Revenue-Based Financing Term Sheet: Secrets That They Never Tell
This article dissects the revenue-based financing term sheet, revealing secrets and terms that financiers won’t tell you.
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Revenue based financing (RBF) is a model of alternative finance that offers a non-dilutive, flat rate, financial solution for startups to raise capital quickly. Startups can raise capital without selling shares of their company, allowing them to maintain ownership and grow their equity much faster than if they sold equity to venture capital (VC) or private equity firms (PE). The loan is paid back through revenue share.
RBF is a perfect way of raising capital for startups. Nowadays, many businesses are considered ‘new economy businesses’, meaning they are tech enabled, asset light, and lack a long credit history. Traditional financial institutions, such as banks, are reluctant to provide funding to these companies because they are deemed ‘risky’, as banks have not developed a way of analyzing them effectively.
On the other hand, raising capital through equity may not be favourable for startups. VC firms make money by buying, and selling equity for a higher price than they paid. In some situations, founders may be forced to sell equity for a less-than-ideal price just to raise capital, which can be unfair for the founders.
RBF solves these two problems using financial technology to provide holistic credit valuations of a startup based on their potential for growth, as well as providing a flexible repayment scheme that does not take rightful ownership away from the founder. Financings are paid back through a percentage of the borrower’s revenue over the next few months, until the amount due is fully repaid. If a business performs poorly, the borrower pays less. If a business does well, the borrower pays more and the debt is repaid faster. This is what sets RBF apart from other venture debt models, which typically take fixed monthly installments without considering a business’ most recent performance.
As founders ourselves, we realize there exists a huge vacuum of promising, rapidly scaling, but underfinanced companies in the Asia Pacific. We believe we can disrupt this market by offering a flexible, alternative funding solution to these companies that in many ways, have more growth potential than those that are financed by banks.
We understand that startups nowadays serve a blue ocean market. As of right now, Choco-Up has made over 150 investments in over 8 countries and 10 sectors, offering founders an accessible and effective option to capture growth and create value while protecting equity upside. Offers can be given as fast as 24 hours, with indicative term sheets going out as fast as 3 to 7 days, allowing your business to grow without slowing down.
Interested in learning more about raising capital for your company? Check out the following guides we prepared for you:
Grow your business with Choco Up
This article dissects the revenue-based financing term sheet, revealing secrets and terms that financiers won’t tell you.
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