Mar 23, 2021
On the Exponential podcast, we are always on the hunt for alternative sources of capital to talk about and discuss and expose to our audience because only a tiny fraction of startups – 1%– secure the two most talked about sources of funding – Venture and Angel Capital.
And in this podcast, we are discussing Revenue Financing a source of funding that is gaining visibility in the tech startup community and one under the right conditions that offers a sustainable alternative to venture capital funding.
Revenue financing — also known as revenue-based financing or RBF — is a type of financial capital provided to a start-up in exchange for a percentage of future revenue.
The idea actually dates back to mining companies getting financed to dig for oil, natural gas, and minerals.
And Unlike traditional debt, revenue financing doesn’t restrict operational flexibility. And unlike angel investment or venture capital, the investors don’t take any equity in the business. Instead, the capital loan payments are tied to monthly revenue, increasing in strong revenue months, and decreasing in low revenue months until the initial capital amount, plus a multiple, or cap, is repaid.
Revenue financing places the focus back on business fundamentals — customer acquisition costs, cash conversion cycles, customer payback — and away from the ego-driven hype around new funding round press releases and pitch events. It focuses on a more sustainable standard and one that has broader application for the great and good SaaS companies and is a capital resource that can help ensure there are more winners than losers overall in the start-up ecosystem.
The white paper that launched Lighter Capital: https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1518&context=ulj
Early Pioneer: Arthur Fox Article: MIT Entrepreneurship Review | Revenue Capital & Disruptive Models: Venture Funding Tools for Developing Nations (archive.org)