Overview

Seats are a new way for businesses to raise money. It's a sale of future revenue with a contract that is not traditional debt or equity. The parties identify a specific amount of future revenue (the "Revenue Band"). If this revenue is earned, the business pays the investor this amount of money.
Selling revenue is not a new idea. Our goal is to take this form of investment mainstream by standardizing the contracts and applying them across a wide variety of use cases.

Terminology

  • Revenue: Top line sales on a cash basis subject to company specific adjustments. Events such as liquidations and sales also generate revenue. See Definition of Revenue below.
  • Cumulative Revenue: Accumulated revenue starting on January 1, 2020.
  • Revenue Band: A unique range of Cumulative Revenue chosen by buyer and seller for a Seats contract.
  • Strike: Beginning of the Revenue Band.
  • Size: Size of the Revene Band.

Example

Transaction: Investor and Company choose a Revenue Band with a Strike of $1,000,000 and a Size of $100,000. The price of the Revenue Band is set at $50,000.
Lingo: "$100,000 at $1,000,000 for $50,000"
Upfront payment: Investor pays Company $50,000.
Future payments:
  • If Cumulative Revenue never hits the band: Company does not pay Investor anything.
  • If Cumulative Revenue is in the band: Company pays the Investor the amount of the revenue less $1,000,000.
  • If Cumulative Revenue actual revenue is above the band: Company pays the Investor $100,000.

Key benefits for investors

Customizable: Investors can pick the bands that work best for them in terms of risk, return and timing.
Single Event: Investors only need to price one thing - a single future revenue band. They are not reliant on an IPO or sale of the company for repayment, as is the case in many private investments.
Size and Timing: Investors can take small positions and adjust over time.

Key benefits for companies.

Non-voting: Companies don't give up control.
No fixed payment debt claim: Companies are not forced to pay if the revenue is not earned.
More time to focus on operations: Less time is required to raise money and investor maintenance is more simple.

Pricing and negotiation process

Seats contracts are executed directly between buyer and seller. Seats Inc is simply an information platform. We are not a broker.
On this website companies can list themselves with a profile, revenue forecasts and Revenue Bands with indicative pricing. Actual sales only occur with proper documentation, buyer qualification, disclosure and negotiation of terms.

Seats are focused exclusively on revenue.

Revenue Forecasting: Revenue forecasting is fundamental to Seats. Seats issuers must become very good at forecasting revenue and communicating their forecasts to investors.
Definition of Revenue: Revenue for purposes of a Seats contract includes only cash receipts. Certain significant corporate transactions may trigger revenue recognition on appreciated assets. The parties may scope out certain receipts depending on the type of business.
Company Selection of Revenue Bands: Companies select revenue bands carefully to ensure adequate cash flow in the future considering profit margin and cash flow needs.

There are many variations and use cases for Seats contracts.

Equity Alternative: Founders want to avoid losing voting control, so they issue a full funding round in Seats. Revenue Bands can be set at significant multiples of the purchase price, for example 20x - 100x, depending on the stage of the company.
Debt Alternative: Company can't raise debt funding, so it sells Seats against its near term, high probability revenue.
Sale of Upside Forecasts: Company sells Seats against its upside revenue forecasts to reduce risk or fund additional advertising.
Compensation: Company issues Seats to employees as incentive compensation. The Revenue Bands could be chosen as those specifically relevant to the employee's performance.
Targeted Investments: Investor has a specific strategy that it wants to implement in relation to future revenue. Company sells Seats tailored to investor's needs.
Individuals: Since ownership is not being sold, the structure is similar whether the issuer is an entity or an individual.

The role of Seats Inc.

Listing: This site serves as a place where companies who want to issue Seats contracts can describe their business and list their offers.
Revenue tracking: Seats Inc facilitates the servicing of Seats transactions with its revenue tracking features.

Documentation

Companies who want to issue Seats enter into a Seats Program Agreement, which provides the general terms of all Seats contracts with the Company. When the Company enters into a Seats Contract with an Investor, the Investor sign the Seats Program Agreement as well as a Purchase Agreement, which specifiies the pricing terms of each individual contract.
Seats documentation is standardized to promote liquidity. Seats documentation may not be used without the consent of Seats Inc.

Want to compare? Here's how Seats stack up to debt and equity

Traditional Debt Seats Traditional Equity
Low cost of capital for the company. Seats can be structured with debt or equity like rates. High potential return for the investor.
Company may not have the money to repay. Payment is only due if revenue is earned.
Buyers of Seats do not have a vote. New investors receive a vote on company decisions that may result in a loss of control for the current owners.
May not be available without proven steady cash flow. Any company could raise money with Seats.
Equity like returns can be earned in short periods of time without a sale of the company. Investment tied up for many years with return often dependent on a sale of the company.
All investors get same interest. Little ability to tailor investment. Investors can pick their spots with precision to build tailored payoff profiles. All investors get same interest. Little ability to tailor investment.

Frequently Asked Questions

Is this factoring? No. Factoring is the sale of receivables. In such case the revenue has already been earned and the company is simply awaiting payment. Seats is a contract over revenue that has not yet been earned.
Why focus on revenue instead of earnings or some other metric? Because revenue is more easily observed and predicted. Earnings and cash flow metrics are problematic because they are largely at the discretion of management.
When are the payment amounts calculated? Payments are calculated on a quarterly basis.
Who calculates the payment amounts? The parties designate a calculation agent. This may be the company's accountant.
When are the payments made? The standard payment period is 30 business days from the end of the quarter.
Are there any restrictive covenants related to use of proceeds or distributions?Not in the standard Program Agreement, but these can be added in an issuer specific schedule.
What is the cost of Seats? / How are they priced? As with any asset, the price is set by the market, but here are a few general priciples:
  • One would expect Seats to be more expensive than debt, because the seller is buying downside protection (insurance against bad times), and lower than equity, because the buyer is buying liquidity (the investor has a cash claim when the revenue band is hit).
  • Near-term bands will likely be priced based on the expected probabiilty of the revenue band being hit discounted at the appropriate rate.
  • Long-term, speculative bands will be priced based on market comparables for similar types of risk.
  • Seats are more easy to price than common equity because they are based on one payment off of one metric and each of the bands is tied together in terms of relative value. See Reason #8 for Seats: Easier to Value