Revenue Based Financing

What Is Revenue-Based Financing?

Revenue-Based Financing (RBF) inputs capital into a business based on its future revenues. As the business generates future revenue, a percentage of the top-line revenue (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 loan has been repaid.

How It Works

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 in the company. 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 the revenue 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.

Scenarios Where RBF Works Well

  • SaaS and subscription services with a recurring revenue model needing capital to accelerate growth
  • Growth capital used to improve valuation for a future VC round
  • Compliment equity fundraising to lower cost of capital
  • Opportunity with a limited market – great business but not well suited for VC funding

How RBF Compares

 Revenue-Based Financing
Equity-Based Financing
No Equity DilutionYesX
No Personal GuaranteesYesSometimes
No Valuation of Company RequiredYesX
No Loss of ControlYesX
Alignment of InterestsAlways aligned with revenue growthCan be misaligned with growth and exit
No lack of restrictions on market opportunity sizeYesX
Time to Fund30 Days3-6+ Months
Cost of Capital- Tax deductibleYesX
Cost of Capital0.4-1.0x funding amount in 3-4 yearsTargeted 10x return in 5 years
Legal & Closing Costs~2%$15-25,000
Corp StructureFlexibleC-Corp Conversion Required

What We Are Looking To Fund

  • Companies located in the Mountain West (Utah, Arizona, Nevada, Colorado, Idaho, New Mexico and Wyoming)
  • SaaS offerings with high gross margins (B2B or B2C)
  • Detailed plans for growth
  • Founding teams with grit, integrity, and solid management and leadership skills
  • Companies seeking funding of $100k to $1mm
    • SaaS and subscription based companies we can fund to to 6x MRR (Monthly Recurring Revenue)
  • Limited amount of existing debt and a clean cap table

Learn More

If you feel your business would be a good fit for GSD Capital, let’s talk.
Contact Us