Equity streaming agreement – what is it?
The equity streaming agreement (ESA) is a new financial instrument that has emerged in recent years as a way for companies to raise capital. It is a contract between two parties, typically a company and a private investor, in which the investor provides funding in exchange for a share of the company`s future revenues.
In essence, the company sells a portion of its future profits to the investor, who receives a return on investment as the company grows. The exact terms and conditions of the ESA can vary between agreements, but they usually involve a fixed percentage of future revenues being paid to the investor over a set period of time.
How does it work?
The ESA is similar to traditional equity financing in that it involves the sale of shares in a company. However, there are some notable differences. First, the investor does not receive ownership of the company or voting rights as they would in a traditional equity deal. Instead, they are entitled to a share of the company`s future revenues.
Second, the ESA is typically structured as a loan, rather than an investment. This means that the investor receives a fixed rate of return on their investment, rather than a variable return based on the company`s performance.
Why use an ESA?
There are several reasons why a company might choose to use an ESA to raise capital. First, an ESA can be an attractive alternative to traditional equity financing, which can be expensive and time-consuming. Second, an ESA can be used to raise capital more quickly than traditional funding methods, such as venture capital or angel investors.
Third, an ESA can provide the company with greater flexibility and control over its finances. Unlike traditional equity financing, where shareholders may have a say in how the company is run, an ESA allows the company to retain full control over its operations.
Is it right for your company?
Whether an ESA is right for your company will depend on a variety of factors, such as your financial goals, the stage of your business, and your growth prospects. It is important to carefully consider the costs and benefits of an ESA before entering into such an agreement.
One potential downside of an ESA is that it can be difficult to secure funding from investors if your business is not yet generating revenue or is in the early stages of development. Additionally, if you are unable to meet the terms of the ESA, it can result in penalties or legal action.
Conclusion
The equity streaming agreement is a new financial instrument that has emerged in recent years as a way for companies to raise capital. It offers several advantages over traditional equity financing, including greater flexibility and control over finances, as well as the ability to raise capital more quickly. However, it is important to carefully consider the costs and risks associated with an ESA before entering into such an agreement.