Recently, we’ve gotten a lot of questions on the details of how our terms work. So we’re going to try to break this down for everyone currently applying for investment with us/want to apply for investment with us.
Essentially, Horizan's investment has 2 parts - one similar to debt and one similar to convertible equity.
Future Earnings Agreement (loan-like):
- Once the investee takes funding from Horizan, they start repaying their Future Earnings Agreement at the rate of minimum 10% if their monthly pre-tax income is above £2500.
- The income is verified by Stepex. By taking funding from Horizan the founder agrees to be transparent about their monthly earnings for as long as the debt remains outstanding (in part or in full).
- The debt is considered repaid when the founder has paid back 1.5 times the amount of funding taken from Horizan within 5 years. Example: If Horizan gives a £10,000 CFEA, £15,000 is due in 5 years.
- In case this does not happen, the debt is considered repaid after the founder has paid back 2 times the amount of funding taken from Horizan after 5 years. Example: If Horizan gives a £10,000 CFEA, £20,000 is due after 10 years.
SAFE (convertible equity):
- The equity side of the investment supersedes the debt side of the investment once the founder raises a Qualifying Round.
- A Qualifying Round is the first qualifying round of equity fundraising that raises at least £700,000.
- A founder (or together with a VC) can buy out/pay off the FEA early if the fundraise is going exceptionally well or high profits are coming earlier than expected. but since we have pre-emptive rights, we reserve the right to buy more equity at a 20% discount off the current valuation.
- As of the date that shares from the Qualifying Round are issued to Horizan, the investee's debt repayment obligations go to £0, however they do not get back any amount of debt repaid prior to the Qualifying Round.
- At the Qualifying Round, Horizan's outstanding investment into the company will convert at a 20% discount to the valuation at that round. The Qualifying Round Valuation is defined as the price per Share paid by third party investors in the Qualifying Round. An example of the conversion is, if the Company is valued at £1,000,000 and Horizan VC has invested £30,000, then, Horizan VC will have 3.75% equity. If the Company is valued at £2,000,000 and Horizan VC invests £30,000, then, Horizan become a 1.875% equity partner.
- If the Qualifying Round Valuation is greater than £5,000,000, Horizan's investment will convert at a valuation of no more than £5,000,000.
- The shares issued to Horizan upon conversion must hold the same rights and be of the same share class as all other investors in the round. Where there are multiple share types, Horizan's shares will convert to the same class of shares that are to be held by the other investors in that round (i.e. the third party investors that contributed the greatest amount of funding to the funding round). Example: If other investors receive Preference B Shares, Horizan VC will also receive Preference B Shares.
Hope this answers many of your questions! As always, feel free to ping any of us a message on Linkedin or Twitter if you have more questions.