making producer on a roll.
Thursday, February 10, 2011
Mission: Accomplished?
• Let’s say you spent the $10 M, grossed $110 M, and should have a profit of $100 M to distribute to the owners.
• ... but in Hollywood, it’s awful fun to be a hit-making producer on a roll.
• ... and it’s a lot more fun to spend $100 M than it is to distribute it.
Thursday, February 10, 2011
Mission: Accomplished?
• Let’s say you spent the $10 M, grossed $110 M, and should have a profit of $100 M to distribute to the owners.
• ... but in Hollywood, it’s awful fun to be a hit-making producer on a roll.
• ... and it’s a lot more fun to spend $100 M than it is to distribute it.
Thursday, February 10, 2011
Mission: Accomplished?
• Let’s say you spent the $10 M, grossed $110 M, and should have a profit of $100 M to distribute to the owners.
• ... but in Hollywood, it’s awful fun to be a hit-making producer on a roll.
• ... and it’s a lot more fun to spend $100 M than it is to distribute it.
Thursday, February 10, 2011
• (The fancy word for this is “Agency Risk.”)
Thursday, February 10, 2011
Step 4: “The Producers”
Thursday, February 10, 2011
Step 4: “The Producers”• Tragically, all of the other movies in the
“bundle” show a big accounting loss.
Thursday, February 10, 2011
Step 4: “The Producers”• Tragically, all of the other movies in the
“bundle” show a big accounting loss.
• ...so, there are no profits to distribute.
Thursday, February 10, 2011
Step 4: “The Producers”• Tragically, all of the other movies in the
“bundle” show a big accounting loss.
• ...so, there are no profits to distribute.
• You miss out on your 10% of $100 M, sure... but you got to spend $100 M, which was more fun.
Thursday, February 10, 2011
Step 4: “The Producers”• Tragically, all of the other movies in the
“bundle” show a big accounting loss.
• ...so, there are no profits to distribute.
• You miss out on your 10% of $100 M, sure... but you got to spend $100 M, which was more fun.
Thursday, February 10, 2011
Thursday, February 10, 2011
• (The fancy word for this is “Accounting Fraud.”)
Thursday, February 10, 2011
• (The fancy word for this is “Accounting Fraud.”)
• (But fancy words can be hard to prove.)
Thursday, February 10, 2011
Omar from “The Wire”
Thursday, February 10, 2011
Omar from “The Wire”What about the owners?
Thursday, February 10, 2011
Omar from “The Wire”What about the owners?
Thursday, February 10, 2011
Omar from “The Wire”What about the owners?
“Man, money ain’t got no owners ... only spenders.”
Thursday, February 10, 2011
Act II: Surely There’s a Better Way
Thursday, February 10, 2011
Act II: Surely There’s a Better Way
• or, RBF to the Rescue
Thursday, February 10, 2011
Act II: Surely There’s a Better Way
• or, RBF to the Rescue
• and, stop calling me Shirley.
Thursday, February 10, 2011
Act II: Surely There’s a Better Way
• or, RBF to the Rescue
• and, stop calling me Shirley.
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
• (How do you think Francis Ford Coppola would act in a board of directors meeting?)
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
• (How do you think Francis Ford Coppola would act in a board of directors meeting?)
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
• (How do you think Francis Ford Coppola would act in a board of directors meeting?)
• No clearly defined “exit event”
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
• (How do you think Francis Ford Coppola would act in a board of directors meeting?)
• No clearly defined “exit event”
• Temptation to spend free cash...
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
• (How do you think Francis Ford Coppola would act in a board of directors meeting?)
• No clearly defined “exit event”
• Temptation to spend free cash...
• on the wrong sorts of things.
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
• (How do you think Francis Ford Coppola would act in a board of directors meeting?)
• No clearly defined “exit event”
• Temptation to spend free cash...
• on the wrong sorts of things.
Thursday, February 10, 2011
Retrospective: Characteristics of Movie Financing
• Too uncertain for fixed payments
• Too hard to monitor for equity.
• (How do you think Francis Ford Coppola would act in a board of directors meeting?)
• No clearly defined “exit event”
• Temptation to spend free cash...
• on the wrong sorts of things.
Thursday, February 10, 2011
RBF, a Hybrid Approach
Thursday, February 10, 2011
RBF, a Hybrid Approach
Thursday, February 10, 2011
RBF, a Hybrid Approach
• No Exit Required
Thursday, February 10, 2011
RBF, a Hybrid Approach
• No Exit Required
• Relatively easy to monitor / verify
• Cash revenues are more objective
Thursday, February 10, 2011
RBF, a Hybrid Approach
• No Exit Required
• Relatively easy to monitor / verify
• Cash revenues are more objective
• Less agency risk (not eliminated)
Thursday, February 10, 2011
RBF, a Hybrid Approach
• No Exit Required
• Relatively easy to monitor / verify
• Cash revenues are more objective
• Less agency risk (not eliminated)
Thursday, February 10, 2011
RBF, a Hybrid Approach
• No Exit Required
• Relatively easy to monitor / verify
• Cash revenues are more objective
• Less agency risk (not eliminated)
• “Pay me X% of topline revenue until Y”
• Y may be ROI, time limit, or “forever”
Thursday, February 10, 2011
“What-If:” The Movie Bundle Example
Thursday, February 10, 2011
“What-If:” The Movie Bundle Example
Traditional Equity:Gross revenue: $200 M“Real” costs: $100 M---“Should be” profit: $100 MMisuse of funds: $100 M---Accounting Profit: $0Investor ROI: $0 x 70% = $0
Thursday, February 10, 2011
“What-If:” The Movie Bundle Example
Traditional Equity:Gross revenue: $200 M“Real” costs: $100 M---“Should be” profit: $100 MMisuse of funds: $100 M---Accounting Profit: $0Investor ROI: $0 x 70% = $0
RBF:Gross revenue: $200 MRBF Investor ROI: $200 M x 10% = $20 M---Everything else:who cares, we got paid.
Thursday, February 10, 2011
Dangers of RBF
Thursday, February 10, 2011
Dangers of RBF
Thursday, February 10, 2011
Dangers of RBF• (Usually) a bad idea for fixed assets; debt is cheaper.
• Upside is (usually) capped; bad way to invest in the “next Google”
• Tax, legal, acctg are somewhat uncertain.
• Entrepreneurs unfamiliar; market education risk
• Co-investors unfamiliar; risk scaring off syndicate.
• Servicing is moderately complex; not just clipping a coupon.
• Hint: go with a knowledgeable partner, perhaps?
Thursday, February 10, 2011
RevenueLoan Vital Statistics
• Funded $6 M by Voyager Capital, Summit Capital
• Goals: Prove model, find market “resonance,” generate returns.
• 5 deals closed (3 as RevenueLoan per se)
• One “round trip”
• Three in repayment, one in grace period
• West coast / mountain West (today)
• $50-500k investments
• Minimum $1 M run rate, 50%+ gross margins.
Thursday, February 10, 2011
Plays Well withOthers
• Happy to “lever up” an angel equity round
• Less dilution for all involved.
• Happy to subordinate to hard asset liens
• Coexist with purchase money / equipment finance
• Happy to “service” larger rounds in syndicate
• For deal sizes over $500k total
• Happy to talk to YOU about working together.
Thursday, February 10, 2011
Please Stay in Touch
• Randall Lucas
• 617-905-7467
• www.revenueloan.com
Thursday, February 10, 2011