The Logic of the Deal
The views portrayed in The Logic of the Deal blog are subject to change at any time based upon market or other conditions and are current as of May 24, 2021. While all material is deemed to be reliable, accuracy and completeness cannot be guaranteed.
“Make a customer, not a sale.” - Katherine Barchetti
Balance! At AFZA Capital, we seek opportunities that give us balance. There are many variants around basic deal structure, but whatever the specifics, the logic of the deal is always the same: to give AFZA both ample downside protection and a favorable position for additional investment if the company proves to be a winner.
Our basic contracts typically contain downside protection in the form of antidilution clauses, or ratchets. Such clauses protect against equity dilution if subsequent rounds of financing at lower values take place. We always remind entrepreneurs that we are just as focused on the protection of the investment. Should the company stumble and have to raise more money at a lower valuation, we will be given enough shares to maintain our original equity position—that is, the total percentage of equity owned. That preferential treatment typically comes at the expense of the common shareholders, or management, as well as investors who are not affiliated with our investment and who do not continue to invest on a pro rata basis. Simply put, I feel that entrepreneurs look over the possible challenges early on. It can be tough to imagine, but a necessary step to take into account.
Alternatively, if a company is doing well, investors enjoy upside provisions, sometimes giving them the right to put additional money into the venture at a predetermined price. That means venture investors can increase their stakes in successful ventures at below market prices.
It is important to note that AFZA Capital is seeking to make equity investments. We encourage you to reach out and to begin the journey with our team.
What you can expect from our 10 Step Process:
Onsite Due Diligence
Open dialogue on valuation
Use of capital discussions
Open dialogue on growth metrics
Leveraging of strategic partnerships
Company updates and Consistent communication