The Case for Capped Upside: What I Took Away from "Beyond the SAFE"
Last week at Colorado Startup Week, I joined Kevin Allen of Access Mode, David Wagner of Wildwood Ventures, and Christy Johnson of Fireroad Ventures for a session called "Beyond the SAFE." The premise was simple: most founders only hear about one way to fund a company, and they often pick it before they understand what they're promising in return. We wanted to change that by putting three very different funding instruments side by side, looking at the different outcomes and discussing the impact to the investor and the company based on the type of financing.
I was there to represent revenue-based finance. Below are my key take-aways from what I found to be a great discussion.
One company, three term sheets
Kevin framed the session around a sample company that looked a lot like the businesses we meet every week. Three years since formation, 18 months of selling, $350K in trailing revenue, $50K in MRR growing 15% month over month, 50% gross margins, $40K net monthly burn, and nine months of runway. It had raised $500K in angel money and was projecting breakeven around month seven, at least on paper.
Each firm put a real offer on the table:
Wildwood (equity): a $1M priced round at a $5M post-money valuation, meaning 20% ownership, a board seat, a 1x liquidation preference, and a clear expectation of reaching $3M in ARR within 18 months.
Fireroad (redeemable equity): $500K in a note that becomes either equity (up to 10%) or a 2.5x buyback, depending on whether the company raises a qualified priced round within 12 to 18 months.
Sage (revenue-based finance): $150K, repaid at 5% of monthly revenue until we reach a $300K cap. No dilution, no board seat, and no exit required.
The check sizes aren't the same, and that's part of the point. Each structure is built for a different job.
The scenarios told the story
The best part of the session was the financial walkthrough. We ran four outcomes across all three structures.
Breakout: a $1B acquisition after $75M raised. Wildwood's stake was worth $110M, a 110x return. Fireroad converted to equity and also earned 110x on its money. Sage received $300K, exactly 2x, and was paid off long before the exit. I'll be candid: this is the scenario where the equity funds win, and they should. They took the risk of owning a piece of an unproven company, and that's the reward. From the founder's side, though, the question to ask is what 11% of a $1B company would have cost compared with $150K in revenue-share payments. Could you have achieved this exit without the equity investments and their expertise? Probably not, and that’s why they get paid the big bucks. On the other hand, if you could have achieved the exit without them, thus retaining more of the equity yourself, this amazing exit could have been extraordinary.
Modest exit: $50M after a $4M seed, with revenue stalling at $10M. Equity still performed well at 8x, as did Fireroad's converted position. RBF was again 2x. This is probably the most likely exit that founders find themselves in, and in this situation, how much equity the founder held on to will really matter for their overall outcome.
Steady merger: $8M after six years at $5M in revenue. This is where things got interesting from my perspective. Wildwood's 17% stake returned $1.36M, just 1.36x on a fund that underwrites to a much bigger outcome. Fireroad's note converted to a buyback and returned $1.25M, or 2.5x. RBF stayed at 2x. Wildwood wouldn’t have been displeased with this as it helped get them money back to their investors, but it isn’t what they are looking for. Fireroad had to convert at the right moment to achieve their 2.5x outcome while RBF was just steadily getting paid back over the life of the deal.
No exit: a $1M-revenue company growing 25% a year indefinitely. For the equity investor, this is the hardest outcome: 20% of an illiquid company with no liquidity date. Fireroad collected its 2.5x buyback, and RBF collected its 2x. The founder kept 85% of a healthy, growing business. The equity investors are probably looking to find a solution to exit but with only one seat on the board and a minority ownership that usually isn’t possible.
What this made clear to me
Revenue finance is the only structure where both sides know the price up front. In every scenario, our return was the same 2x. That consistency isn't exciting on a slide next to 110x, but it's exactly what makes the instrument knowable. The founder knows the maximum cost of the capital on day one, and that cost doesn't grow if the company becomes a unicorn.
Equity is structurally designed around outliers. Most companies live in scenarios three and four. Many founders pitch scenario one, but most businesses, including many good ones, end up as steady mergers or profitable companies that never sell. Since equity is designed to reward the outliers, a company that is quietly successful rather than explosive can leave both founder and equity investors in an awkward place. RBF doesn't need an exit and works well across a lot more outcome scenarios.
That said, RBF isn't cheap money, and it isn't the right answer for everyone. A 2x cap paid back over two to four years has a real cost, and I told the room so. For our sample company, $150K extends runway by a few months and helps bridge to breakeven, but it won't finance a sprint to $3M in ARR. The monthly payments also cut into cash flow when you can often least afford it. If you truly need $3M to capture a market window, that's what equity is for. RBF works best when you have consistent revenue, healthy margins, and a plan that doesn't depend on burning faster.
The instruments can work together. One thing I appreciated about sharing the stage with David and Christy was that we weren't competing. A company might use RBF to reach breakeven, redeemable equity to keep its options open, and priced equity once the breakout story is clear. Christy's structure illustrated this well: it sits between the two and lets the company's actual performance decide the path.
The question I'd leave founders with
Kevin pointed out at the beginning that your earliest financing decisions can set the path for your whole company. Every check comes with an implied promise. Equity promises a big outcome. Redeemable equity promises a decision point. Revenue finance promises steady repayment.
Before you sign, ask yourself which promise you can realistically keep, and what it will cost you if things go better, or worse, than you expect.
Thanks to Access Mode for hosting, to David and Christy for a candid conversation, and to every founder who stayed for the Q&A. If you want to discuss further, my door is open.
About Sage Growth Capital
Sage Growth Capital makes revenue-based investments in companies at any stage who need growth capital. It is our mission to provide a more flexible, non-dilutive funding option to growing companies who do not fit traditional equity or lending models. To learn more about Sage Growth Capital or to apply for funding visit: www.sagegrowthcapital.com.
About Revenue-Based Financing
Revenue-based financing (RBF), also referred to as royalty financing, revenue share or revenue-financed capital (RFC), is a non-dilutive form of growth capital where investors receive a percentage of monthly revenues until a set amount has been paid. RBF differs from equity financing as the investor does not obtain ownership of the company and it differs from debt financing as there is no collateral required and payments are variable. RBF is designed to empower entrepreneurs to grow their businesses with non-dilutive capital that aligns with their sales cycles.