What are Unit Purchase Agreements (UPA)?
Searching for more funding or advisory support? A unit purchase agreement (UPA) may be a good option for you and your business. In this article, we will discuss what a UPA is, when it is used, and why it is useful.
What is a UPA?
A unit purchase agreement is the mechanism by which an investor is able to buy units in your company to become equity partners. When companies are structured as an LLC, the “shares” are referred to as units. The equity exchange between your company and Union Kitchen is not related to your company’s profits or units of product, but rather the ownership of your company.
Equity represents the percentage value that would be returned to a company’s shareholder if they are bought out or the company is acquired. When someone invests in a company, they receive an equity share. Shares, or units, are split between owners of the company and each person who owns a share is considered a shareholder.
Typically, investors will invest in your company if they see potential in its growth. They will only invest in your company if they believe in your product and see the value your brand could have in the future.
At first, it may seem as though giving up equity in your company equates to you giving up part of your company. However, think of it this way: say you own a very small pie. The pie is 100% yours, but it is bite-sized and worth $1. If people want to invest in your pie, your percentage of ownership in the pie will decrease, but the value of the pie goes up, making your individual piece worth more. In other words, as the founder of your business, it is more valuable to own 20% of a $100 million dollar company than 100% of a $1,000 company. The more your business grows, the more valuable the equity becomes.
By partnering with Union Kitchen, you will have more time, resources, and capital to grow your business and therefore raise its valuation. We take our partnership very seriously and carefully select businesses who share our core values and who will best leverage our Accelerator partnership. In exchange for our equity share, we pour our resources, network, ecosystem, and expertise into this partnership to support your success.
Through our Accelerator, Union Kitchen becomes an early stage investor in your company. We execute a UPA to become equity partners. This means Union Kitchen will purchase 100,000 units out of the total 1,000,000 units. The owner of the company (yourself and your business partner(s)) own the remaining 900,000, or 90% of the company. The 100,000 units, or 10% equity stake, is in exchange for our Accelerator, and the resources, industry expertise, ecosystem, roadmap, and more that are included.
When are UPA’s Used?
At Union Kitchen, the UPA is executed at the beginning of our partnership. The UPA sets the terms for the exchange in our resources and expertise for equity in your business.
You can also expect to see UPA’s when bringing on investors. In this case, the UPA will set the terms for the agreement, how much money will be invested, and how much equity will be exchanged.
Why are they Important?
The Unit Purchase Agreement outlines the parameters around the unit price, or how much each unit costs. Upon execution of the agreement, the valuation of your company is set at $1M. As your company grows and becomes more successful, the company valuation will increase. Future valuations can support fundraising efforts and buy-outs, among other things.
If your company is interested in buying out an investor you can present a buy-out offer to the board for a vote. The valuation would be determined at that time, typically by a third party.
The Unit Purchase Agreement provides the opportunity for Union Kitchen to invest in subsequent investment rounds. Union Kitchen’s partnership is set up to support the growth of your business. Union Kitchen has no intention of becoming a majority shareholder so we would not buy a company owner out of their shares.
Throughout each phase of the Accelerator, raising money becomes important to support your business’ growth and allow you to make forward leaning decisions. Outlined below is the recommended amount of money we recommend raising by Phase:
Recommended Investment for Growth
A unit purchase agreement, also referred to as a UPA, is the mechanism by which an investor is able to buy units in your company in exchange for equity. As you begin to grow your business, finding investors will become more and more important. At the end of the day, investors are choosing to fund your business because they believe in you and your company’s success. Here at Union Kitchen, we are here to offer our guidance, expertise, and of course investment to help support you and your business along the way. It may feel daunting at first, but investment is here to build your business to last.