“I made my money the old-fashioned way. I was very nice to a wealthy relative right before he died.” – Malcolm Forbes
You’d certainly be lucky if you happened upon an inheritance just as you were starting a business. But alas, most of us don’t quite have that timing. Most of us need to think long and hard about how to fund our new ventures.
Decades have passed since Malcolm Forbes delivered his witty take on wealth, and fortunately, entrepreneurs have a few more options now for funding their business. One of the latest is revenue-based financing (RBF) – a data-driven, near-instantaneous advance that’s repaid over time as a percentage of the company’s future revenues.
While startups and venture capital often go hand-in-hand, the reality is that equity funding is not always the best option for growing online businesses. Revenue-based financing might be a much better fit in many cases. Here, we’ll help you decide if RBF is right for you.
When should you choose revenue-based financing?
Thanks to the global reach of digital channels, it’s become easier than ever to both establish and grow online businesses such as eCommerce platforms, subscription services and marketplaces. The funding landscape has caught up to this rapid growth with a new data-driven option in RBF.
Here are some characteristics that indicate you should explore revenue-based financing as a way to fund your company.
Your venture is less tech heavy and more centered on sustained customer acquisition campaigns. Are you growing an e-commerce, subscription or marketplace business? Do you have repeatable expenses, such as Facebook and Google ads, with measurable ROI? Chances are, RBF is a viable choice for you.
You’re reluctant to dilute the value of your business by giving away equity. We probably don’t need to tell you the benefits of this one. Retaining ownership and control of your own venture has immeasurable value, and if dilution isn’t absolutely essential, it’s probably best to avoid it.
You need an instantaneous cash advance. Looking to boost marketing efforts to outsell a competitor? Need to expand into new marketing channels with increased ad spend? These types of situations don’t warrant raising a VC round. Simply apply for an RBF advance and, if you’re a prime candidate, you can get the ball rolling immediately.
You feel that traditional financing options are constraining. In an economic downturn, having to pay back fixed amounts can be a detriment to growth – and sometimes even a death knell. If you’re looking for complete freedom to ramp up marketing efforts
You’re not yet profitable but are generating revenue. While other financing options may require profitability, RBF doesn’t discriminate: as long as you have revenue and a business plan to sustain it, you can still be a strong candidate for an advance.
You’re too small of a business to capture the attention of a VC. The reality is that VCs are often looking for the next big innovation. If your eCommerce business is working on existing tried-and-true business models, it might not be the apple of investors’ eyes. RBF’s data-driven methodology makes the process of awarding funds more about long-term company viability and less about flash and innovation.
Considering RBF? Know your top priorities.
If some of all of the above characteristics sound like you, it’s time to take a more serious look at revenue-based financing to scale your business. Here are a few final takeaways to remember:
- Repayments fluctuate based on revenues. Your biggest repayments will only ever coincide with your highest sales months.
- You can get funding fast.
- You can rely on a fixed fee structure, so you know exactly how much you’ll repay
- You retain full control over your venture.
- If you’re generating cash now and you have a measurable growth plan for the future, your chances of getting an RBF advance are high.
Want to know more about whether RBF is right for you? Drop us a line at [email protected]