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Betting It All to Build a $100 Million Outdoor Luxury Empire

Sarah Dusek

Sarah Dusek and her husband started Under Canvass, which offered large-scale tented hotels (think “glamping”) outside national parks around the U.S.


The business got off to a successful start, and within five years, Dusek had four locations, which were collectively generating $3 million in EBITDA.


Rather than sit still, Dusek decided she wanted to grow much larger and raised $16 million of capital made up of a combination of equity and mezzanine debt at a rate of 13%, which Dusek personally guaranteed.

The stress of having her entire net worth tied to her business eventually caught up to Dusek, and she decided to sell a majority stake of her business to a private equity group (KSL Capital).


Dusek rolled 25% of her equity and stayed on as CEO. By the time she stepped down from her leadership role, Under Canvass was worth more than $100 million.


This episode is jampacked with insights, including how to:

  • Use venture debt to finance your growth.

  • Avoid a common mistake in raising venture capital.

  • Vet potential investors

  • Raise money for your business without giving up equity.

  • Jack up the value of your business in the eyes of an acquirer.

  • Decide the right time to sell.

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More About Sarah Dusek

Sarah Dusek is the Co-Founder of Under Canvas, the leading adventure-hospitality company in the United States that specializes in luxurious glamping accommodations near America’s most iconic national parks.


In 2017, Under Canvas earned a place on the esteemed Inc. 5000 list, and Dusek was honored on the EY Entrepreneurial Winning Women list by Ernst & Young. The company has set an unparalleled standard in sustainable development while also redefining experiential hospitality in a significant way.


Dusek is deeply committed to empowering women to achieve their full potential and ascend in leadership roles. This dedication is part of her broader mission to cultivate scalable, sustainable businesses capable of transforming communities, cities, and even nations.


In 2019, she launched Enygma Ventures, a private investment fund with a focus on investing in women-led businesses in Southern Africa.


Definitions

Warrant: A warrant gives the holder the right to purchase a company’s stock at a specific price and a specific date. In other words, a warrant is a long-term option to buy a given stock at a fixed price. Such a type of warrant is called a call warrant, which gives the right to buy the security. A put warrant gives an investor the right to sell the security. Source.


Mezzanine Debt: Mezzanine debt is a kind of borrowing that sits in between regular debt (like a typical bank loan) and ownership stake (like owning shares in a company). It’s not the first debt to get paid back if a company runs into trouble, but it’s ahead of stockholders. So, it’s sort of in the “middle” — hence the term “mezzanine,” which often refers to a middle floor between the ground and main floor in a building.


Why would anyone go for this middle-of-the-road option? Well, mezzanine debt usually comes with some sweeteners, often in the form of “warrants.” These are like bonus tickets that give you the option to buy shares in the company later on. So, besides getting your loan repaid with interest, you might get a piece of the company’s future growth.


Companies often use this type of debt when they want to buy another company or when they want to change who owns the company, such as in a buyout. It can make the deal more attractive for the new owners and help it happen more smoothly. If things go south and the company can’t pay its bills, mezzanine debt gives the new owners a better spot in line to get their money back compared to some other stakeholders, but they’re still behind regular bank loans and other more senior forms of debt.


In short, mezzanine debt is a more flexible and potentially rewarding form of borrowing that’s often used in big business moves like acquisitions and buyouts.


Put Option: A put option is a bit like an insurance policy for your stock investment.

Imagine you own a stock that you think might go down in price, and you want to protect yourself from losing too much money. A put option can be your safety net.


Here’s how it works:

  • You pay a fee, known as a “premium,” to buy a put option.

  • This option gives you the “right” to sell your stock at a predetermined price, called the “strike price,” by a certain date.

  • You don’t have to use this option if you don’t want to. It’s like paying for car insurance but hoping you never have to use it.

  • So, let’s say you own a stock that’s currently worth $50. You buy a put option with a strike price of $40 that expires in one month. You pay a premium, maybe a few dollars per share, for this right.

Two things can happen:

  • The stock price drops to $30. Yikes! But because you have the put option, you can still sell your stock for $40, the strike price. So, the option saves you from a bigger loss.

  • The stock price stays the same or goes up. You decide not to use your option. It expires, and you lose the premium you paid. But your stock is worth more or the same, so you’re probably okay with that.

  • Remember, unlike owning a stock, which you can keep for as long as the company is in business, an option has an expiration date. Once that date passes, the option is either used (exercised) or it becomes worthless.

  • So in simple terms, a put option is a way to pay a little money now to protect yourself from potentially losing a lot more money later. It’s a form of financial safety net for your stock investment.

Venture Debt: Venture debt is a type of debt financing obtained by early-stage companies and startups. This type of debt financing is typically used as a complementary method to equity venture financing. Venture debt can be provided by both banks specializing in venture lending and non-bank lenders. Source.


Liquidation Preference: Let’s say you’re at a party, and everyone at the party has chipped in to buy a pizza. But before the pizza arrives, the party gets cancelled. Now, you’d want to make sure you get your share of the money back that was collected for the pizza, right?


In the world of business, a “liquidation preference” is a bit like that. It’s a rule set in a contract that says who gets their money back first if the “party” (in this case, the company) has to shut down and sell off everything it owns.


Usually, this rule is set up to protect the people who took the biggest risk by investing money into the company. These folks usually own something called “preferred stock,” which is a special kind of ownership that comes with some extra privileges. One of those privileges is often a liquidation preference.


So, if the company goes under or is acquired, the people with the liquidation preference (usually the investors or preferred stockholders) get in the front of the line to get their money back. They get paid before anyone else, like employees who own regular shares (“common stock”) or lenders who the company owes money to.


In simple terms, a liquidation preference is like a VIP pass that ensures you get your money back first if a company has to shut down or gets acquired. It’s a way to protect the investment of people who put in money, often at the early stages when the company is most at risk.


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