The 0-55 Rule and Commercial Bankers

Over at Barron’s, Randall Forsyth posits that banks nowadays are no longer playing by the “3-6-3” rule (pay 3% on deposits, collect 6% on loans, and hit the golf course by 3 PM), but by a more pernicious rule: the 0-55.

The 0-55 rule works like this: borrow from the Fed at 0%, collect 0.55% interest on short-term treasury securitites with no risk, and … nothing. That’s it. Don’t bother lending out to businesses or consumers.

Well … boo. But you can’t blame them for responding to incentives, I guess.

Here at RevenueLoan, our incentives (and constraints) mean that we MUST invest our funds into revenue-based financings for small, growing businesses. So if your local megabank is too busy robbing from Peter to pay Paul (er, borrowing from Ben to lend to Timmy?) to write you a small business loan — maybe you should apply online with us.

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The RBF market matures and expands – welcome Next Step!

During the annual “tech industry spring break” at SXSW, I reached out to the folks at Next Step Capital Partners, an Austin-based RBF investor who just broke out onto the scene.

Patrick and Dan from Next Step are experienced operators and angel investors in high tech. Much like our own story at RevenueLoan‘s founding, they discovered the RBF model as part of their investing work and conversations, and found several situations where the revenue-based model would have worked better than traditional equity.

With legal advisory help from Ed Cavazos and Andrew Gajkowski of Bracewell & Giuliani, who are rapidly making a mark as thought leaders in the RBF practice in Texas, they founded the firm and have been actively looking at investments in the $250-500k range, primarily in Texas.

Welcome to the Next Step team — interested folks should check them out, and we hope for their success as we all continue to prove out and define the emerging RBF marketplace!

Royalty No Dilution — Straight No Chaser

A lot of the writing about “royalty” investing is meant from the point of view of passive, public-markets investors (e.g. with oil & gas MLPs).  But when folks start looking for information about royalty with the qualifier “no dilution,” you can bet it’s in the context of a trade-off between royalty-based (or revenue-based) financing vs. equity (dilutive) financing.

So, what is it about royalty / revenue financing (RBF) that makes it non-dilutive to equity holders?

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Inflation or Deflation: RBF for an uncertain future?

Satirical country singers “Bretton Wood” and “Merle Hazard” have a real hit on their hands with “Inflation or Deflation:”

Their chorus, chilling in some ways if funny in others, is:

Inflation or deflation?
Tell me, if you can
Will we become Zimbabwe
Or will we be Japan?
Credit markets came undone
And still are in distress
Will the dollars in my mattress
Buy much more next year or less?

If you knew which of the two were just around the corner (and no consensus seems firm today), how might you invest?  Well, the usual answer looks like this:

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Revenue-Based Finance: truly different, but when is it better?

Revenue-Based Finance (RBF) is a model for funding businesses by “selling” a percentage of future revenues.

RBF is unlike debt, which typically is repaid on a strict schedule with fixed payments, and unlike equity, which is a “residual” claim usually only realized (for small, private companies) when a company is sold or wound down.  RBF investments pay off more quickly than equity (good for the investor) but are more inherently flexible than debt, because the payments required float up and down with revenue levels (good for the entrepreneur). Read more of this post