How to Keep More Equity by Getting Customers to Fund Your Growth

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In 2015, Brad Lorge founded Premonition, a technology company that offers logistics software to streamline a company’s delivery operations. Rather than the traditional approach of financing their start-up through rounds of dilutive funding, Lorge asked his customers to pre-pay, allowing the founding team to retain 80% of the equity in their business.

By March 2022, Premonition had grown to $3 million in Annual Contract Value (ACV) which is when it was acquired by Shippit for $20.5 million — an implied valuation of just under 7 times ACV. In this episode, you’ll learn how to:

• Calculate the difference between ARR and ACV and how each impacts the value of your business.
• Use customer pre-payments to finance your growth.
• Identify a short-list of potential strategic
• Approach an acquirer without appearing desperate.
• Utilize an unconventional strategy for accelerating an M&A transaction.
• Know when to accept equity in lieu of cash when selling your business.

 

Check out our full M&A Glossary

Show Notes & Links

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Today’s episode is brought to you by Scribe Media.

Scribe Media is a hybrid book publishing company that specializes in helping founders, entrepreneurs, and executives write and publish their books. You can’t meet with every person you want to reach, but with Scribe’s help, your book can. We create and execute a plan to get your message to your ideal reader. Not a writer? No problem. Scribe Media’s experts can write for you—in your voice. When it’s time to sell your business, buyers will know who you are, what you stand for, and the legacy they’ll inherit from the company you’ve built. Visit ScribeMedia.com to book your free consultation.

 

Definitions

 

Due-Diligence: Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.

Source: https://bit.ly/3yYDfo5

Letter of Intent (LOI): A letter of intent (LOI) is a document declaring the preliminary commitment of one party to do business with another. The letter outlines the chief terms of a prospective deal. Commonly used in major business transactions, LOIs are similar in content to term sheets. One major difference between the two, though, is that LOIs are presented in letter formats, while term sheets are listicles in nature.

Source: https://bit.ly/3ppDnr3

Churn: Churn is a measurement of the percentage of accounts that cancel or choose not to renew their subscriptions. A high churn rate can negatively impact Monthly Recurring Revenue (MRR) and can also indicate dissatisfaction with a product or service.

Churn is the measure of how many customers stop using a product. This can be measured based on actual usage or failure to renew (when the product is sold using a subscription model). Often evaluated for a specific period of time, there can be a monthly, quarterly, or annual churn rate.

Source: https://bit.ly/3nw3DPi

Put Option: A put option gives you the right, but not the obligation, to sell a stock at a specific price (known as the strike price) by a specific time – at the option’s expiration. For this right, the put buyer pays the seller a sum of money called a premium. Unlike stocks, which can exist indefinitely, an option ends at expiration and then is settled, with some value remaining or with the option expiring completely worthless.

Source: http://bit.ly/3ItK5Fh

About Our Guest

Brad Lorge

Brad is an entrepreneur, computer scientist, software engineer, and Co-Founder of Premonition. He is also a passionate advocate for businesses to achieve positive social impact.