Around four years ago Professor Clayton Christensen and I were sitting in his Harvard office contemplating a research paper on venture capital. As a side note he said “I ran into this guy who told me about a potentially interesting way to fund startups. I think he’s nearby in Lexington, you might want to contact him and check it out.” That was the first time I’d ever heard of revenue-based funding (aka royalty-based funding).
Fast forward to today and I’m excited to announce the first inaugural conference for the Revenue Capital Association – the world’s 1st trade association for revenue- and royalty-based funding (RBF). Click here for event and registration details. RBF funds have started popping up everywhere (including 3 new funds in the Pacific NW alone during the past 18 months or so). RBF is a way to give startups growth capital. It isn’t right for every startup. It isn’t right for every investor. Yet for a large number of startups and investors it creates some alternatives worth getting excited about. Yes… the words “revenue-based funding” and “exciting” can be used in the same sentence.
The overall framework for RBF is simple: investors give money to businesses (ex. $1M) in exchange for a percentage of that business’s revenue (ex. 2-5%) until either a maximum payback limit is reached or enough time passes by. An exciting thing about RBF is… investors can give businesses money without depending on an “exit” or “liquidity event” (such as an acquisition or IPO) to make decent returns. That means they can consider funding a wider variety of companies. In turn, businesses can raise money without giving up equity (i.e. control or ownership) – and anyone with enough experience knows equity is the most expensive form of capital.
The economy has been brutal. Startup capital was among the first things to dry up when things went bad and while it’s getting better, months like this September are keeping investors jittery. The irony is – this is when the world needs innovation most. This is when, more than ever, deals need to get done. That’s why RBF is truly exciting. It’s another way for businesses to raise growth capital. It’s another option. Another tool. At a time when great ideas and funding need to find each other any innovations that help the process are welcome indeed.
Click here for event and registration details regarding the 1st inaugural conference for the Revenue Capital Association – the world’s first trade association for revenue- and royalty-based investing. It may be a small thing, but we’re trying to make a difference. We’re trying to change the world. We hope you’ll be there too.