is an FCA regulated Future Earning Agreements (FEA) provider. They have partnered with us to help offer these FEAs to entrepreneurs who want to fund their business and learn more about growing a startup. We have decided to combine their FEA instrument with a SAFE note to create a Convertible Future Earnings Agreement. This Convertible Future Earnings Agreement is a “best of both worlds” instrument; downside protection with the FEA (which is given directly to the founder) with the equity upside of the SAFE note (given to the business).
The applicant is the person or founder of X company who is applying for funding from Horizan VC.
The applicant will sign up to our Horizan VC portal.
The first step in our application process is where applicants will sign up on our
Using the credentials provided by the applicant, we will create a profile and login details to our portal.
This will allow the applicant to enter our web portal to then begin to fill their BlueOcean application.
The applicant will now be able to access the Horizan VC portal to submit their BlueOcean application.
In the portal, the applicant will then need to fill all the required fields of the BlueOcean application.
We will be asking them questions about their idea, pitch deck, traction, product progress and funding amount.
the number and type of questions will be different depending on the stage of the company. For example, an Idea stage applicant will be asked more questions than a Pre-seed applicant simply because the Pre-seed applicant will mostly likely be a little bit further ahead. In addition, the Idea Stage question flow will be more related to validation experiments, while the Pre-seed question flow will focus more on the pitch deck and development of the product.
They submit their BlueOcean application.
Once they complete all the required questions, we will start the due diligence process.
The Horizan VC Investment Committee receives the submitted application and starts the due diligence process.
The due diligence process can take up to 7 days for the team to review.
This process includes a full review of the company and team, as well as asking questions like:
What problem are they solving?
Is the problem a vitamin or pain-killer?
What is the solution/potential solution and what makes it unique?
Who are the competitors? How crowded is this space?
Is the team capable of executing on the idea?
Is the market size big enough?
What will be their competitive advantage or MOAT?
Landing page skin in the game (email address, fake payment button clicks, paid trials, letter of intent)?
Does this idea have great upside to either get acquired, pay FEA, or go public?
The Investment Committee will then make a Decision on whether to give the applicant an interview or not.
We schedule an interview with applicants that successfully pass our review stage.
The interview will allow us to learn more about the founder/team and ask further questions related to some details of the pitch deck and business model.
This, in turn will allow us learn more about the founders’ characteristics, ways of thinking, and whether they are easily coachable/will be a good fit working with us.
After the interview, the Investment Committee makes another decision to advance the applicant to the next stage.
The interview will give a lot of cues as to whether the founder/founding team has/have the potential to turn their idea into a successful venture.
If we’re happy and satisfied with the interview we will then plan to:
Seek references about the founder/founding team
Ask for a demo or technical interview
After the interview, we will get references about the founder/founding team.
This is a process where we contact people who worked with the founder/founding team in the past to give us more insight into their experience working with them, strengths and weaknesses.
After the Interview, we sometimes will do a Demo or Technical interview usually for tech driven companies.
We will usually setup a Demo or Technical interview
To help us see what the company is building
To understand their tech stack
To learn more about their engineering team
The result of this interview will usually give us a strong indication of whether to invest in this company because the founder/founding team will have done enough to show us that this is an opportunity worth investing in.
Once we complete the reference check and/or the technical interview, the Investment Committee makes another decision to advance the applicant to the next stage.
Reference checks do not have much weight in our decision making compared to the technical interview.
The technical interview serves as proof of the ongoing development of the product/tech that will serve as the solution to the problem they are trying to solve.
If the technical interview or reference checks signal(s) any red flag, we will pass on the opportunity. But if they go well, we will proceed to the Stepex application stage.
When successfully passing our due diligence and interview process, the applicant goes to Stepex to submit a Future Earnings Agreement application.
Since Stepex is licensed to offer Future Earnings Agreements, our applicants will apply through their system to go through the relevant checks that will qualify them for an FEA contract.
For each applicant, Horizan VC will be charged an application origination fee by Stepex.
During this process, Stepex will mainly ask for the applicant educational background and personal financial situation.
The applicant applies for an FEA contract because we want to give him/her the flexibility of either paying this money back (1.5x in 5 years or 2.0x in 10 years) or convert this FEA contract to equity at a qualifying fundraising round (£700,000+).
Stepex will then come to a decision after assessing the applicant’s FEA potential.
The information provided will go through their system which will then determine if the applicant is eligible to receive a FEA contract, which is between Stepex and the applicant.
If the applicant is successful, Horizan VC is notified to then prep the relevant documents for the applicant to sign before getting funds.
If the applicant is not successful, we pass on the opportunity to invest.
When the Stepex checks has been successful, Horizan VC is notified that the applicant is eligible to receive a FEA contract. Horizan VC will then make an origination fee payment to Stepex.
This origination fee payment is what Horizan VC has to pay Stepex in order to use their FEAs. It is 4% of the total amount being invested into the applicant.
Once the origination fee payment has been made to Stepex, Horizan VC will then ask Stepex to provide an FEA contract to the applicant.
The FEA contract will outline
The Horizan VC Course (a program that the founder will be eligible to take with Horizan)
The income repayment threshold
The repayment years
The maximum total amount payable
The agreed percentage of the applicant/applicant’s business’ gross annual income
The monthly membership fee
Stepex will also ask the applicant to share their banking information via Open Banking, so periodically Stepex can assess whether the applicant is reaching the threshold to start repaying the FEA.
At the same time, the applicant will also receive a SAFE Note from Horizan VC.
The SAFE Note will outline
The Qualifying Round where we convert from FEA to equity
The conversion amount which is used to determine Horizan VC equity stake in the Company
The discount and valuation cap at the Qualifying Round
Pre-Emption rights which allows Horizan to participate by further investing in the company at qualifying round
The long-stop date
When the applicant is happy with the terms in the FEA contract and SAFE Note, they sign the documents to then receive the funds.
The applicant will sign each document.
The FEA contract from Stepex
The SAFE Note from Horizan VC
With all parties signing their respective documents, Horizan VC proceeds in closing the deal.
Horizan VC sends the full investment amount applied for to the applicant’s business bank account.
The applicant then receives the funds in their business bank account.
The money gets sent from Horizan VC’s business bank account to the applicant’s business bank account.
The money received is on the FEA agreement, and the SAFE Note will be triggered only at the qualifying fundraising round (£700,000+).
The applicant then joins Horizan VC’s Slack group.
Once the applicant is in Horizan VC’s Slack, they are then welcomed and onboarded.
The onboarding usually includes:
Access to our perks and resources
How to get the best support from us
Learning Material (videos, articles, etc.)
Finally, after the applicant is fully onboarded they are now part of our portfolio.
Our investees will be getting ongoing support from us.
Our portfolio will get featured in Horizan VC’s socials and blog posts. For example, each portfolio company will get a written memo explaining why we felt a particular founder/company is building the right product/service to disrupt a particular industry.
We will do as much as we can to help our portfolio succeed.
Returns on FEA Process
Each applicant that applies for Horizan VC funding, goes through Stepex to enter into a Future Earnings Agreement with them. It is when they agree to the Stepex FEA contract plus the Horizan SAFE Note that we provide the funds they need to run their business.
Once the Stepex FEA contract is signed, the applicant has 60months to repay 1.5x of the money invested or has 120 months to repay 2x of the money invested.
The first step in getting FEA returns, is for Stepex to monitor each applicant banking information to determine whether they reach the FEA repayment threshold.
Each month Stepex checks the applicant banking information using open-banking to verify their income
The applicant would have agreed
to a percentage share of their income in the FEA contract, for example a 10% share of their gross annual income.
to a yearly income threshold which specify the minimum income for when they can start making FEA repayments, for example an income threshold can be £30,000 gross income per annum.
After assessing the applicant income, Stepex will come to a decision on whether to notify the applicant to start repaying the FEA or not.
It is only and only when the applicant start earning above the income threshold that they are informed to make an FEA payment at the agreed income share percentage.
If the applicant yearly income is not above the income threshold, then they have nothing to pay which means no action is taken.
When the applicant is notified to make an FEA payment, they do so by making a payment to Stepex bank account.
Once a payment is made by the applicant, Stepex will check that payment is within the FEA terms, i.e the applicant income exceed the income threshold and they made a payment at the agreed income share percentage.
Stepex will then update the FEA status of the applicant after each repayment.
After each payment is verified and both parties are satisfied with the payment. At each payment instance or instalment, Stepex will then update the FEA profile of the applicant deducting the latest payment from the total amount payable of the FEA.
After each payment is verified, Stepex will send the receivable to Horizan VC deducting their servicing fee from the payment.
Horizan VC will receive the FEA payment from Stepex less the servicing fee which is 4% of the total paid or £10 per payment whichever is the greater.
The process of assessing each applicant and making FEA payment is a recurring process that will happen every month throughout the FEA repayment period to ensure that each applicant stays on top of their FEA responsibilities.
Throughout the lifetime of FEA agreements between applicants and Stepex, outside of making FEA repayments. Stepex will need to make a decision on whether to relieve an applicant from their FEA responsibilities or not, which will depend on whether they completed repaying their FEA.
Stepex will have 2 actions to make which depends on whether each applicant completed all their FEA responsibilities.
If an applicant still has FEA responsibilities, then Stepex will keep updating Horizan VC on any changes to the applicant FEA circumstances.
Stepex will provide a quarterly report with updates on each applicant FEA status.
If an applicant completed all their FEA responsibilities, then Stepex will relieve them of all their FEA obligations.
Returns on SAFE Note Process
Each applicant that successfully applies to Horizan VC agrees to the Stepex FEA contract as well a SAFE Note which details the qualifying round at which point the applicant stops paying an FEA and instead issues some equity to Horizan VC.
The qualifying round is an equity fundraising event that the company of the applicant (i.e portfolio company) goes through to inject more capital into their business. This would be the first investment round that totals an amount of £700,000 or above.
The first step in getting equity returns from a portfolio company is to assess an upcoming fundraising event they have.
The Investment Committee will revise the portfolio company investment offering to determine.
whether the company is raising an amount that is £700,000 or more.
if the opportunity is substantial for Horizan VC to trigger their pre-emption rights.
Horizan VC will support the portfolio company in their fundraise and will take their own actions when the portfolio company is expected to raise £700,000 or more total.
The portfolio company will need to notify Horizan VC about this latest investment opportunity so they can take the necessary steps to help or participate in the round.
At this qualifying round event, the SAFE Note will then be activated which means the FEA will now turn into equity in the portfolio company.
Horizan VC will then notify Stepex of this qualifying round event so they can take the necessary steps to terminate the FEA with the applicant.
Stepex will also provide a final FEA status update on the applicant to understand the outstanding FEA repayments amount left, which will be used to determine the equity share of Horizan VC in the portfolio company.
At the same time, during the conversion to equity at the qualifying round, Stepex will terminate the FEA of the applicant.
If the applicant of the portfolio company still has any outstanding FEA payments to make, those will be used to determine the amount that converts into equity in the portfolio company.
If the applicant of the portfolio company pays off all their FEA obligations before the qualifying round event, then Horizan VC will not expect any equity in the portfolio company.
Horizan VC will also have the possibility to trigger their pre-emption rights at this round.
Triggering the pre-emption rights (i.e participation right) allows Horizan VC to invest more money into the company with the terms outlined in the SAFE Note.
If the pre-emption rights are triggered, Horizan VC will invest more money into the company in exchange for equity.
The amount invested will be determined by the Investment Committee who will analyse the investment offering and progress to date.
Once the investment round is completed, Horizan VC will receive a Statement of Beneficial Ownership certificate from the company.
In the future, Horizan VC’s Investment Committee will continue to assess and anticipate any exit opportunity of the portfolio company.
The portfolio company will update Horizan VC of any upcoming exit opportunity which will allow the Horizan VC Investment Committee to do all the necessary preparations for this event as well as supporting the portfolio company through this process.
If the Investment Committee deems the portfolio company ready to exit, then Horizan VC will plan their own actions in anticipation of this exit event.
If the portfolio company is not ready for an exit event, Horizan Investment Committee will advise not to exit but ultimately, the decision belongs to the company.
The portfolio company will do an exit event at a very mature time of the company lifecycle.
The highly anticipated exit of the company will be through a Liquidation event, which is a transaction that enables the owners of the company to realise the value of their investment, such as either a Merger, Acquisition, or Initial Public Offering event.
The other potential exit event is if the company goes through a Dissolution event, which will allow investors like Horizan VC to receive a portion of proceeds equal to the cash-out amount, due and payable immediately prior to the consummation of the Dissolution Event.
At the end of the exit event, Horizan VC will receive a return on their investment.
This simply means that Horizan VC will receive a payment that is equal to the amount of equity in the company after the exit event.