Shared Earnings Agreements with multiple investors

Part of launching any new financing instrument is increasing the number of investors that are comfortable using it for investments. We created the Shared Earnings Agreement (SEAL) because we felt we needed a financing agreement that aligned investors with founders building calm, sustainable, profitable companies. As part of the process of helping more investors understand the model, we occasionally lead and structure investment rounds with an opportunity for others to co-invest. This is a simple overview of how the model works with multiple investors.

NB: we announce those opportunities on our Friend of the Fund mailing list.


At a high level the Shared Earnings Agreement has two potential income streams for investors (or two potential liabilities for founders): 1/ the Equity Conversion: a percentage of the company owed to investors in the event of a sale or qualified financing and 2/ Shared Earnings Payments in any quarter in which Founder Earnings exceeds the Founder Earnings Threshold. Let’s look at how each operates in a round with multiple investors.


1/ Equity Conversion: The key variables for calculating the Equity Conversion are the Amount of Investment, Shared Earnings Cap, and the Valuation Cap. Using the same terms for Shared Earnings Cap and Valuation Cap for multiple investors works out just fine and scales appropriately whether an individual investors puts in $25k or $250k, the percentages work out fairly. For this portion you don’t need to do anything special with a SEAL. As with any convertible instrument, it’s critical for founders to track to the aggregated impact of a possible conversion event.

2/ Shared Earnings: For Shared Earnings, you do need to make a decision about how to divide up Shared Earnings in a fair pro rata way. As a reminder, the SEAL with a single investor calculates Shared Earnings in any given quarter as:


Founder Earnings = Founder Compensation + Net Profit  ( Founder Earnings – Founder Earnings Threshold) * The Percentage = Shared Earnings paid to Investor.

There are two simple ways to apportion this among multiple investors:

Option A) Each investor gets their own discrete percentage. Eg “If you invest $25k, you get 2.5%. If you invest $250k, you get 25%”


This works best if you have a very clear set of investors and know exactly what the whole round is going to look like and close it all at once. Each investor knows exactly what they are getting. The downside for the founder is that if 

Option B) The founder allocates a single Percentage for the whole round and each investor splits it pro rata according to how much they invest and how much of the total round that represents. For example, the founders allocate 25% of Founder Earnings for the round, if an investor puts in $100k and the total round is $500k, they are entitled to 100k/500k = 20% of Shared Earnings issued in any quarter. 


This has the benefit for the founder that if a strategic investors comes along at the last minute and wants to invest $20k, they can squeeze it into the round without the extra “dilution” in terms of more Shared Earnings having to be paid.


In general I prefer Option A because it gives all parties more clarity, but if you have a situation with lots of small strategic angels considering investing and you’re unsure how many will join, Option B may make more sense.

Using SPVs or Syndicates

The last question is whether or not to use an SPV or syndicate to make paying Shared Earnings simpler for the company. An SPV (special purpose vehicle) simply pools a bunch of smaller investors into one entity that makes a single aggregated investment into the company. The big benefit here is that the company can make one aggregated Shared Earnings payment, and the SPV manager will take care of apportioning out that money to the smaller investors. SPVs are not cheap so right now my recommendation is that if you have 6 or fewer investors or under $500k total investment, you should skip the SPV and just sign individual SEALs with each investor. You may have to make 6 Shared Earnings payments per quarter instead of one, but it’s not that much work. Otherwise it’s probably worth the administrative ease to use an SPV. 


An SPV also has a small added benefit when dealing with very inexperienced angel investors of comforting them with the knowledge that they really are getting exactly the same terms as the lead investor. 

More questions? Check out our overview of how a SEAL compares to a SAFE or our other blog posts here.

Up Next:

Yeluchi by Un-Ruly: at-home professional hair styling for women of color

Yeluchi by Un-Ruly: at-home professional hair styling for women of color