How does Revenue-Based Financing work?

Revenue-based financing is a simpler lending arrangement vis-a-vis venture debt and therefore can be also offered to the earlier stage technology companies (generating more than 50k, or sometimes as little as 5k MRR) and enable to borrow smaller amounts (10k - 1m). 

The lender typically advances a loan sized as a multiple of MRR (e.g. 4x) and gets repaid every month as a pre-agreed percentage of borrower's revenue (which will fluctuate over time). Instead of an interest rate, a fixed fee (and / or) a cap on the borrowed amount is agreed upon, which represents the cost of borrowing. Warrants are unlikely, however, the total cash cost of debt will likely to be higher than that of venture debt. 

 

Some providers might use automated business assessment features that can reduce the time-to-loan materially, however would require granting the lender access to the borrower's billing or banking systems. 

SaaS loans are a variation of funding arrangement whereas the borrower can be advanced up to a one-year worth of subscription revenue at a pre-agreed discount. 

Revenue Based  Financing companies

News & Resources

Options To Keep Your Equity: 6 Startup And E-Commerce Financing Alternatives To Venture Capital - Moguldom

30/09/20

Uncapped picks up another $26M to offer revenue-based finance to European entrepreneurs - TechCrunch

23/09/20

Good2Go2 & Canadian Teleradiology Services Provide Update to $5.0 Million Private Placement in Connection with Qualifying Transaction - Stockhouse

12/08/20

It’s Not Debt, It’s Better: an Interview with Harry Hurst of Pipe

27/07/20

Beyond Venture Capital, New Models for Startup Funding Emerge:Q&A With Angel Investor Jay Vasantharajah - MarketCurrents WealthNet - MarketCurrents WealthNet

27/07/20

Clearbanc Announces Free Valuation Tool for Startup Founders - The Fintech Times

20/07/20

Seattle-based ‘alternative VC’ firm Lighter Capital lays off more employees - GeekWire

17/07/20

Capital raises $9M for its AI-based ‘capital as a service’ funding platform for startups - TechCrunch

30/06/20

$1 Billion For 2,800 Startups: How Clearbanc Uses AI To Take Bias Out Of Investing - Forbes

27/06/20

Revenue-based financing offers money to grow without dilution, covenants - CFO Dive

24/06/20