Managing multiple funding partners
The world of non dilutive funding can have many moving pieces and complexities which can be challenging to navigate. Our goal is to make sure that all of it is simple and clear to you. In this post, we will focus on managing multiple funding partners simultaneously.
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One of the biggest challenges when it comes to managing non dilutive funding is when it comes to working with more than 1 funding partner. Working with multiple partners can be valuable to those that need to raise different forms of financing to allocate to different areas of their business. Let's discuss some of the common questions that arise when teams are considering working with multiple partners.
What is the advantage of having multiple partners?
This is a really great question and there are two common cases where multiple partners are utilized. The first case is when one partner can't provide the full amount of capital you are looking for. In this case, splitting your funding target between two or more funding partners is a viable option. The second case is where a team desires multiple capital partners is if you want to access multiple funding types. In this case, one partner might extend a line of credit and another might offer a revenue share agreement.
Different funding types might be accessed to accomplish different business objectives.
Do funding partners traditionally work together?
While the answer to this question will depend on the lender, partners teaming up is not at all uncommon. While certain partners have better relationships than others, most partners will be fine with you adding another partner (pending their approval, of course). Your success benefits all your partners and therefore permission is generally granted.
Why would a partner not want to work with others?
Partners want to make sure that they are safe when it comes to getting their money back. To that end, a partner might not want another partner to join if they're lending for the same use case as the others. For example: if a partner lends to you for marketing purposes, they can be wary if you want to raise more capital for marketing purposes as well. If you're allocating the capital to a different area of your business, this is safer for a partner and can reduce the anxiety of lending among others.
Is any partner a leader of the pack?
Of the group of partners that are lending to you, there will be one “senior lender”. The senior lender is the lender in the group that has the most rights. This lender will sometimes ask that the other lenders sign a subordination agreement. A subordination agreement establishes the order of loan repayment should there not be enough money to repay all lenders involved. Subordination agreements are pretty common and your capital partners should be familiar with them and the content they contain as they are all similarly structured.