How does RBF assist D2C businesses?
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The success of D2C businesses
Between 2015 and 2020, Nike’s investment in their mobile application and direct-to-consumer (D2C) platforms increased their sales by 142%, despite reducing their number of 3rd party retail contracts. By investing in D2C technology, Nike delivered a strong brand image to consumers while also providing their own standard of customer service.
Nike is not the only brand that has invested in D2C. In the past few years, many disruptive startups have emerged, utilizing e-Commerce platforms such as Shopify and Woocommerce to bring their products directly to consumers, without the need for retail 'middlemen’. These startups are often asset-lite and produce products in smaller batches to cater only to immediate demand because founders typically don’t have the space to store excess inventory.
How can RBF help D2C businesses?
Revenue based financing (RBF) is an optimal source of growth capital for D2C startups. Not only do RBF companies such as Choco Up consider the growth potential rather than existing assets of a company, RBF companies also have a flexible repayment schedule that makes it easier for D2C businesses to repay the amount due. Repayment is based on a percentage of future monthly gross revenue, meaning that the RBF firm will take a percentage of a startup’s monthly earnings until the investment is fully paid back.
Many D2C startups don’t always have an impressive credit history, making it difficult to get loans from traditional financial institutions such as banks. RBF is an attractive alternative to bank loans because it does not follow the same structure of credit analysis that banks require. RBF firms such as Choco Up can invest in startups without an extensive credit history through analysis of real time transaction data and in-depth understanding of unit economics.
Additionally, the due diligence process of RBF firms are especially advantageous to asset-lite D2C companies. Many D2C companies will have fluctuating sales: consumers make more purchases during certain times of the year, such as holidays, while purchases go down during the off season. The due diligence processes of traditional finance institutions do not take this into consideration. Businesses that take retail or commercial loans from banks or other traditional venture debt firms will have to pay back their loans in fixed monthly installments, regardless of their monthly earnings. On the other hand, startups borrowing under the RBF model will pay less if they are having a slow month.
Who is Choco Up?
Choco Up is one of the leading RBF firms in the Asia Pacific. Currently, we are headquartered in Hong Kong and Singapore and have invested a total of US$30 million over 100 investments. Choco Up was founded by founders for founders, and aims to make growth capital accessible, and readily available, to startups that need cash fast.
Interested in learning more about raising capital for your company? Check out the following guides we prepared for you:
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