Private debt is expensive and cumbersome. It’s typically high interest, requires collateral, personal guarantees, warrants, rigid terms and payment schedules, along with default provisions that can lead to foreclosure.
Private equity is difficult to obtain and requires a rigorous vetting process. Private equity investors considering expansion stage companies are typically looking to invest $20M or more, and are seeking a 10x return via an exit strategy usually within 5 years.
Royalty Based Finance is an innovative alternative positioned between debt and private equity.
COST OF CAPITAL COMPARISON
Some Of The Benefits Of Royalty Based Finance (RBF) Include:
Flexible Monthly Payments: Payments are based upon the monthly top-line revenue. For example, if your revenue is $500k and your royalty payment is 2%, your monthly payment is 2% of $500k – $10k. If revenue is $0 next month, your payment is $0. You are not punished for slow months
PAYMENT VS REVENUE CHART
Owner and Investors Interests Are Aligned: Both owner and investor are focused on revenue growth. There are no restrictive financial covenants, inflexible monthly payments, default provisions, collateral or personal guarantees required. Private equity investors are focused on performance guarantees, management control and an exit strategy. With RBF both the owner and investor are free to focus on growing the business
No Pre-Money Valuation or Exit Strategy Required: You avoid the sometimes contentious pre-money valuation agreement, and an exit strategy is not necessary. Mutual success is based upon revenue growth
Owner Does Not Sacrifice Equity, Risk Dilution or Potentially Lose Control of the Company: You are able to raise growth capital and keep 100% of your equity along with control of the company. There is no risk of dilution. No board seat, management control or personal guarantees are required
Compatible with Existing Private Equity and Debt: Existing investors and debt holders will benefit from the successful deployment of growth capital. Revenue growth will increase the company valuation along with the value of the shareholders’ stock. No need for joint creditors; compliments pre-existing debt agreements
COMPARE DEBT STRUCTURE
Royalty Based Finance is an innovative new source of growth capital for emerging companies to expand their business and increase the value of their company.