> Earnest would still recoup 30% of its investment (ignoring other expenses and time value of money) even if those companies never saw a penny of revenue.
How so? Who's paying that 30% if you have zero revenue?...did you mean "if those companies never saw a penny of profit"?
Based on my reading of their terms, it seems like they get back 30% of their own investment if the rest is entirely used to pay founders' salaries. So on a $150k investment, they have potential upside of $300k to $600k after they recoup their initial investment, while they can lose at most ~$105k when investing in businesses that have low expenses outside of founders' salaries.
Also, they list a starting point of $2k-$5k in MRR, and on a $150k investment with a 30% split, they break even as soon as the founder(s) have taken $350k in total salary (again ignoring time value of money), including any salary paid out of the original $150k investment. I don't want to trivialize the process of scaling a startup beyond $2k-$5k of MRR, but I bet more than 20% of companies with $2k-$5k of MRR are capable of reaching that point.
[0] https://docs.google.com/spreadsheets/d/1h_L7oa3rbV8P-ZnMM-l1...
edited for clarity