What is an Income Share Agreement & Why Should Entrepreneurs Care?
There’s a lot of buzz right now about alternative VC, flexible VC, and entrepreneur capital - and for good reason. Access to capital for early and idea-stage founders is extremely limited. All of these different terms refer to a new approach to funding and fueling entrepreneurship.
One relatively new entrant to this scene is the Income Share Agreement, or ISA.
The idea of the ISA first became popular in the education space. ISAs have typically been used to help students pay for education (like nursing school) without taking on student loans. You’ve probably heard of tech bootcamps that are free to join, but which you pay for out of your post-grad salary. That’s another type of income share agreement.
An income share agreement is a contract between a person and a capital provider where the person receives upfront capital in exchange for a fixed percentage of their future income.
ISAs are designed to give you access to capital to pursue your goals, based on your potential to achieve those goals.
Income Share Agreements aren’t traditional debt-based lending, although like a loan, they do need to be paid back. But with an ISA, there’s no compounding interest.
ISAs for education are typically a specific percentage of earnings for a pre-defined period of time (or term). If you earn more during that period, you’ll pay more. If you earn less, you’ll pay back less. Most ISAs will also include a salary floor, which guarantees a minimum income before any payments will be due.
Some ISAs do include a repayment cap, so you don’t pay back more than a certain amount (regardless of earnings).
To be totally transparent, ISAs only make sense for lenders and investors when it’s clear that the person they’re investing in is likely to be successful. Most ISA programs do evaluate the person as much (or more) than their employment potential.
The central belief of an income share agreement is that your future potential is worth investing in. For early stage entrepreneurs, this is where things really get interesting.
Are You One of the 83% of Entrepreneurs Failed by Existing Funding Options?
Venture capital and equity-based funding only accounts for .5% of all business funding. Another 16% of business funding comes from traditional banking - but this is only available to companies with a history of business and/or hard assets.
The remaining 83% of business funding comes from personal savings, wealthy connections, and credit card debt. Even if a founder is privileged enough for these options to be viable, each one is expensive in their own way.
So how can we activate this trillion-dollar opportunity?
By thinking about career potential as an asset class. (That’s what we’re doing here at Chisos.)
We know there are a lot of entrepreneurs who have tons of potential, but are currently overlooked or undervalued.
This is where Income Share Agreements come in. With an ISA (or something similar), capital providers can invest in entrepreneurs who have demonstrated career success and future earning potential.
An Entrepreneur-Friendly Form of Capital
Chisos’s Convertible Income Share Agreement is designed to tailor the best of ISAs to the needs of idea- and early stage entrepreneurs.
The CISA is made of two parts: an equity agreement (a SAFE agreement) and an ISA.
In the simplest terms, Chisos writes $15-50K checks to entrepreneurs, in exchange for a percentage of future earnings and a small amount of equity. It’s a perfect fit for founders because:
- Salary Floor: If and when your salary ever drops below $40K, you won’t owe any payments for that time.
- No Compounding Interest: Unlike traditional debt-based financing, the CISA doesn’t charge compound interest.
- Flexible Payments: With $0 payment periods and more founder-friendly features, the CISA payments fit your life - instead of the other way around.
- Retain Your Authority: Even though we take equity, we don’t tell you how to run your business.
- Grow Your Business Your Way: If you do raise more than $3M in funding, your ISA repayment cap drops to 1X.
A Convertible Income Share Agreement is based on an ISA, but it’s different in the important ways.
Here’s a video that walks through the setup and a few of the CISA’s founder-friendly features.
We invest in more than just tech founders, too. We fund founders at the idea stage and before there’s any traction. If you’re a side hustler, a lifestyle business, or even an AgTech startup like current portfolio founder Tinia Pina, Chisos can invest in you.
Interested in applying for your "first check" from Chisos? Our simple three-part application process is open now for idea- and early stage entrepreneurs. The first step of the application process takes just a few minutes: