Revenue-Based Financing (RBF) is non-dilutive funding based on a business’s recurring revenue. In exchange for funding, as the business generates future revenue, a percentage of cash receipts (usually between 3-8%) is remitted. Once the payments have totaled the funding amount plus an agreed upon multiple (otherwise known as a “cap”), the repayment obligation has been met. All of this occurs without the founders giving up control of their business.
To best explain the process of RBF funding, let’s use an example. Acme Inc needs funding to accelerate customer acquisition for its SaaS solution. GSD Capital loans $250,000 to Acme taking no ownership or control of the business. The funding agreement outlines the details of how the loan will be repaid, and sets a “cap”, or a point at which the loan has been repaid. Each month Acme Inc reviews its cash receipts and sends the agreed upon percentage to GSD. If Acme experiences a rough patch, GSD shares in the downside. Monthly payments stop once the “cap” is reached and the loan is repaid.
|Revenue-Based Financing||Equity-Based Financing|
|No Equity Dilution||Yes||X|
|No Personal Guarantees||Yes||Sometimes|
|No Valuation of Company Required||Yes||X|
|No Loss of Control||Yes||X|
|Alignment of Interests||Always aligned with revenue growth||Can be misaligned with growth and exit|
|No lack of restrictions on market opportunity size||Yes||X|
|Time to Fund||30 Days||3-6+ Months|
|Cost of Capital- Tax deductible||Yes||X|
|Cost of Capital||0.4-1.0x funding amount in 3-4 years||Targeted 10x return in 5 years|
|Legal & Closing Costs||~2%||$15-25,000|
|Corp Structure||Flexible||C-Corp Conversion Required|
If you feel your business would be a good fit for GSD Capital, let’s talk.