What is Revenue Based Financing?

This article will go over the basic fundamentals of RBF and it's importance to the up and coming era of digital-first businesses. RBF is an alternative investment model that is particularly beneficial to startups that are fast-growing, with a market tested product.
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What is Revenue-Based Financing?

Revenue Based Financing (RBF) is an alternative financing model for businesses to raise capital based on future revenues of the company. RBF provides companies with quick access to capital without any equity dilution. The financier recovers the amount invested as a share of the business’ future revenues. The financing returns normally include the principal amount plus a flat fee.

The financing, though structured like a debt instrument, is adapted from best features of other traditional equity and debt financing instruments – allowing start-ups to raise capital while preserving equity. The upsides of the RBI firm are linked to the performance of the investees business. 

Is RBF good for your business?

RBF is a good source of funding for start-ups that are already revenue generating. 

Start-ups are generally new economy businesses - characterised as tech-enabled, asset light, with little track record or credit history. Traditional loan providers are unwilling to fund these businesses due to the lack of extensive track records, assets as collateral and credit history as they are deemed as ‘risky’. Raising capital from Venture Capital (VC) firms would require the start-up to give up a portion of its equity which can be kept for future rounds.

RBF funds the company an amount proportionate to the future revenues of the company. The investment is then returned through a revenue share arrangement where a portion of the company’s future revenue is repaid to the investor. 

Possible scenarios where RBF can help your business: 

  1. Your business is generally profit making and generating sufficient cashflow to meet working capital needs and is looking to raise capital to expand business further. However, metrics are not favourable to raise from VCs, raising from RBF to accelerate growth would be a good alternative.

  1. Your company has established products and proven demand and looking to grow their revenue line to raise first equity round 6 months later. Raising capital through a RBI round can help to accelerate growth and increase revenue numbers for better valuation when pitching VCs.

  1. You have already raised a round. However, the amounts raised have been reserved as runway to meet working capital needs of the company until the next round. A bridge RBI round will let you to focus all your energies on growth without going through another cycle of raising institutional capital.

About Choco Up 

Founded in 2018, Choco Up is one of the largest revenue-based investment firms in Asia Pacific, offering non-dilutive growth capital to fast growing companies. Currently covering more than 8 countries and 10 sectors, Choco Up is a data-driven fintech platform, providing companies an accessible and effective option to capture growth and create value while protecting equity upside.

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