Investors just don’t believe you’ll pay them back.
They fear losing their money more than they long to strike it rich.
And they want to be paid back somehow, with a good return.
But if you don’t have a plan to pay investors back with some kind of timeline and ROI that they believe…
Your deal is DOA.
If you’re having trouble selling stock in your company…
Your problem may not be you or the investors; it may be that your chances
of a profitable exit (sale of the company) in the next few years is low.
Investors are skittish like a newborn deer.
They cannot eat your stock certificate. And they’ve seen too many companies fail.
You must find an alternative way to attract them…
Investors who buy stock have many options for huge returns in the future from higher-flyers.
If your company is a growing generator of cash from sales with positive margins now or planned,
but not yet a high-flyer, there is another option.
Are you aware there is a class of investors who prefer cash-flow rather than a big (but very risky) possible return many years from now?
These investors have a lower risk tolerance than most stock-buyers.
And they’re out there; they’re waiting for you. For example…
Kevin O’Leary, aka “Mr. Wonderful” on ABC’s The Shark Tank, is a Canadian businessman, investor, and TV personality with a net worth of about $400 million. His nickname, coined sarcastically by co-star Barbara Corcoran in Season 1, reflects his blunt, often harsh demeanor, which he uses to test entrepreneurs’ resilience.
O’Leary’s investment strategy on Shark Tank prioritizes low-risk, cash-flowing deals with predictable returns, shaped by his experience selling his educational software company, SoftKey, for $4.2 billion in 1999.
Here are the key aspects of his investment preferences:
Revenue-Based Financing
- O’Leary is renowned for favoring royalty deals, where he loans money in exchange for a percentage of future revenue rather than taking equity in the company. This approach minimizes his risk by ensuring returns regardless of the company’s long-term success or exit potential. He often seeks royalties on consumer packaged goods (CPG) or single-product companies with limited exit prospects, as these deals provide immediate cash flow.
For example, he might offer $300,000 for $5 per unit sold until he recoups $1 million, plus a small equity stake. Entrepreneurs often resist these deals due to margin pressure, but O’Leary sees them as low-risk and high-reward for himself. - He justifies royalties by noting that Shark Tank exposure drives a surge in orders, allowing him to recoup investments quickly.
This strategy aligns with his dividend-focused investing philosophy, where he prioritizes steady income over speculative growth.
Low-Risk, High-Dividend-Yielding Investments
- O’Leary avoids investing based solely on liking a product, focusing instead on financial metrics like low volatility,
high margins, and consistent cash flow.
Preference for Women-Led Businesses
- O’Leary has stated that 85% of his Shark Tank returns come from companies led by women,
citing their risk mitigation, realistic goal-setting, and multitasking abilities.
This bias has led him to invest heavily in female entrepreneurs across various industries.
Examples of Investment Outcomes
- O’Leary has invested over $8.5 million across 40 companies in 131 episodes, with deal sizes ranging from $35,000 (PaperBox Pilots) to $2.5 million (Zipz Wine).
It’s Working for Him
Kevin O’Leary, as Mr. Wonderful, is a disciplined, cash-flow-focused investor who prioritizes royalty deals, women-led businesses, in recession-proof sectors. For entrepreneurs, securing his investment means gaining not just capital but also a rigorous mentor who demands financial discipline.
With Mr. Wonderful leading the way, there are many such investors just waiting for you and your company.
How to Make Revenue-Based Financing Work for You
If you have a good profit margin, what if you were to offer people
a small percentage of your top line sales as a “revenue royalty?”
You’re not selling shares in your company.
You’re not offering any management control or board participation.
There doesn’t even have to be a board or even a corporation.
Profitability and valuation have no effect on their return.
It’s simple, for whatever your sales are for the month, they get a small percentage.
It could be a 10th of a percent.
It could be 10%. Or anything in between.
Either way, no matter what you do otherwise, there’s just ONE number that matters.
Sales. And they get a piece of just that.
What You Get
Of course you get their cash…
I’m sure they’ll get behind all the marketing you can do because
that increases the top line that they get paid a percentage on – the top line.
They may also do whatever they can to promote your business.
Win win?!? Yes.
Revenue-Based Financing Terms
You can even adjust the amount of time that your Revenue-Based Financing lasts.
In fact you might offer, “I’ll pay you with revenue at a rate of 5% of monthly sales until 100% of
your investment is paid back, then from there until double your money, you get 3% of
sales revenue, from then on you get 1% of all of top line sales for 10 more years.”
From the investor’s, perspective Revenue-Based Financing is more attractive because:
(1) Revenue share is not impacted by the reported profitability of the company generating the revenues; and
(2) investors own a percentage of the company’s revenues, but not the company itself.
Therefore, contentious issues of executive compensation, company policies, and a range of matters usually confronting equity investors are not of concern to the Revenue-Based Financing investor. The royalty investor is very much focused on sustainability of the company, and the Revenue-Based Financing Agreement will address investor remedies and protections.
If the company seeking funding becomes successful, the original shareholders will regret having used equity related securities to raise the required capital if there had been royalty investments available. The recommended issuer’s Right of Redemption allows for the company to terminate the royalty.
We can help.
Rob Kramarz is a managing partner of Shepherd Ventures III, a venture capital fund whose claim to fame is investing in the founders primarily.
See https://sv3.vc .
He is also founder of Intelliversity – an accelerator that shows entrepreneurs how to create trust with investors. See https://intelliversity.org .
Through these services, he discovered that the majority of businesses that seek funding can’t get it because investors don’t trust that there will be an exit, a liquidity event such as an acquisition.
So he studied under Wall Street veteran Arthur Lipper to master the art of selling revenue royalties to investors, so that no liquidity event is necessary.
Burke Franklin is the originator of the first business planning software called BizPlanBuilder® the Creator and CEO of Business Power Tools, a secure, collaborative online platform loaded with self-guided, customizable software-driven document & spreadsheet templates.
It’s deal for growth-minded entrepreneurs, business owners, and advisors who need proven, ready-to-use documents and financial models to raise capital, systematize operations, implement policies & procedures, or stage their business for sale, especially to present a professional, believable business plan to investors, lenders, or buyers.
It’s more practical today than ever. You’ll become addicted to the clarity and congruency throughout your entire business. More about Burke here.
You Can Do This, We Can Help
Between us, we can work together to design, engineer and finalize a Revenue-Based Financing plan that you can use quickly and put the fun back in funding.
What you need is to calculate the exact percentages, a standardized legally-approved contract for investors, and an executive summary describing the terms.
Let’s set up your Revenue-Based Financing program
with our Revenue-Based Financing Toolbox & Training.
You’ll get everything you need to get started including:
- The book The Road Less Traveled on Revenue-Based Financing by Mr. Kramarz
- How to find investors.
- A template Email intro to Investors
- A template Revenue-Based Financing agreement
- A template Revenue-Based FinancingExecutive Summary
- A template 3-minute Investor “teaser” pitch
- A Revenue-Based Financing calculation spreadsheet
- + a Straight-forward online Training (About 3 hours)
- $147 one-time investment
Click here for our training webinar so that you can get started ASAP.
Revenue-Base Financing Toolset + 3-Hour Zoominar™ Training: $147If you want further assistance, let’s discuss it after the webinar.
The Story of Revenue-Based Financing
The better way to finance innovative business.
Not ready for the training?
Learn the background.
Read The Road Less Traveled and discover the most important thing you also need, how to get it, and how to make it work for you.
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We’re offering a free one-hour discussion of Revenue-Based Financing.
Will they.. How will they work for you?
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