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Comment by javery | Hacker News Reader

I always feels it's disingenuous to say you don't take equity if you ask for warrants or other % of the upside - it's essentially a proxy for equity. When you factor in a 3-5X cap, PLUS warrants - this doesn't seem like a better deal than something like Lighter Capital which has a smaller cap and zero warrants.

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Equity comes with a whole host of conditions (which can be unpleasant for founders) that Earnest Capital's deal doesn't include.

I think it's more than fair to say they don't take equity.

Not necessarily, equity and loans both have conditions around them. Sometimes loans are more punitive than equity. Taking common stock has almost zero downside for instance, it's when you get in to preferred equity and the rights that come along with it that you can get in trouble.

Where do you see warrants?

"In most cases, we’ll agree on a long-term residual stake for Earnest if you ever sell the company or raise more financing. We want to be on your team for the long-term, but don’t want to provide any pressure to “exit.”"

This seems to imply that they get a % of an exit or future financing even once the cap has been reached. That is functionally warrants right?

They get a % of an exit if you haven't fully repaid to the cap

If that's true I take it all back, but the way I read "long-term residual" was that even after you paid it back they still got a piece of the action.

Once Return Cap is fully repaid the founder can run the business profitably forever and not pay us anything more. We do typically prefer an option for a % only if the business is sold but can do a deal (with a higher Return Cap) that excludes this easily.

"Our default terms now include a residual “stake” for Earnest after the Return Cap has been fully repaid."

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