Raise Capital Using Revenue-Based Financing
Is this a Better Bet for Entrepreneurs and Investors?
There are many ways to raise capital.
A convertible note is very popular, but has serious problems, angel and venture capital investors get
a piece of your business, BUT revenue-based financing bypasses both of the above with a better deal.
Over many years of negotiating transactions, for both myself and as an investment banker representing clients,
many of which related to the financing of companies, I reached the conclusion that an investor was much better
advised to buy a piece of a growing company’s revenue flow than becoming an owner of the business.
I also recognized that, in many cases, the owners of the businesses seeking funding were
better advised to avoid the inevitable conflicts of interest between investors and founders.
This revenue-based financing approach is the least complicated of the various approaches we have developed.
We Enter:
- Amount of money to be invested
- Period of the investment and revenue-based financing entitlement
- Issuer’s Projected Revenues as estimated or based on a projected Compound Annual Growth Rate in various periods
- Average for the period estimated Net After Tax (NAT) profit margin
- Price/Earnings Ratio (P/E) estimated as if the company’s shares were publicly traded
- Market Cap (without consideration of debt) which would occur if the NAT was multiplied
by the P/E and the Revenue-Based Financing Rate to be applied in different periods
Our Calculator Then Produces:
- Projected Revenues
- Annual Amount of Revenue-Based Financing to Be Paid
- Cumulative Revenue-Based Financing Which Will Have Been Paid
- Current Annual Yield
- Percentage of Cost Received in Cumulative Revenue-Based Financing Payments
- Return On Revenues (ROR)
- Internal Rate of Return (IRR)
- Market Cap
In the analysis of the fairness and attraction of Revenue-Based Financing there is a balance between the anticipated
cumulative amount of royalty payments to be received in an agreed period and the risk of loss
accepted by the investors at the time of purchase of Revenue-Based Financing.
The balance is reflected in the percentage of Revenue-Based Financing rate to be paid by the issuer.
The investor’s perceived risk level determines the investor’s required Revenue-Based Financing rate.
Royalties, no matter how structured and modified, must be fair to both issuers and investors.
If the deal is not fair and reasonable as perceived by the issuer they will seek funding elsewhere.
Similarly, if the investor does not believe the terms of the Revenue-Based Financing deal are a good balance
between risk and reward they will pass on the opportunity.
The great advantage for investors in Revenue-Based Financing from companies having revenues is that total loss,
so common in high return promising ventures, is highly unlikely as the agreed level of payments are deducted
from the amount received by the issuer at the time of receipt.
Therefore, for so long as there are revenues there will be Revenue-Based Financing payments.
The level or even total of cumulative Revenue-Based Financing received can be disappointing,
especially if the expectations were unrealistic, but there will have been a return on the investment.
We’ll Design & Package Everything For You
Like building a home, many considerations must be taken into account.
We will work with you to incorporate your needs and objectives within any limitations you set.
Our BizPlanBuilder® system and financial models are uniquely positioned to make the most of Revenue-Based Financing.
As well as present a compelling case for the advantages of Revenue-Based Financing to fund your business.
When we have your business plan and projections, we can assist you to develop a proper Revenue-Based Financing offer for your company.
Book Your Call With Burke Directly.
