ISA Design Matrix: Terms, Options, and Safeguards

Baseline: 7% flat rate

Alternative: Progressive brackets (e.g., 7% on first $150k, 3% thereafter)

Consideration: Flat rate is simpler but progressive brackets reduce drain in breakout years

Default: Until age 65 (~24 years)

Alternatives: 5 years, 10 years, or 3× principal—whichever comes first

Trade-off: Longer duration provides more upside potential but creates longer-term obligation

Options: 2×, 3×, or 4× principal

Current Draft: No cap

Consideration: Cap protects against excessive payments but limits investor upside

Proposal: AGI thresholds ($50-60k) with automatic deferment

Purpose: Protects against payments during low-income periods

Implementation: Requires clear income verification and restart mechanisms

Formula: 3× or 5× remaining balance

Timing: Available after 5 years

Purpose: Provides long-term autonomy while still returning substantial value to the backer

Proposal: 1% of any venture exit > $10M

Rationale: Ensures investor benefits even if I minimize salary to build equity value

Example: If I pay myself $30k/year but build billion-dollar equity value, investor still participates

Structure: 7% until investor receives 2-3× principal, then reduces to 1-2%

Total Cap: 10× return maximum

Benefit: Balances protecting me from eternal high payments while preserving meaningful upside

Mechanism: Payments pause if earned income drops below threshold

Override: Investor still participates in equity value if I'm building wealth through ownership

Protection: Prevents gaming the system through artificially low salaries

• Bankruptcy filing
• Force majeure events
• Permanent disability (with insurance payout)
• Death (with life insurance payout)

Missed Payments: 30-day grace period with notification

Documentation Delays: 60-day window for income verification

Dispute Resolution: 90-day arbitration period before legal action

Timing: After 5 years

Purpose: Allows adjustment based on actual performance and circumstances

Process: Mutual agreement required for any changes

Question: Security vs. forward contract classification

Implications: Affects registration requirements and investor qualifications

Precedent: Limited case law on personal ISAs

Focus: Consumer lending and ISA safe-harbor compliance

Reference: BloomTech CFPB consent order (2024)

Requirement: Clear disclosure of terms and risks

• Usury Laws: NY, CA, OH restrictions on interest rates
• Wage Assignment: Ohio statute §4113.16
• Garnishment: State-specific limits on income attachment

Options: Investment vs. loan vs. royalty classification

Impact: Different tax implications for both parties

Requirement: Professional tax counsel needed

• IRS transcript access
• Bank aggregation API integration
• Employer attestations
• Annual self-reporting with audit rights

Option 1: Self-administered with quarterly reporting

Option 2: Third-party trustee for payment processing

Cost: Trustee fees vs. administrative burden

• Life insurance: $500k minimum coverage
• Disability insurance: 60% income replacement
• Premium responsibility: Split or investor-funded
• Beneficiary designation: Investor as primary

Single Angel: Direct relationship, simpler structure

Pooled SPV: Multiple smaller investors, more complex but broader appeal

Preference: Single relationship for simplicity and alignment

Regulation CF: Micro-backers under $1,000 each

Platform: Republic, StartEngine, or similar

Complexity: Significant regulatory overhead

Purpose: Smooth variance and reduce risk

Structure: Insurance company guarantees minimum returns

Cost: Additional premium reduces net returns