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

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?

Read more of this post

Revenue-Based Funding by Corporations

There’s a difference between traditional venture capital and corporate venture capital.  While standard VCs are primarily concerned with financial goals (i.e. a high IRR%), corporate venture capital (CVC) groups such as Intel Capital, GE Capital, and the J&J Development Corp. have dual goals: financial and ‘strategic’ value.  CVC investments must somehow assist the core business of their parent companies in addition to creating financial returns. Read more of this post

Exit Junkies: When Equity Stifles Innovation

Startups and venture investors share a problem; “exit dependence.”  Equity investors can’t sustainably invest in startups without exits, because exits are how those investors get paid.  They must be able to sell their equity (i.e. stock) at a higher value through a merger/acquisition or IPO.  No exit, no returns.  There must be a “liquidation event.”  Startup funding is hooked on exits. Read more of this post