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

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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