Thu, 30 September 2021
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Revenue-based funding makes a startup investment and pays back the investor at the rate of top-line revenue.
This aligns the investor and founder to the same goal, to create a business and grow sales.
The higher the sales, the faster the payback to the investors and the higher the compensation to the founders.
Revenue-based funding typically sets the payback rate at 1-3% of top-line revenue.
In revenue-based funding, the investors receive a revenue share until they reach a predetermined payback amount.
This is different from a loan which sets the payout rate regardless of the seasons or cycles within the business.
Revenue-based funding keeps early-stage investors off the cap table so it’s clean for future investors.
Once the payback amount is reached, the investors are finished and are no longer in the picture.
It works well for businesses that have recurring revenue and healthy margins.
It’s a good way to reduce dilution for the founders.
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