What is Royalty Based Financing? (RBF)
Royalty Based Financing (RBF) is an innovative new source of growth capital for emerging companies to expand their business and increase the value of their company without sacrificing equity, or taking on cumbersome debt. (Getting Capital through Royalty Based Financing)
Royalty Based Finance eliminates the need for venture capital or bank debt. Growth capital is provided in exchange for a fixed percentage (1% to 5%) of your monthly top line revenue. Unlike private equity, the business owners retain ownership and control of their company.
How Does Royalty Based Financing Work?
- Growth capital is provided up-front in exchange for a percentage of a company’s monthly top-line revenue.
- The royalty rate is typically fixed at 1-5% of the top-line revenue
- Flexible payments go up and down based upon monthly revenue
- Royalty payments are structured to last for about 4 to 6 years and range from $1M to $3.5M per company.
- Flexible payments continue until the capital plus a predetermined amount is repaid.
Benefits of Royalty Based Financing:
- Retain 100% ownership and control
- Flexible monthly payments rise and fall with revenue
- No restrictive financial covenants
- No personal guarantees
- No hard collateral
How Much Growth Capital Can We Get?
- Typically between $1M and $3.5M
What is the Qualifying Criteria for Royalty Based Financing?
- Approximately $3M - $50M annual revenue
- Market-proven product or service, 3 year operating history
- Substantial growth opportunities, i.e. expand sales/marketing, acquisition, geographic expansion, new product launch, etc.
- Gross margin in excess of 30%
- Detailed sales process and plan in place to hit sales growth forecast
Proven management team
Smart Growth CapitalBENEFITS OF ROYALTY BASED FINANCE:
Keep 100% of Your Equity
No Exit Strategy Required
Payment is Fixed % of Revenue
Off Balance SheetKeep Management Control
Flexible Monthly Payments
No Financial Covenants
Fits with Pre-Existing Debt
No Personal Guarantees
No Pre-Money Valuation
Focus is Revenue Growth