In this article we dive into factors that influence the fees and what are the elements that make up fees for financing.
Whether you are getting cash to exercise your stock options or liquidity against your shares, the fees for financing depends on the type of financing product you choose. Secfi offers two products:
- Secfi Secondary
- Secfi Financing
With Secfi Secondary, you will sell your shares to the buyer and all potential future upside (or downside) are transferred to the buyer and wiith Secfi Financing you pay the fees when your company has an exit event (IPO, acquisition, SPAC, direct listing).
Factors that influence the fees
When comparing fees you should consider these questions as they influence what you are going to pay.
- What happens in case of a default?
- How much of the potential future gain do you get to keep?
- When do you pay?
What happens in case of a default aka recourse risk
Recourse risk covers what you are held liable for if you default and the collateral isn’t enough to cover the remaining amount owed. It's important for you to consider your ability to repay and explore ways to reduce your risk.
Each product has a different level of risk associated with it and the fee varies to compensate for the said risk. Simply put, when you, as the shareholder or seller, take a higher risk, the fee you pay is lower.
How much of the potential future gain do you get to keep aka upside participation
You are a shareholder at your company and you do expect it will generate attractive returns for you in the future. When you get financing, you might have to part with a portion of it when your company exits. How much of the potential gains you get to keep depends on the product you choose.
When do you pay aka payment terms
Depending on the product, you could be paying back throughout the term of the engagement or only when your company has an exit.
The payment terms affect your cash flow and therefore impacts other financial goals you might have like paying back your mortgage, buying a house or going on that lovely vacation. You must consider how the repayment fits into your overall financial plan.
Shameless plug: Yes this is hard, we know. If you need advice, we are here to help. Talk to a Secfi advisor - the first call is on us.
What goes into the fee?
Secfi Secondaries
In case of a secondary sale, we will only charge a brokerage fee for advising and brokering a secondary sale for you.
Secfi Financing
The fees for financing is a bit more complicated. The table below will understand the fees for Secfi Financing. Keep in mind that - higher, and lower - are used as relative terms to help you compare. You must consider them in the context of your personal situation to make the right choice.
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Secfi Financing |
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Recourse risk |
Lower Limited to a portion of your shares except when in breach of contract. |
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Brokerage fee A one-time fee for brokering a financing deal for you. This amount is typically included in the financing, sale, or loan amount that we secure for you. |
Generally up to 5% |
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Advance fee or Interest fee This is the interest on the advanced amount. We thoroughly underwrite every company before offering financing. Another factor is the specific details of each individual transaction - every person could have different rates depending on their strike price(s), tax needs, etc. |
Advance fee: Pay in kind interest Looks a bit like interest. It compounds quarterly and is added to the repayment amount during settlement. The rates are determined based on the company and your stock options. |
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Equity fee A cash fee calculated as a portion of the value of your shares on exit. This will determine how much of the upside you can keep when your company exits. |
Typically higher With a higher equity fee, you get to retain less of the upside. You can choose to have a lower equity fee with a higher advance fee or vice versa. |
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Payment terms The product you choose defines when you have to pay back the cash advance and the fees. |
Only at exit The cash advance and all components of the fee are payable only when your company has an exit like an IPO or acquisition. If there’s no exit, you don’t pay it back. |
Not sure which product fits your needs? Here is a list of considerations. If you are still in doubt, our equity strategists can guide you to make the right decision once you submit a financing request.