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EER

What is an EER (Equity-Equivalence Right)?

 

An Equity-Equivalence Right (EER) is a type of financial instrument that gives the holder the right to receive equity in a company based on a set of predefined conditions. These conditions typically include specific performance milestones or a particular time frame. EERs are often used to align the interests of investors and the company, especially in joint ventures or partnerships.

EERs benefits

What are the Benefits of EERs?

Incentive-driven

EERs encourage key stakeholders to work toward common goals, benefiting both the company and the investors.

Flexible 

EERs can be tailored to fit a wide range of business models, financing needs, and partnership structures.

Less immediate dilution 

Like convertible loans, EERs allow companies to delay issuing equity until certain conditions are met.

Why Set Up EERs?

Align interests

EERs help align the interests of investors, partners, and key stakeholders with the long-term goals of the company.

Retain control

The company retains control by using EERs instead of issuing equity directly, which would cause immediate dilution.

Incentivize performance

EERs can be tied to specific performance metrics, incentivizing stakeholders to meet certain objectives before equity is granted.

How to Set Up EERs?

Define the conditions

Establish clear performance milestones that must be met for the EER to convert into equity.

Document the agreement

Formalize the EER in a legal document that specifies all terms and conditions.

Specify the conversion terms

Outline how and when the EER converts to equity, whether upon reaching specific financial goals, time frames, or other events.

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Examples of Companies Using EERs

Airbnb

When expanding globally, companies like Airbnb could use EERs to incentivize local partners or investors to meet key growth targets before awarding equity.

Unilever

Large corporations like Unilever may use EERs to align incentives with joint venture partners or key stakeholders in emerging markets.

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