Revenue Sharing Note
A revenue sharing note (RSN) is an agreement, in which a company borrows money from an investor and agrees to pay back a certain percentage of their revenue every quarter until all of the principal and accrued interest from the loan is paid back. The four major things that should be considered prior to signing a RSN agreement include the: investment multiple, maturity date, revenue share percent, and internal rate of return. It functions similarly to a revenue based financing agreement, except that the rate of repayment is not fixed—in periods of lower revenue, you pay a lower amount and in periods of higher revenue you pay a higher amount.
For high-growth startups this fluctuation in payment amounts is often challenging, because they cannot fully leverage the additional revenue they generate to further increase their growth rate.
Right of First Refusal
The term ‘right of first refusal’, also known as a “preemptive right” refers to the ability of an investor to take the first “at bat” in the event of a potential liquidation event, sale of equity or other relevant trigger. For example the right of first refusal related to the sale of equity would give an investor the right to purchase (or pass) on the shares being offered by a shareholder, before anyone else gets the same opportunity. In the event of a liquidation event, it would give the investor the right to purchase (or pass) on the outright sale of the company and its assets. Typically the right of first refusal is included in the provisions of the term sheet that is provided to the business receiving the investment.