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The Perfect Credit Union Investment

By Guy Messick
Advisor
NACUSO Business Services

In collaboration with Mitchell Amsler
CEO
Capital Management

NACUSO is always searching for ways collaboration can help credit unions manage the issues facing them… issues such as how does a credit union earn sufficient income from its excess cash to grow and remain competitive? Through the use of CUSOs, CU Capital Management (CUCM) has transformed the sale/leaseback model to enable credit unions to retain all the profits within the credit union industry. Instead of private funds purchasing real estate from credit unions and reaping the financial rewards of a stream of lease payments, CUSOs are the purchasers. The credit unions that fund these purchases receive the profits.

Business Model

Credit unions invest in a Funding CUSO. The Funding CUSO invests in Property Owning CUSOs that purchase real estate (headquarter buildings, operation centers and branch networks) from credit unions. There is one Property Owning CUSO per purchase transaction. If it is a large purchase, the Property Owning CUSO uses debt to finance some of the purchase price. The loans typically have conservative loan-to-value ratios, i.e. 50% to 60%. The Property Owning CUSOs lease the real property back to the selling credit union on a long-term basis. The revenue from the leases flows back to the Funding CUSO and the credit union investors.

The minimum investment in the Funding CUSO is $1 million. There is no maximum. When a credit union invests in the Funding CUSO, the credit union is immediately earning revenue from the existing portfolio. As new properties are purchased, the credit unions are given an opportunity to invest more. Even if a credit union does not invest more, the credit union will continue to benefit from the revenue generated from the entire portfolio.

The Investment Provides Industry Leading Returns

Earns Returns in Excess of Other Permissible Investments

CUCM does not take a fee unless the annualized returns to the credit union investors is at least 5%. The current annualized returns are over 6%. As the rents increase each year, the revenue generated will also increase. All the leases are triple net with the credit union tenant assuming all maintenance and repair obligations, including repairs to the building structure. The lessor can step in and make repairs if the credit union tenant does not do so, at the tenant’s cost. This arrangement enables the credit union tenants to continue to have control over their building and enables the investors to enjoy returns not reduced by building maintenance expenses.   

Returns Are Not Tied to Market Fluctuations

The federal interest rates will increase and decrease over time. The revenue from the CUSO is locked in by contract and does not fluctuate based on the general interest climate. In a low interest rate environment, the return on this investment becomes even more attractive than other investment options tied to the market. As market rates decline, the interest paid on loans associated with the purchases of real estate will be lowered, resulting in higher investment yields.

Returns Are Paid Quarterly

Partial investment returns are paid quarterly. After the accounting for the subject year is complete by the first quarter of the following year, the balance of the annual return is paid.

No Legal Restrictions on the Amount of Revenue That Can Be Earned

Since this is a CUSO investment, there are no limits on the amount of revenue a credit union can earn. The only restriction is that a credit union may only invest up to the amount of its unused CUSO investment limit. Note that this CUSO investment limit increases each year as the credit union assets increase. Only the credit union’s cash investment in its CUSOs is counted, and not the present worth of its CUSOs. If an investment is made by a credit union’s CUSO, that amount is not counted in the credit union’s CUSO investment limit.

The Net Income is Higher than Loan Net Income

Every loan program has sourcing, underwriting, servicing, and collection costs that reduce the net yield on a loan. While the representatives of the credit union owners make up the boards of the Funding CUSO and Property Owning CUSOs, CUCM does all the administrative work (e.g., sourcing investors and sellers, managing the purchase process, managing the lease relationship, and managing the financial obligations to the investors). CUCM takes a portion of the investment return as a fee, but only if the credit unions receive at least a 5% annualized return. There is no assets under management (AUM) fee charged by CUCM to the Funding CUSO.

Lending Opportunities are Also Available

The larger purchases include both equity and debt. This means the investors also have lending opportunities. The investors are given priority to both bid to be the lead lender and buy loan participations. 

Low Risk

Excellent Repayment Source 

The revenue for the investment returns is lease payments from well-capitalized credit unions for real estate assets critical to their operations. If a credit union merges with another credit union, the continuing credit union has the legal obligation to continue to make lease payments. If the credit union is conserved, the conservator has the obligation to continue to make payments to retain the lease.

Great Collateral

The investors are the owners of the real estate, and that is an asset that can be sold if the credit union vacates the real estate. When CUCM evaluates a purchase, consideration is given to the ability to sell the real estate if the need arises. If there is a higher risk due to the location of a property, a purchase may be declined or the rent may be set at an amount sufficient to compensate for this risk. CUCM has permitted credit union tenants to sublease a small portion of real estate, but only if the credit union remains liable for 100% of the rent under the master lease.

Diversification of Risk

The Funding CUSO’s ownership of multiple Property Owning CUSOs gives it a diversified investment portfolio.

Isolation of Risk

If there are legal issues with one credit union and its real estate, the legal risk is isolated to the respective Property Owning CUSO that is the owner/landlord and does not flow back to the Funding CUSO and its investors.

Good Liquidity

Each year, CUCM has the value of the Funding CUSO established by a qualified third party so that, if any credit union wants to sell its CUSO ownership, there will be a predetermined price that enables a timely sale. CUCM believes that the attractiveness of the investment and the third-party appraisal will enable a credit union to quickly find (with the help of CUCM if desired) a credit union buyer. This liquidity will enable a credit union to earn attractive returns on funds in the short- and mid-term without making a long-term commitment.

Supports Other Credit Unions

Beyond the financial rewards to the investors, the fact is that these transactions are highly beneficial to the selling credit unions. The sellers get an immediate boost in capital to help them grow, which can be transformative in some cases. The sellers/tenants also have the comfort of dealing with a CUSO as their long-term landlord and not multiple private funds. A stronger credit union industry benefits all credit unions.

This is a Proven Concept

Properties have been purchased from large credit unions such as Truliant Federal Credit Union, Affinity Federal Credit Union, and Wescom Central Credit Union, as well as from smaller credit unions. There are currently 24 credit union investors from all over the United States who have invested over $111 million in capital in the Funding CUSO and made, in the aggregate, over $111 million in loans. The investors have enjoyed annualized net investment returns that were 4.93% in 2022, 5.00% in 2023, and 5.00% in 2024. The net annualized return to CUSO investors is expected to be between 5.00% and 5.50% in 2025 before rising to above 6.00% net in 2026. As the rental income increases each year, so will the investment returns. The Funding CUSO has distributed over $10 million to its credit union owners since 2022 through these regular distributions.  

The Opportunity is Huge      

The NCUA reports state that over 3,300 credit unions collectively hold over $31.5 billion in real estate assets on their books. That represents the collective cost less depreciation, and thus represents a fraction of the estimated market value. The credit union industry has plenty of runway to help the sellers immediately grow capital and the investors to make very attractive returns. There is no reason to give away this revenue to the private sector.

To learn more or connect with CU Capital Management, please visit their website at www.cucapitalmanagement.com or email info@cucapitalmanagement.com.

About the Authors: 

Guy Messick
Advisor
NACUSO Business Services

Guy served as NACUSO General Counsel for over 40 years, advocating for CUSOs with Congress, NCUA and other regulatory agencies. He has authored a book on credit union collaborations and is honored as a CUSO pioneer in America’s Credit Union Museum in Manchester, New Hampshire.

Mitchell Amsler
CEO
CU Capital Management

Mitchell serves as the founder and CEO of CU Capital Management.  In that capacity, he oversees a network of CUSOs focused on sale leasebacks for credit unions.  CU Capital Management’s CUSO network allows credit unions to participate on all sides of a sale leaseback transaction — as sellers, investors and/or lenders.  Most importantly, this allows the full benefits of a sale leaseback to remain within the credit union industry and provides for an alignment of interest between credit union sellers/tenants and the CUSO landlord’s credit union investors/owners.

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Credit Union Investing – A Practical Guide for Leaders

EFTG Virtual Graph

By David Dean

Head of M&A
Evergreen Financial Technology Group

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.

EFTG Revenue Graph

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.

EFTG Lifecycle image Investment

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.