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.

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!

When Tweens Need Cash

What kind of business is revenue-based funding (RBF) good for?  That’s one of the most frequent questions startups and investors ask as they explore RBF.  While there’s no limit to how big or small a company has to be, a lot of deals have been circling startups with between $2 million – $15 million in annual revenue.  It’s becoming a sweet spot.  The question is… why? Read more of this post

The Devils of Cash Flow

I don’t know who first said “cash flow is king.”  They should have said cash flow is a devil.  Startups are constantly damned by their cash flow.

Read more of this post

Revenue-Based Finance: What Would Google Do?

When it comes to revenue-based funding (RBF) one of the most common questions from startups is “how does it compare to selling stock?”  At the end of the day, is it smarter to sell some shares to an angel investor or venture capitalist, or to take an RBF obligation instead?  The problem is, a lot depends on the intricate details of any one situation.  So rather than getting bogged down in all possible variations, perhaps we can shed some light by asking a different question: What about Google?  Would RBF have been a good or bad idea for Google as an alternative to selling stock? Read more of this post

Risk of Revenue-Based Finance vs Equity and Debt

People often ask about the comparative risks/rewards between traditional venture capital (equity-based funding), bank loans (debt) and revenue-based funding.  While there are many ways to evaluate the broad concept of “risk” (ranging from Modigliani-Miller theorems to pop-psychology), one approach is to simply ask “what happens if I succeed or fail?”

Viewed this way, risk depends on whether you’re an investor giving out money or an entrepreneur receiving it.  If you’re an investor, the comparison can be visualized below: Read more of this post

Microfinance Crisis – RBF to the Rescue?

While revenue-based financing (RBF) wasn’t necessarily created with a social good in mind, few would deny the positive economic development that can happen when entrepreneurs have access to capital.  For example, venture capital-backed firms created an estimated 12.1 million jobs and $2.9 trillion in revenue between 1970 – 2008.[i] Yet access to capital remains a critical challenge, even for some of the most promising businesses worldwide. Read more of this post