[javery]

"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?

[VintageLight]

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

[javery]

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.

[tylertringas]

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.

[javery]

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