In the world of new financing approaches, Income Share Agreements (or ISAs) are unique. Since they first appeared around 2015, they’ve gained traction consistently year-over-year. An estimated $500M in ISAs was originated by 2020.
ISAs are most well-known as tools to help students finance education and job training costs without taking on traditional debt. That’s where most - but importantly, not all - of the activity is happening. (If you’re not quite sure what an ISA is, we recommend you start with this blog.)
Here, we’ll deep dive into how an ISA actually works. You’ll learn how Chisos’s unique cousin of the ISA, the Convertible Income Share Agreement or CISA, works, too.
ISAs work by offering capital or some type of value (ie. education) in exchange for future earnings. With an ISA agreement, you agree to share a percentage of your future income over a period of time. Again, income share agreements are most commonly used to fund education and career development, but they have potential for founders seeking early capital to start a business as well.
With an ISA, the percentage you pay will stay the same even as your income varies. People with a higher income will pay more than those with a lower income, but this is part of the promise of an ISA: it’ll always be affordable.
It’s important to note that most ISAs do include a salary floor; that is, if you’re earning less than a certain amount, you won’t have to make payments during that time. This feature is especially valuable to founders as they likely experience periods of time with low or no income.
This unique arrangement is also why ISAs are such a good option for the education and career development sectors. These programs are designed to train you for more advanced roles (and the accompanying higher income). An ISA gives programs and financing partners an opportunity to share in their students’ increased earnings.
There are a couple of important features of an ISA:
Actual terms vary across the ISA market. Ballpark, the share percentage is often 5-20% of income, over a period of 2-10 years. You can expect that the shorter your agreement term, the higher the income share percentage.
If you’re using an ISA for education, you’ll start paying it back when you land that job post-graduation. Chisos’s CISA approach is built for idea- and early stage entrepreneurs, so it works a little differently - but more on that next.
Chisos designed a new funding model for idea- and early stage entrepreneurs: the Convertible Income Share Agreement.
With the CISA, we write checks of $15-50K to entrepreneurs. This “first check” is the early investment you need to build your company.
The CISA approach blends some elements from a traditional ISA with features more common in equity-based financing. In the simplest terms, the CISA has two parts:
A CISA is designed to give founders access to capital, without having to sacrifice excessive ownership or “bet the farm.” Instead, you’ll get access to funds you can use to build your company - plus a support network of resources, peers, and mentors.
This is an inclusive, equitable approach that serves idea- and early-stage companies better than traditional funding options. When you win, we all win.
The Convertible Income Share Agreement essentially says that, in exchange for capital, you agree to:
If you ever decide to go the venture capital route and you raise $3M or more, your ISA payback amount will drop to 1x.
By combining the ISA and SAFE agreements, Chisos is able to fund founders that other capital providers can’t. People like:
...and that’s just the start.
This approach is perfect for entrepreneurs because it’s more flexible than either debt- or equity-based funding options alone.
As an entrepreneur, you have options. The CISA is perfect for founders who aren’t a fit for VC or bank loans, don’t have wealthy friends and family, and don’t want to (or aren’t able to) use a high-interest credit card.
If that sounds like you, the CISA could be perfect.
Take the first step and apply today.