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

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

The Funding Black Hole: A Call for Innovation

There is a funding black hole.  It sucks in and destroys the gross majority of startups worldwide.  It may have even frustrated more innovation, economic development and human progress than all of history’s wars, diseases and natural disasters combined.  This “black hole” is the global gap in startup funding. 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

Follow

Get every new post delivered to your Inbox.