Dear Revenue-Based Financing Lenders – Up Your Game

There was a good article by 42Floors about escaping the Series A crunch on Hacker News.  Of course, it suffers from the “you need to raise money” to grow syndrome that is prevalent now but otherwise, pretty good.

I mentioned revenue-based financing in my comment and a response back struck me as symptomatic of the fact that the revenue-based financing players are doing a terrible job of getting the word out there.

Here are my comments from the post.

Might want to look at revenue-based financing. More of a debt instrument but if you can’t raise or are getting bent over by equity investors, it is an option.

Response received was this:

What are some financial institutions willing to work with startups via revenue financing?

Mind sharing some stats on the typical repayment rates & approval requirements? This sounds like a great way to finance B2B/enterprise type startups with revenue coming in the door from day 1.

Not giving up any equity doesn’t hurt either.

I responded with:

There are a bunch. I know of a couple but don’t know how good/bad they are so don’t want to “recommend” anyone. But quick google search of revenue-based funding SaaS should turn them up.

I’ve heard they generally work like this:

– Will lend you money equivalent to 1/4 to 1/2 your monthly or annual revenue/billings

– Take a % of revenue every month as repayment. Your repayment goes up or down with revenue which is a good feature.

– Take some warrant coverage as well (1/3 to 1/5 of the loan value)

Some will want to be hooked into your payment solution to take money right as it comes in but as we’ve not done it ourselves (have only looked at superficially), I’m not sure if that’s all that common.

For B2B SaaS startups who can customer-fund to traction, this is the way of the future IMO. Unfortunately, the revenue-based financing guys aren’t doing a great job marketing themselves primarily cuz their funds are quite small so far.

Hope that helps.

C’mon RBF players.  Up your game.

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