Venture Debt & Other Alternatives to Equity in 2020+ w/ Founderpath Founder Nathan Latka

Hey, you should honestly, don't stress about it. You should just say what's top of your mind. Like, I found this guy on a live show on YouTube. I love it. Whatever is natural is fine.

All right, let's do it. Sounds great. Cool. I'm going to start the broadcast. All right, everyone, thanks for joining us for SAs for annual at home. We've had an amazing morning of content. I'm personally super excited for our next speaker, Nathan Latka. He's been in the Saster extended universe for a while now. I know Jason has followed him on Twitter and he's followed us back. I watch his weekly YouTube series. It's kind of like the Shark Tank of sass, if you will. It's pretty great. If you haven't seen it, you're hired.

You're doing all of my intros from now on.

Everything all right? You'll have to arm wrestle Jason for that, but something out. Nathan's going to be talking to you guys today about founder power venture debt and other alternatives to equity in 2020. So Nathan's super well versed in this topic. He has a lot of data on getlocka.com. he talks to founders, obviously, every week for his live show. So without further ado, Nathan, Amelia, thank you.

That was great. And guys, this is so great because I can actually see you guys here in the Zoom panelists and attendee sidebar. So I see all of you guys, I see the Q and A thread. So just out of curiosity, make sure the Q and A thread is working. Just type a quick question in the Q and A. It can be, what hair product do I use? It can be, what is my camera setup that gives me this high quality shot? Just. I'm curious if I can actually see your Q and A. Okay, good. There it is. I saw a Q and A come in from Bernie Wojcick. Said, Nathan, where are you guys? I am in LA right now in an entrepreneur house. I decided during COVID lockdown, the best thing to do would be to actually just lock down with three or four other entrepreneurs. So every three months, we're switching cities, we're renting a place together, and I have to tell you, it's a to of fun. All right? Rob said, not in Austin. No, guys, I'm not in Austin. All right, guys, again, I can see all your names. I can see your questions. I will answer them as we go along. I hate listening to myself talk for 40 minutes straight. And we have 40 minutes together today, so please, please interrupt me. I see Your guys questions. I'm watching in real time. Let's talk about founder freaking power, guys. We are powerful today. I mean, we are so freaking powerful. I'm curious, I don't know how many of you guys are founders versus investors. And there's no way. I don't think for you just type a chat. I don't think there's like a chat that I can see anywhere on here. But if there is, do it and I'll look around and see if I can find it. But if you're watching right now and you're a founder, folks, we have never had more power, ever. And what I mean by power is the old way, right? And if you've studied Carlotta Perez's book on technical revolutions and capital, she'll argue that there's certain cycles, right? And there is production capital followed, followed by additional capital afterwards to make things mainstream. And so what happened in the SaaS world is a long time. The only option was to go give up 30% of your company to VCs. Right, to VCs. And things have changed so much. Mary Mathewson said, what SaaS company would you build next year? I will get to that here in about six minutes. So that's what we're going to talk about today, guys. Founder power venture debt and other alternatives to equity in 2020. Are you guys cool if I give you six? There's like two I could talk about or maybe I give you four, but I think I want to give you six. And maybe the best way for you guys to chat with me live if there's no sort of live chat here, because again, I like chatting with you guys. Sort of real time is just Twitter. I'm sure Amelia has gotten you guys all the Twitter handle. I'm sure you can look at Saster annual. I'm going to bring it up real quick here on my screen so I can follow along real time with the Twitter handle. And that is how I will look at your questions too. Okay? So that's sort of your way to talk to me as we go along. All right, we good? Let's jump in, guys. Founder Power 2020. I have to first start off though, with the newspaper stand. Now, I was born in 89, so newspapers were still around. They're still around now. But this wasn't just any ordinary newspaper stand. I was sprinting. Rob Holmes, Steve Mary, Tawny Chambers. I was sprinting towards this newspaper stand. And the question is, why was I sprinting? Why was I sprinting? I was 19 years old. I was a Young college student at Virginia Tech. Any hokies in the house? Any Hokies? I was studying architecture, which, by the way, if you love money, you quickly switch out of architecture because architects do not make money. But I was architecture and I eventually switched. But this particular morning, a cold morning in Blacksburg, Virginia, where Virginia Tech is located, I was sprinting. And again, that question was, why? There is a live chat. I love this, guys. I can see the chat. So real quick, before I tell you why I was sprinting at this stand, tell me, guys, real quick in the chat, how many of you guys are founders versus investors? If you're a founder type, bootstrapped or raised in the chat, real quick, founder or investor, There's. I was expecting 60, 70 guys, by the way. I mean, there's like 150 of you. This is incredible. Okay, Jenny Marie, Rachel said bootstrapped. Dave is bootstrapped. Parker Parkinson is bootstrapped. Abraham is boot. Tons of bootstrapped. That's impressive. Lots of bootstrapped. And guys, I'm going to give you permission real quick to spam the chat. Type the link to your website, to your SaaS company in the chat. I'm giving you permission to spam. Amelia. Can we give them a free password quick? Because I'm going to use these and customize the content as I go along and use some of these as examples.

Yeah, you're Jesse.

Thank you.

You're also live streaming, too, so you got more people watching you.

Amazing. I love that. Well, guys, if you're live streaming or watching on YouTube, I know Sastra has a great YouTube channel. I also have that open in the background, so I'm seeing all the questions coming in. All right, sabimoney.com systemsurveyor.com, symmetric.com, tanner with the dental menu.com, great, because I see all your comments coming in. So back to this newspaper stand. Why was I sprinting on a cold Blacksburg morning towards this newspaper stand? Well, because I thought I'd made it. So let me advance here. Whoops. Why is this slide not advancing? There we go. I thought I made it. This is what I picked up off the newspaper stand. I'll let you read my screen real quick. This was so. I was so excited by this newspaper. I framed it. You can see on there on the right in the background. I framed this darn thing. That's how obsessed I was with this headline. Do you guys see the headline? I'm going to read it to you. Billionaire Randall Kirk has Invested some of his venture capital funds on a new, fast growing startup. And you can see there in the picture caption, Chris Rieger, left, is my COO of Heyo. And Nathan Laca, CEO and founder, received a $2 million investment. Tiny Chambers. Heyo. Are there Heyo fans on here today? How many of you guys know Heyo? That was my first SaaS company. I'm 30 today. I launched it when I was 19 from Blacksburg. Parker Pearson is a Heyo fan. Very cool. The company I sold it to eventually and that we're going to get to that here on the sides was Vodigo. They're still running it today. But guys, I was obsessed with this newspaper headline. Now, let's just be honest for a second. Let's just be honest. Those of you that are in the SaaS world, TechCrunch, many of these big outlets that do important work, but they only really celebrate companies that raise a bunch of capital. When we read that every day, all day, we assume the only metric of success is have we raised capital? And in the next 17 minutes, I'm going to show you why that is dead wrong. There is space for equity and there is space for fundraising. But 95% of SaaS founders who build freedom in their lives, who print money from dividends, who build wealth, who have healthy families and great relationships, and who are generally happy they're bootstrapped and they're printing money from cash flow and dividends. And so let's talk about why this was such a big mistake that I made framing this newspaper. It truly was the beginning of the end. Do you guys want to see my board deck? Right after we raised. I didn't realize, by the way, I thought this was just on zoom. It's not going to be on YouTube. So my legal team back from the heydays is not going to be happy that I'm going to put this up right now. But I figure it's six years old, nobody can come after me, right? You guys can egg me on a little bit here in the chat. Yes or no, should I type board deck? If you want to see the board deck, I should share it, right? This is like that whole, especially if you're bootstrapped, you never have to put together a board deck. Jason also popping in the chat saying, Nathan, there's also 10,000 folks on Twitter. Jason's done a great job on Twitter building a great community. So, you guys, I'm watching it and you gu want to see the board deck. Mike Barry saying, board deck. Michael Bordeck here it is. I'm going to go to the next slide and let you guys analyze it real quick. Do you guys see the problem? Who can spot the problem? This requires a little bit of sophistication here to break this down. Let me give you some clues real quick. That dark green line is our cash balance. That dark green line is our cash balance. So when it went up in March of 2012 to April of 2012, that's when we were closing a seed round of about 400, 500,000 bucks. But look what happened right when we raised that capital. Do you guys see the blue bar? Do you see the blue bar? Type in the chat. What does the blue bar say in April of 2012? What's the blue bar? April of 2012, what's the blue bar? The blue. The dark blue bar, the one that goes up above the axes. Type that number. And just to make sure that you guys are reading this the same way I'm reading it and Jason is saying, thank you, Jason, for that. Yeah. 7% of you guys can't see green versus blue iPodos for that. What you see here on that blue bar is $99,233 in sales. Yep. Gun deep, Mike, Barry, you guys got it, right? Okay. 99,233 in monthly recurring revenue. Now, you'd expect after I raise capital, that should go way up, right? It should go through the roof. I just raised capital. Don't you assume when you read a Big TechCrunch article someone raises that they're going to invest the money. It's going to grow really fast. Look what happened. Revenue started slowly declining. A painful, painful 3 to 4% decline every month. It'd be better if we just collapsed and went to nothing because then you would know to end it. Or it'd be great if we just took off because then you would know we go raise another round. But we were like basically flat for months and months and months. We couldn't figure out where to put the capital. And Jason's exactly right. He says in the chat, this is a founder's nightmare. It is a nightmare. But you haven't guys anything the worst of it yet. Wait till you see my cap table. I'll get to the cap table here in a second. But what you see here is we raise this capital. It was equity capital. Now, I'm going to ask you guys a question again. This requires a little bit of. You have to have been through this before to know this. Okay? If we were doing $99,000 a month in revenue in April, and we raised $500,000 in seed funding and then another $2 million Series A. How much of the company? I'm going to show you my cap table here in a second, but how much of the company do you think investors owned? Guess a percentage or range? Guess a percentage or range? Thigh bucks at 30. Steve said 20. Varesh said 60. Alexander said 60. Ty saying 70%. Mike Berry 25. All right, there's some really good guesses in here. Really good guesses. And I love by the 172 people now watching just on Zoom. So many more. 10,000 on Twitter. Big audience on YouTube. Big kudos to Amelia and Jason and the whole Saster crew for a great, engaged audience. C.J. edmonds saying 72% in the chat. You want to know the answer? Here it is. Let's move forward here on the slide deck. I call it the dirty cap table. Maybe yours looks familiar. I call it the dirty cap table. Here it is. Now I'm going to break down. Guys, is that blur? Can you see that screenshot or is it too blurry? Do I need to make it bigger? Can you guys see that? Oh, it's good. Jason said it's good. And everyone else said blurry crap. Well, who do I go with? Let me see if I can edit this real time for a second. Let's see if I can make this bigger real time. I'm going to move this up here. And guys, I know the editors are going to hate me for doing this, but I want everyone live to have a great experience, too. Okay? Now it's bigger. Is that a little bit better? So a couple things I want to point out here. I was already down at this point after we had our Series a to a 38% ownership stake in our company. The company was called Legion Ore Media. The DBA was Heyo. And here was our cap table. So here's little old me right here. 38%. You know how much that stunk? I mean, think about it. I'd only raised 2.5 million in capital, and me, the sole founder, was already down to 38%. Imagine if this thing took off and I had to go raise more capital. I'd be down to like 4% by the time we IPO'd, right? Or did something big like that. In fact, this is a very common story. Scott Dorsey at ExactTarget owned 3% of exact target when it went public. Aaron Levy, a box. And Jason, super familiar with that story, owned about 5.7% equity. Joe Payne at Eloqua 5.5%. Henry just took Zoom info public 10%. Now, Eric Wan did this the best because he had about 300 million bucks in ARR and just 150 million raised. Great ratio there. Had about 20.5% of Zoom and went public. But why would you work your butt off for a decade to only own 3% at the end? And I get it, I get it that investors watching are saying, well, Nathan, it's a bigger pie. These are billion dollar companies. I get it. But it's just, it's harder to build a billion dollar company. What if you could more predictably build a $5 million or $10 million company with cash flow, own 100% and get rich off dividends? That might be a much less stressful life, don't you think? Don't you think so? Look at some of these things. I'm going to tell you real quick, some mistakes we made on our cap table. The Adult Supervision COO was a total mistake. The investors made me hire this person. I had to give them equity because I recruited them from a big firm. It was a big mistake. I do not regret giving my two co founders. Again. They were my two developer co founders. One at 8%, one at 4%. I don't regret that at all. There are very few other regrets on here except that 8% to Adult Supervision COO, which my investors really forced me to hire. When you take into account just investors impact in General, it was 19% to the series, a 9% to angels, and that 8% or, sorry, that 9% for that adult supervision COO, that's a lot of fricking dilution in my opinion. A lot of dilution. So what does this all mean? Well, how can you grow your company and keep equity right now? Everyone will say, well, Nathan, it's so competitive. If you're going to grow big, you have to raise equity. How many of you agree with that type? Have to in the comments if you agree with that. Do you feel like you have to raise equity to have and build a company that you're happy and successful with? You can say Darren said, hell no. You can say hell no. I think that's okay. I hope Jason doesn't kill me, but you can say hell no. Is that the only way to do it? I mean, I bet a lot of you guys watching right now are sort of. You're laughing, you're watching me right now going, nathan gets it because he was burned. He went through it. And you're giggling because you're sitting on a $2 million company that's bootstrapped with five employees, and you're doing 30 grand a month in profits, and you're paying yourself a pretty salary, and you're living in the nicest place in your neighborhood. And you're going, you know what? I like this life. I like this. How many of you are watching right now? And you're going, I feel like Nathan just literally talked directly to me. A lot of you guys are probably like that, right? Damian saying yes, Rob saying yes. Iwakdikok saying yes. That's the question I have for you guys. Would you be happy with 10 million revenues, be cash flow positive where you own 75% or more of the company? Let's take a look at what that could look like. So here is why founders have so much power today. There are really six funding options that founders have today. Everybody knows equity. Everyone maybe knows safe. So you've got seals, RBFs, term loans, and bank debt. Now, guys, just so I can take a quick temperature of the room. Quick temperature of the room. Of these six ways that founders can raise today, which one do you feel like you are least familiar with? Least familiar with? Type it in the chat. Which one do you feel like you are least familiar with? Pick. Pick one for me. Okay. I'm seeing a lot of seals. I'm seeing safes. Safe and seal. Rbf. Rbf, rbf. Okay. Seal, Seal. Interesting. Well, guys, a quick note on the seal. Seal is a shared earnings agreement and it is the. In terms of if you measure how many total, like dollars have gone out to founders in the form of a seal, it's less than 40 million. So it's a very, very small asset class compared to billions and billions on the equity side, bank debt side and other aspects. So seals are super small. I'd say they're very early. We'll get into those in a second. I see a lot of people saying safes as well. So let's dive into these options and what they really mean. Okay? What they really mean and that. Be ready. By the way, there' slide coming up that you're going to want to take a screenshot of and tweet out using the Saster hashtag and tagging me to get more information on them. So just be ready to take that screenshot. But let's dive into equity first. This is the one most of you guys know super, super well. Jason's got a fund, Saster Fund. You've heard of Andreessen, you heard of 500 Startups. You've heard of ActiveCapital.com first round NEA. These are all VC firms, right? And what they target. If I asked you, hey guys, if you raise from a VC firm, let's say a million bucks, what does it cost you? How would you respond? How would you respond? How do you even think about that? If you guys raise a million today and give a proportion of your company, what does it cost you as the founder? How do you know? How do you know? How do you think about that? Well, you could think about the equity you give up. Let's say you give up 20% equity and then you can think about what that equity is worth. If you sell three years from now, you could think about some interest rate. But really what you should think about is a VC business. Like Jason just said in the chat, it does not work. You can't go raise another VC fund if you don't hit at least a 40% IRR on your first fund. So if you know that your investors must get a 40% IRR internal rate of return, that's essentially a 40% interest rate for you. So that cost of capital, if you take a million today on equity and try and back into an interest rate and God, by the way, guys, the VC's watching right now. You're going to hate that I'm doing this because it's not perfect. There's a lot of strategic VC changes the game. I mean, there's all kinds of reasons to do equity and there will always will be. But let's just try for the sake of it to back into an interest. It's 40% cost of capital. So if you get a million today, basically paying 400 grand every year that you have that $1 million, that's the cost of capital, 40% interest. You ever think about it that way? You ever think about that way? So again, I love building in Jason's feedback here. I wish there was a way to get him live. I mean, I have no idea. There's a way to get Jason in this presentation with me, but make sure you guys are reading his comments right. If you can't get 10x on it, don't take it. Actually, VCs 90% IRR to make up for the zero percenters out there, but that's the equity. Let's go into the second piece. Right? And let me give actually an example of this. You guys just saw from YC. One of these guys raised 16 million on 75 million post money valuation. And while that's crazy, because we have no idea what revenue is and haven't even gone through the accelerator yet. What we do know is that's about 25% dilution, right? 25% dilution. Okay, so boom. That's the breakdown there. A lot of dilution. Let's talk about safes. Now, a safe is just what early stage equity investors prefer to use when founders and investors don't want to put a valuation on the company. Yet. YEC obviously popularized the term safe. I'm not going to go deep into this because it's pretty well known and you can Google it, and YC has a lot of great docs on it. But safes have essentially the same return profile as those equity investors call it. 30 to 40%. Many times they're needing much more to make up for the losses in their portfolio. All right, let's go to number three, seals Shared Earnings Agreement. And these are some of these new companies popping up. These new firms like Ernest Capital, Tiny Seed and Indie vc. Again, if you add up all their cash in terms of what they deployed to date, it's way less than $100 million. So it's a very small asset class. But I always like people trying new ideas, especially helping founders. So I wanted to put seals in here and give them a shout out. The way that this works is you would take 200k, right? Generally they take 10% of the company and there's some form of your ability to buy back that equity or pay out dividends to get the equity back. So you could buy back the equity for 3x, right? So for 600k, right, you could pay out dividends if it turns into a lifestyle business. The trick with the seal is it's slightly less expensive than equity and safes, which is. That's how we're plotting it here on the graph. But you also have way more optionality. Way more optionality. So, guys, we're halfway through right now. Yes or no, are you with me? Equity, safe and sealed. Just give me a heck yes in the comments if you're enjoying the presentation. A10 if you're really loving it. Are you with me? I feed off energy and I hate listening to myself talk, so I have to see your chats. Otherwise I get bored and I want to go jump in the pool at the back of this place in la. Yes, you're enjoying it. Okay, good. Let's keep going. Darren said keep rolling, pretty boy. You know what, Darren? I will take it. I will take all the comments, I will take all of the compliments. All right, number four. Let's go to number four. Here. Oh, I should say sorry. All this data that I've captured from how these work is because I have a podcast where I interview SaaS founders and people in the SaaS space. So this is when I did, I interviewed Tyler Tringas of Earnest Capital directly to understand how his mechanism works. Right. So they've invested in 17 B2B SaaS companies, $3.1 million fundraised in late 2018 from 40 limited partners. Earnest gives founders about 150k for 10% of their company and then they can use company profits to get to pay back 450k. So 3x the 150k over time to get a portion of the equity back 7%. But no matter what, even if you pay it back, Earnest will still own about 3% of the company because they need that equity upside for them to go raise their next fund. That's how they choose their returns. So 3X, it's expensive, but a little more optionality. Number four, RBFs. RBFs. Revenue based financing. The number one company I think in this space that you've probably heard of is lighter capital. Right. The idea here is you take money today and you pay it back as a percent of your monthly revenue, usually 4 to 9% of your monthly revenue until you pay back 1.5 to 3x in terms of a repayment cap. Okay, so if you take 100k today, you'd pay back 300k over a portion of time. And the way you'd pay it back is monthly payments as 49% of your gross, monthly sales. The things you want to watch out for here are prepayment penalties. They can be huge. It's how a lot of these funds get bigger returns, which is fine, by the way. Both sides have to work, but that's how they make extra money. Warrants, covenants and origination fees. Thibaut said how much percent on revenue for the RBF, it's about 4 to 9% of your monthly recurring revenue. So if you're doing 100 grand a month, you're going to pay back something like four to $9,000 per month on that RBF loan until it's paid back. Good question. Good question. Okay, so that's how RBFS works again. They're. They're making about a 2x to a 2.5x repayment on the money. So again, less exp. But less optionality because you must pay it back. Unlike a safe, you must pay these things back. They are debt instruments. Right. So less expensive but more optionality. Are you guys sort of liking this trend. Are you understanding how I'm sort of presenting these options in terms of cost to capital relative to how much options you have relative to what their actual cost is? Is this a helpful framework? Okay, helpful framework. Remember, if you're just joining us, the left side is the cost of capital. On my screen right now, that's the cost of capital. And as I'm plotting these six ways where founders have all this power, as I'm plotting these six ways, you're seeing how the cost of capital decreases while optionality also increases. Damian, I really appreciate that saying, best presentation of the day so far, guys. If you agree with Damian, be sure to put it up on Twitter. I want Jason to be really proud of bringing me in to speak to you guys today. So give me some love. I appreciate that. I really do. All right, let me keep delivering and giving you guys more data here, more feedback. Number five, the fifth option here. Term loans. Term loans. Now, the way term loans work is you can take 3 to 9x of your monthly recurring revenue. Okay? Oh, control. Yeah. Flow capital is a great option in the RBF space as well. If you. By the way, guys, if you guys are an investor and you're doing these options, feel free to put it in the chat. I'll give you guys a shout out here live. Feel free to do that. No worries. Make sure you tweet at me too, so I can add you to future, like, content I put out on this stuff. Okay, so how do term loans work? 3.9x your MRR. So if you're doing 100 grand a month, you get between 300 grand and 900 grand today, and you pay it back just like a house mortgage. It's a fixed interest rate, and that interest rate is typically 10 to 25%. Okay, 10 to 25% interest rates. Okay, 10 to 25% interest Rates. Andrew will get to the SBA loans and the PPP stuff here in a second. So what you want to watch out for here on term loans are there are warrants. Warrants do pop up. There can be some tricky covenants, and there can be sometimes crazy prepayment penalties. So you want to watch out for those. But these are how term loans work. And founderpath.com is doing that. That's my company. I can talk more about that in a second. And I mean, we have so many founders taking money from it. 800 term sheets sent out last week. I'll talk about that more in a second. Espresso, though, is another great option here. I really like those Guys coming out of Canada started with shred financing. If you're familiar with shred financing and are now doing loans against mrr, to me a capital is a great option here and there's a lot of other providers here for term loans. I couldn't get them all on the screen but there are lots of, lots of, lots of options here. Now lastly, what we want to look at. Well actually let me go back real quick. You know one of the questions people always ask me is well what does this look like? Like what does a 10 or 15% cost of capital look like? So guys, let me, let me ask you guys real quick. If you're watching right now and you're a bootstrapped founder, how much money would be nice to have to run another experiment? I mean if you guys are like me, we always feel like as a bootstrap owner we're like one experiment away from a big break. So how much capital would you want today? Some portion of your Mr. To get that big break? Just the curiosity. Rob saying I'd love 200k, Andrew saying I'd love 500k. Jason saying 9 to 12 months more. Julie saying 250k, Jennifer saying 150k. So here's what I encourage you to do and I'm not going to do this live because I want to get through more of the presentation but I encourage you to do it again. Full transparency. FounderPath.com is my company. There is a debt fund, we do lend money but one thing that I wanted to do is sort of lead with a lot of just value for founders. There's no email opt in required but there is a calculator we put up@founderpath.com and if you go and just type in those numbers that you guys just told me in the Saster chat here, if you just type in via the calculator here how much you want, we'll auto generate some of the terms which is a great educational tool for you to see what your payments will look like to pay it back. So if you put in 250k at 15%, this is the question you want to ask yourself. Now I'm going to let you guys read this question to yourself real quick. Where my mouse is here on the screen on the bottom left. Read that question to yourself. Real estate. Can you spend 250,000 today and make back more than the cost of the loan which is 7k a month. Now let's take 7,000 times 12, right? 7,000 times 12 is $84,000 a year. So the loan cost is 84 grand a year. So the question is, if you had a quarter million today, could you add more than 84k in new ARR or could you spend $3 to get one new dollar of ARR? I'm furrowing my eyebrows as I look you right now because many of you guys are smart. You know that you can spend a dollar and get a new dollar of ARR. So if you had $3, you could get 3x the loan cost. This is how you start to understand and see that leveraging debt in a smart way, if you know your unit economics could enable you to build a 10 million or $5 million SaaS company top line without having to rely on equity capital, giving up control board seats, covenants, warrants or anything else. This is sort of how debt works. I hope this is helpful. Hope this is helpful. There's some really good comments coming in here and they're moving quickly so I can't get to all of them. Jason, I'm not sure what you're responding to, but he said 2 to 3x on it or more. That's often two great hires. Two great hires is 20 more deals closed at a $20,000 ACV and 5 year CLTV. That's exactly right, guys. I mean that is the math you want to start doing, right? But the original question at the top is could you take the debt today and make more than the cost of the debt in new ARR? The equity increase, valuation, the growth kicker on top of that, all that extra stuff is icing the cake. But guys, yes or no in the chat, is this sort of calculator helpful for you to visualize how the cost works? You can say heck yes in the comments. If this is like something you've never seen and you're going, wow, I wish I had this before. Okay, good, good, good. Jennifer saying yes. Janine saying heck yes. Jason Lumpkin saying it's great, Jason. Appreciate that, ma'. Am. Edwalk saying totally great. So let's continue on. These are the sort of headlines that you're seeing and I hope that the major tech blogs cover this more. We certainly cover it almost daily@getlatka.com Jason's talked about it many times on Saster. But how one founder leveraged debt to drive early growth and avoid dilution. Avoid dilution. You're going to start to see these pop up because it's how founders actually build wealth. It's how founders build wealth. All right, so those were the first five. Let's talk about the sixth. The Sixth is probably. And someone here that's older than me will have to correct me. But I bet bank debt is probably the oldest form of all six of these. Did bank debt come before vc? I bet it did. I bet bank Debt came before VC. I was born in 89, so I'm not sure about that, but I bet it was. Bank debt is the easiest to understand, but you must have venture capital raised. And here's why this isn't hard to understand. Here's why. Most traditional banks don't understand how to value the risk of a SaaS company. So they take the easy way, the lazy way to do it, which is fine, by the way. I love lazy people because they find the quickest way to do things so they can go keep being lazy. You should hire lazy people. We love lazy people. Banks want to be lazy. So what they do is they say, you know what? We don't understand how to value the default risk of a SaaS company, but we do know if they raise venture capital and there's 3 million sitting in their SVB bank account or their CIBC bank account, we can just lend against the liquid capital in the bank. That's why you must have VC raised to go get money from a bank at a cost of capital between 3% and sometimes as high as 9%. So bank debt is by far the cheapest way to get debt capital. But it also sort of requires that you take equity dilution because it comes on the back of a VC round. They really go hand in hand. That bank will also typically take 0.1 to 0.5% warrant coverage. That's 0.1 to 0.5 percent of your company, or said differently, 2 to 3, 4, 5% of the total loan value. So the loan value is a million dollars. They would take 2 to 5% of that, convert into whatever that is worth and the options on your whatever your last round raise or your last 409A and that's how they sort of convert in. But there is a bit of equity and warrant exposure there as well. So that makes sense. Now, guys, the federal government, if you're based in the United States, is printing money like crazy right now. So if you took a PPP loan, you took an SBA loan, that's going to be probably 2, 3, 4% cost of capital. The challenge there is the SBA loans are a pain in the butt to get. It's a ton of paperwork, a lot of work going back to like what we try to build at Founder Path. You put in the amount you want, you click apply and literally you get a term sheet emailed to you in three minutes versus for the SBA stuff. I mean, this can take, I've heard six months before to get all the documents, to get the banker on the phone to make all that happen. I do think though, they are, as Brian said in the chat, an underrated source of capital. They also though have to be personally guaranteed. So none of these things I just put on here, including the term loans, there are no personal guarantees from the founder. You don't lose your house if you default on the loan. The guarantee is the SaaS company. That's the backstop. SBA loans typically do have a personal guarantee. So guys, in the past 33 minutes, I started by saying I'm going to show you why founders have so much power right now. We talked about six different options and we're about to talk about what revenue you need to access these parts of capital. But we're about, you know, oh, way more about 3/5, 4/5 of the way through the presentation here. I want to take a quick pulse, Amelia, now would be a good time to jump in if there's any tech issues I need to solve. But if not, I'm going to go through and just make sure there's no big questions outstanding here. We're good, Amelia. Okay, great. Christopher said on the co repayment of say 3x, what's the typical time frame for the buyback? Chris, great question on the seal. That is actually one of the big benefits of a seal. There's usually no required time frame to do that. Now some of them do. They say you have to start paying back in three years, but some of them don't. You know, again, there's earnest, there's tiny, there's indie. You can go look at their term sheets, check it out. But that is one big thing, one big value add of seals. A bit more flexibility there. Steve said, what does the startup need to qualify for a term loan? Let's get into that in a second. An anonymous attendee said, really? No warrants and no PGs? That is correct, guys. Founderpath.com There are no warrants, no personal guarantees, no board seats, no origination fees. This is true with a lot of term loans. There are also. Brian Weisenberg just said on the comments, and this is a great point, if you use square as a poc, they have a great loan option based off your sales. Very few SaaS companies have brick and mortar locations. So there is no physical sort of, you know, poc. You know, installed. But there are a lot of these, we're going to call them MCA lenders popping up which I think are going to be very effective. You're seeing Alex Danko at Shopify Money launch this. You're seeing Stripe with MCA Options Merchant Cash advances. These are typically they'll advance you some portion of your monthly recurring revenue but you pay it back on a six month term. So the trick there is it's hard to make that debt accumulate, drive new AOR growth and you have to pay it back. So quick term loans you pay back over three to four years so you have a lot of time to make that debt capital compound for you and really work for you. So their mca. By the way, I'm not pooping here on MCA options. I shouldn't use pooping on a professional keynote, but you get my point. MC options can be great, they're quick capital but the downsides are you have to pay them back quick and they usually can't go above 1x your MRR. Whereas term loans for example can go up to 4, 5, 6, 7x your monthly recurring revenue. Does that make sense? Does that make sense? Again guys, I'm taking a quick pulse before I'm going to quickly tease you guys with all these other slides. Before I tease you with all these other slides, I'm taking a quick pulse here and just looking at the questions. Any other questions? Vikas said most U.S. and Canadian RBFs revenue based finance companies do not lend to non US HQ companies. Any examples of non US companies offering RBFs? Vikas? I do not know of any. And guys if you're an investor in the comments right now and you're doing this, you should speak up. I don't know of any debt providers that are doing RBFS that will lend to non US based companies where there's not a US based headquarters. I will tell you and I can only speak for myself here, for Founder Path we've deployed several million dollars of capital across call it 10 or 20 deals so far and many of them have been not based in the US. So founderpath.com that calculator if you click apply, that's worldwide. Really anywhere There are a couple countries we can't touch because of the federal regulations here in the United States, terrorism, things like that. But majority we can touch almost all of them. All right, Nate Ritter said, what's the difference between an MCA and an rbf? Again guys before I go and again we have about Emilia, keep me honest here. Six, seven, eight minutes left. I'm going to Take two or three minutes more questions and then do the last couple slides here. So Nate Ritter said, what's the difference between an DMCA and an RBF? And MCA is a merchant cash advance. They typically are going to lend you less than one extra monthly recurring revenue. It's going to be from a provider like Shopify Money if you're a Shopify e commerce app. Right. Direct to consumer or if you're B2B SaaS and you're using Stripe again, it's going to if you're doing 100 grand a month, they're going to give you 10k or 25k. So some portion of your monthly recurring revenue you pay back an RBF, you can get 2, 3, 4, 5x your monthly recurring revenue. So you can get more money with an RBF. And RBFs have a longer payback period. Nate, that's the direct answer to your question. Okay, I'm just looking in the chat, guys. Any other questions or comments here before I finish with what revenue targets you need to hit in order to unlock some of these forms of capital? Anything else? No? Okay, I'm then going to go back to sharing my screen portion of the screen. There we go. Boom. Just give me guys a quick confirmation in the comments. Yes or no, can you see my screen? Again, give me a quick confirmation in the chat. Yes or no, can you see my screen? Good. We're good to go. All right, so again, we just talked about the six ways that founders have more power today. Right? A lot of options here. Let's now put these on another axis. And again, you're seeing this really take off. We just talked about bank debt and having to be on the back of an equity raise. Quantilope just did this on July 23rd. 28 million raised Series B. And then use Silicon Valley bank to do cheap debt on the back end. But they've got to take the big dilution from the equity round. So it's a give and take. The big question I find myself thinking about is will there ever be 0.5% interest rates available for early stage? We just saw slack issue a $750 million essentially bond my convertible senior notes due in 2025, paying out just a half percent of interest. One of the things I'm trying to build, and there's so much that goes into this is can I figure out a way to lend money to founders that are earlier stage with only a million or 2 million revenue at cheaper and cheaper rates? And that has to do with our ability@founderpath.com to quantify risk based off the data set we process. But I don't think we're far away from seeing this. Mark my words, over the next four, five, ten years, you're going to see debt capital for founders, non dilutive and earlier stage get cheaper and cheaper. So what's the asset distribution today? Here's what it looks like. Here's what it looks like. This is the asset distribution today. So by far equity in terms of SaaS companies, this is what most of you guys are going to be familiar with. Over 250 billion raised from VC firms over a very short period of time. Safes kind of on that same category again, there's less than 100, maybe even less than 20 million is what my team put in here. But less than 100 million in seals done total across Indy. Tiny and earnest. So still very early asset class. We'll see it happens there. RBF. There's about $1 billion out to SaaS companies and RBFs. Total term loans, way more than 50 billion. This is by far, I think the fastest growing asset class. As more lenders understand SaaS companies, they're doing more term loans and then bank debt is a massive asset class because they're writing $700 million checks again to slack in a public market. So way more than 750 billion in terms of asset. There's quick question to you guys. Let's fast forward five years. Which of these asset classes do you think grows the most? Let's see who here makes the right prediction. I'm going to take a screenshot of this and tweet you in five years. Which one do you think grows the fastest? Out of curiosity, Jason Lemkin says all. I don't disagree. Jeanne saying term loans. Jack saying bank debt. Equity seals, bank debt. Okay, we'll see what happens. Here are the minimum ARR requirements to access these. Okay, take a look at this. I just went to the next screen. If you minimized your screen watching on YouTube or Zoom, you want to maximize it because this is the money shot. This is the shot that you want to screenshot and tweet at me and Jason on Twitter. If you want a full Excel file of all the lenders in all these categories with their cost of capital, there's about 80 of them I have in a big Excel sheet. If you tweet to Jason and I and use the conference hashtag on Twitter, I will make sure afterwards I go and reply to all of you guys and get you that big Excel sheet. But this is the money shot. This is the founder power slide, you want to keep it back your head, share with your team. These are the sort of revenue metrics you have to hit to unlock cheaper options. Right? So equity saves and seals, you can do basically pre revenue, right? RBFs, you can't really get an RBF because it's based off your monthly revenue until you're doing at least like 50 or 60 thousand dollars a month in revenue. So that's where that unlocks at 50, 500,000 bucks in ARR. Next term loans. Term loans you can't really unlock until you're doing about a million bucks in revenue. At Founder Path, we go as low as 250k, but we' sort of unique and new. Most term loans, again, you have to have at least a million dollars in revenue to start doing those. And then bank debt, really, that doesn't start until you have at least 3 million in ARR. And more importantly, you've raised from VCs because that's really what the banks are lending against. Okay, so this is the money shot. That's the money shot type money shot. In the chat, if you're going, this is like the one slide I'm going to take from this full day, two day conference. I'm going to store it, I'm going to put it on Google Drive. This is, in my opinion, this is the money shot, right? This is the framework I use to talk to founders all the time. So here's the question for you. I'm not going to ask all of you guys. You guys know on my podcast, it's a very aggressive podcast. It's all SaaS, founders. Every day I ask them to share their revenue data, equity splits, valuations, everything. I'm not going to ask you guys to share your revenue live here on Saster. But one of the things that I will do is put together this little question for you. Let's say you're watching right now and you're doing about 2 million bucks in ARR, you're bootstrapped. These are your options, even though bank debt isn't an option. Guys, you have so much power today. And I think back to those original cap tables I had back at my first company and how dirty they got. And me racing to that newspaper stand, so excited that the newspaper printed. I raised 2 million bucks the same way funded companies today will share on LinkedIn. When they raise 20 million and put it on TechCrunch, they put it up on LinkedIn. These are just the wrong things to be celebrating. And just always remember in the back of Your head. What's really going on behind the scenes at these highly funded companies. Very rarely is the grass greener on the other side. Those of you watching with a million in revenue, you're bootstrapped. I am on your side. Those of you watching with 4 million in revenue and you've been doing it for 10 years, but you're growing too slow and VCs don't return your emails, I am totally behind you. Those of you doing 8 million in revenue, bootstrapped because you built a great community of a Slack channel and a big email list and you love your customers and you don't want to grow at all costs. Nathan Latke is 100% behind you. I think you have so much power today. These are the options. Do not make the same mistake I made by looking at growth at all costs, raising as much equity as you possibly can, and then crashing and burning in the long run. Because that's what happened. We sold at a massive loss in 2015. I made more money from the salary I paid myself at HEYO over those years than the exit price, which was a big issue because as those of you that read my book on page 243, there's a reason 30,000 people have bought the book and the Wall Street Journal ranked it number three. It's because on page 243, I put the letter of intent we got when I was 21 from eye contact. $6.5 million acquisition offer when I still own 70, 80% of the company would have built a lot of wealth. I was too cocky. I said no. I chased the VC route. I chased the headlines. I framed the newspaper. It was a big mistake. Just remember, you guys have so much power today. I encourage you, if you want to understand that power and the economics, to check out founderpath.com again. Full transparency. That is my tool. Type in 50,000 on the free calculator on the homepage and see what your terms could look like. Like it's a great educational tool even if you don't take capital. And again, if you tweet to Jason and I on Twitter, if you tweet out that money shot, if you tweet out or ask me about FounderPath, whatever, just tag me or something on FounderPath. Use the conference hashtag. I will get you guys this massive Excel option, this Excel sheet with all the debt options out there and guys on that again. I just want to remind you, you have so much power today. Don't chase what you think is greener on the other side. You can keep Your company, you can build a lot of wealth off dividends and you might build more wealth than that competitor you keep reading about on TechCrunch who's raised $50 million. Guys, I'm NathanLacka.com building founderpath.com an easier way for earlier stage SaaS owners to get capital without dilution. I'm going to stay on. I'm going to let Amelia take over and tell me if we have time for questions. But guys, before I check out again, you know, I love the feedback. Be brutal. 0 to 10. 10 being you. Loved it. 10 being best presentation, super engaging. Loved it. Put it in the chat right now. Let us know what you think. Amelia, while they do that, what are your thoughts? Did you enjoy that?

Man? I have to say we've had a lot of high profile, high energy speakers today and you're definitely taking the cake.

Sweet. Sweet. Well, it was really nice of Jason to bring me on. You know, this is, this conference by far is the one that everyone wants to come to. And so I said, jason, I promise I want to, I want to make you super proud, deliver a ton of value. So, Amelia, I appreciate that feedback and it looks like those of you guys in the comments, you're getting great feedback as well. Cottrell, thanks for your feedback. Victor, thanks for your feedback. Brian Weisenberg, thanks for being so active. Those of you watching on other channels like Twitter and YouTube after this, I'll go to those channels and answer questions there as well. Amelia, I think we're out of time. I'm happy to take questions though. It's up to you.

Yeah, you got time for like one or two?

Okay, so guys, I'm going over the questions here on Zoom. We're going to refer. Amelia, did you see any big ones that like kept getting asked that I just didn't see?

Yeah, there were a few in the beginning. I think a lot of folks wanted to know more about Seal. It looked like that was like a common thread.

Seals. Yeah, guys, so seals, I'm going to go back to those slides. The big seals, right? Or the people doing some form of shared earnings agreements are Earnest Capital, tiny seed and NDVC. Again, I'm going to go on Twitter and YouTube on the after this. If you want direct links to all those guys. I've interviewed folks from all of those tiny seed, earnest, etc. I know how these things work. You can even just Google like Latke Earnest Capital and you'll see my interview with the founder of Earnest Capital, how we raise money. His cost of capital, etc. But the way they work is essentially you are taking capital today, they are taking equity. But if you decide you don't want to go and be a billion dollar company and raise a bunch of VC and you have profits, you can use the profits to buy back some of that equity. So it's similar to like, I mean, look at a safe, guys. You guys know most safes have a 6 to 8% interest rate on them, right? Or they're convertible notes, 60% interest rate. It's just the expectation from investors is that that note will convert into equity at the next equity round. Let's say that you don't ever do an equity round and you want to just pay off the 6% to 8% interest and pay all the principal back. That's sort of. It's not a direct comparison. That's sort of the optionality that a seal gives you the ability to buy back your equity if you want it back. Amelia, that's how seals work.

That's a good one. For those who want the book and haven't read it yet, what's the best way for them to get. I know there's a lot of platforms. What's your preferred?

Yeah, the book, guys, you can just go to nathan latka.com the book will be up there. Let me see. I can actually show you guys very quickly this is where to find it. But again, there's a lot of stuff free in the book we just put up here on the page. You can go look at this stuff for free. You can see me on cnbc, Yahoo. I go on CNN and Fox Business almost every other week talking about SaaS and SaaS, IPOs and SaaS debt. All that media is there. But again, what an incredible community this is. This is by far the most active chat I've had during a live presentation, which I appreciate because I hate listening to myself. So, Amelia, Twitter and NathanLocker.com are the best ways to connect with me.

And FounderPath.com Perfect, everybody. Nathanlock, Nathan, Jason and I were so stoked to have you. Thanks for joining us. You definitely made us proud. And we'll have to have you back again at another Saster event.

Thanks, guys. Take care. I'll be in Twitter. Bye.