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Federal law lets credit unions invest or lend up to 1% of their net worth in credit union service organizations, and the collaborative spirit of the industry has given rise to more than 1,100 CUSOs nationwide.

Historically, these CUSOs were started and controlled by one or more credit unions, providing operational services and alternative income streams. In the last decade, the model has evolved and fintech CUSOs are now founded by entrepreneurs who invite credit unions to join the cap table as minority investors. This shift transforms credit unions from CUSO founders to strategic capital partners and introduces new responsibilities and risks.

This article breaks down those responsibilities for both credit unions and entrepreneurs in a clear, jargon‑free way. It explains how to value early‑stage companies, negotiate terms that protect your capital and reputation, and explore exit strategies that can have profound impacts on the future of your credit union.

Valuing Early‑Stage Fintech Deals

A Simple Approach to Valuation

Startups rarely have profits, so price‑to‑earnings ratios are useless. A practical alternative is to use revenue multiples, given that most startups will book revenue within the first year and revenue multiples are more stable until profitability has been stabilized. A revenue multiple is simply an industry specific ‘ratio’ or a ‘factor’ that provides a blanket metric to gauge the startup’s overall profitability and future growth potential. A revenue multiple, as the term suggests, considers only the gross revenue of a startup.

A reliable revenue multiple can be derived by dividing the enterprise value by the trailing twelve-month revenues of comparable public companies in the industry. The wider the batch of reference companies, the better the credibility.

The average revenue multiple from these five companies is 5.74x. Suppose you’re evaluating a startup with $1 million in revenue. The estimated valuation of this company using revenue multiple valuation will be $1,000,000 x 5.74 = $5,740,000. 

This method isn’t precise and relies on significant assumptions, but it provides a consistent framework and a starting point for negotiation.

Putting a Price on Your Contributions

Credit unions are strategic investors because they deliver more than cash alone. By becoming an early adopter of a young company’s product, you validate the solution, supply high‑value data and feedback, and de‑risk future funding rounds. To reflect that intangible contribution, you might negotiate warrants, which are option contracts that give you the right to buy the company’s stock in the future at today’s price. Warrants align strategic incentives and are typically granted on top of a capital investment, so they let you secure well‑deserved upside with downside protection in exchange for your contributions to the business’s success. If the startup achieves ambitious milestones partly thanks to your partnership, your warrants convert into shares at the valuation that existed before your contribution added value.

Focus on Key Terms, Not Buzzwords

Term sheets often contain hundreds of pages and dozens of clauses, but a handful of terms have outsized impact:

• Preferred versus common stock: preferred shares come with special rights (priority in liquidation, sometimes dividends) and are worth negotiating if you put in significant capital.
• Liquidation preference: a clause that specifies who gets paid first and how much when the company is sold. A 3× preference means a $100k investment must return $300k to the investor before anyone else sees a dollar.
• Drag‑along and tag‑along rights: a drag‑along clause lets a specified majority of shareholders compel everyone else to sell their shares when a qualifying offer arrives, ensuring buyers can acquire 100% of the company. A tag‑along clause allows minority shareholders to join any sale on the same price and terms, so they aren’t stranded under a new owner they didn’t choose. Together these provisions prevent a dissenting minority from blocking a lucrative deal and ensure early investors are not left behind or squeezed out when later investment rounds dilute their stake.
• Anti‑dilution protection: adjusts your conversion price if new shares are issued at a lower price, commonly referred to as a down round. Even a basic weighted‑average formula prevents your stake from being wiped out.
• Pre‑emptive rights: give you the right to match an outside offer to purchase shares in a follow‑on round and a set period to make your decision

Everything else is secondary; consult a lawyer but don’t let esoteric provisions distract you.

Evaluate Opportunities Systematically

Early‑stage deals are hard to compare because financials are thin, and markets are undefined. Focus on the creativity and conviction of the founders and their teams at least as much as on the idea or the technology itself. Most young companies will pivot; rarely are they on target from day one. Success often depends as much on timing as on innovation, but smart, resilient leaders supported by capable teams will keep iterating until they find a path to success.

Create an investment scorecard tailored to your credit union’s priorities. Consider factors such as market potential, competitive advantage, management quality, key financial metrics (revenue, recurring revenue, net revenue retention, gross margin) and alignment with your mission and member needs. Scoring each deal against the same criteria disciplines your decision‑making and makes it easier to explain to your board why you passed on a flashy pitch or chose to back a higher‑risk opportunity. If part of the rationale is research and development, spell out what you expect to learn and quantify its value, so that “R&D” doesn’t become a catch‑all justification for a weak investment.

Manage Reputational Risk and Diversify Wisely

Venture capital is risky; assume most of your investments won’t succeed and manage stakeholder expectations accordingly. Diversify across several deals or funds to spread risk wherever possible and explore partnerships with groups like Curql Collective or other specialized investment CUSOs that are gaining momentum across the industry. When presenting a deal to your board, highlight both the financial scenario (potential return and capital at risk) and the non‑financial benefits (learning, strategic fit and mission alignment). Specify the key performance indicators you expect portfolio companies to report, such as monthly financials, recurring revenue, burn rate, customer growth and runway.

If you plan to adopt products from your portfolio companies and use your influence to support their success (highly recommended), create an innovation cohort composed of employees and members who enjoy testing new technology and see it as a privilege to help shape the credit union’s future. These cohorts not only provide critical user feedback that adds direct value to your investments but, given their specialized role, they tend to be more accepting of experimentation and product sunsetting than the broader membership. You may even see a brand-lift on social media if cohort members celebrate that they were chosen for a hand‑picked innovation team at your credit union.

Planning for the Exit

Align Financial Returns with Mission

As CUSOs grow and founders (who often retain a controlling interest) start exploring exit options, credit union investors may face a tension between capturing returns and preserving the integrity of mission‑aligned products and services. Some founders care deeply about what happens to their business, team and customers after the sale, while others focus primarily on valuation. Mission‑driven founders generally prioritize preserving legacy and feel a justifiable sense of gratitude and obligation toward the credit unions that supported their success. When evaluating an exit, encourage the leaders of your portfolio companies to seek buyers that share the same priorities and have proven track records of successfully integrating businesses that serve credit unions.

Choose Buyers That Measure the Right Outcomes

A buyer that does not understand and value credit union culture can undermine the critical and often nuanced service delivery that credit union clients and their members depend on. Institutional investors may measure success by maximizing growth within a 6‑ to 8‑year fund cycle, aligning incentives with limited partners over teams and customers. Traditional strategic buyers typically seek synergies by rolling up multiple businesses, which can improve efficiency but sometimes erode the culture, mission and operational nuance that made your CUSO successful. Naturally, you want to maximize the return on your investment, but return is not exclusively financial, so weigh price against the buyer’s commitment to member service, product quality and employee engagement.

Apply the Buy‑and‑Hold Model to CUSO Exits

Warren Buffett’s Berkshire Hathaway is famous for its buy‑and‑hold strategy and decentralized operating model. The conglomerate delegates operating authority to its portfolio companies while centralizing capital allocation, allowing each business to flourish independently. This structure eliminates bureaucratic layers, speeds decision‑making and fosters a sense of ownership.

Evergreen Financial Technology Group, known as EFTG, applies a similar philosophy to private fintech businesses. It acquires mission‑critical software companies serving credit unions and community banks and holds them indefinitely. Founders may stay on or move on; either way, leaders retain control over day‑to‑day operations. Because EFTG doesn’t aim for a quick flip, its long‑term, decentralized model incentivizes lasting value creation and helps preserve the integrity, culture and market presence of each portfolio company. The firm has also built a track record of competitive valuations for the businesses it acquires, flexible deal structures and highly satisfied credit union customers.

To support that autonomy, EFTG provides a lightweight umbrella management team that acts as the connective tissue between portfolio companies. This team facilitates best‑practice sharing through a collaborative peer network, cross‑selling and vendor negotiations, and offers resources to solve pain points in areas like recruiting, sales, marketing, finance and accounting. Each business works with the team to build a value creation playbook tailored to its one‑, two‑ and five‑year goals. Tactical initiatives might include implementing pricing discipline, tracking customer profitability or controlling cost of goods sold, while long‑term initiatives focus on scalability, talent acquisition and culture building. Importantly, day‑to‑day decisions including hiring, firing and product development remain with each business leader. By protecting what works while investing in growth, this model avoids the pitfalls of quick‑flip and roll‑up strategies, making EFTG a unique and attractive option for CUSO founders considering an exit.

Putting Strategy into Motion

Credit union leaders can invest in fintech without becoming venture capital experts. Apply straightforward valuation methods, focus on a handful of protective terms, diversify sensibly and collaborate with peers. Treat every investment as both a potential financial return and an opportunity to learn. Plan for the exit from day one, and use your influence to prioritize buyers who value culture as much as cash. Done thoughtfully, credit union investing can accelerate innovation, diversify revenue and empower your ability to support members and deliver on the mission.

To learn more or to engage with Evergreen Financial Technology Group, visit their website.

About the Author:

David Dean
Head of M&A, Evergreen Financial Technology Group

David Dean is a seasoned fintech executive and strategic leader in mergers & acquisitions, specializing in founder-led software businesses serving credit unions and community banks. As Head of M&A at Evergreen Financial Technology Group (EFTG), he leads sourcing, development, and execution of acquisitions that align with EFTG’s long-term, buy-and-hold investment philosophy.

Before joining EFTG, David served as Chief Operating Officer and Chief Investment Officer at CUSG, where he oversaw corporate development, strategic partnerships, and portfolio company growth. His career reflects more than a decade of experience driving sustainable value creation across fintech, SaaS, and media, guided by a disciplined and collaborative investment approach.

A California native and graduate of the University of Missouri-Columbia, David now lives near Detroit, Michigan, with his family.