- Karl-Joosep Pärtel
Revenue based investment: Founder-friendly finance without giving up equity
Investment in an early stage can help you start off and grow massively but it’s also the most expensive funding method since you either have to give away part of your company or the risk loans have cut throat multiples on paybacks.
Lately, revenue based investments have gotten more attention as a new form of VC investment, because they bring some benefits over existing VC funding methods and most importantly, it doesn’t take startup’s equity away. All in all, it’s still quite an underground topic, at least in Europe.
TL:DR Read below about our new RBI approach in the Beamline Accelerator for cleantech startups & watch the informative webinar with European RBI experts, but first let’s get a basic overview of RBI.
What’s Revenue Based Investment (RBI)?
RBI is in essence a non-equity risk loan where a startup gets X amount of capital and has to pay it back, plus risk interest/multiplier. Easy, right?
Where it gets more interesting is that the repayments are no fixed monthly payments, but the investee usually has to pay ca 3-8% of its monthly revenue back to investors until it’s paid up. Paybacks hit the startup lighter when there are unknown difficulties and alternatively they pay the loan back faster when having good growth.
There are most probably other conditions in the agreement as well, such as a multiplier cap - how much does the investee actually have to pay back? According to Bootstrapp’s study the industry norm is around 1.5-3X, but this differs greatly based on the stage of the startup and how much revenue it is creating already.
What’s the current market situation?
When looking at the current market one thing that stands out is that 99% of RBI investors feel more comfortable giving out the loan to more mature companies who already produce significant amounts of revenue. This, however, doesn't help startups in their early days. You can have a look at some of the players and value props in this TechCrunch’s article.
Our approach @ Beamline Accelerator
With our team, we have done classic convertible loans and equity-based investments, but by talking to startups we’ve understood that control is an important topic for them. Hence giving up equity is a serious concern for them when joining a programme that otherwise can boost their growth greatly.
This is where we come in - in Beamline’s next batch we don’t require startups to already have a revenue, we will work with them to get it going. And if you already have some revenue going on, then we’ll help to grow it faster.
Keep the equity, but bring a full focus and ambition to fly high!
Why are we doing this?
Our programmes mostly have early-stage startups (including ca 70% hardware), and there’s also a high 83% survival rate so far. We’ve supported 50+ startups that have raised over 50mln€ by now, so we feel pretty comfortable when choosing the teams that will succeed.
And we want them to be in the best starting position possible after leaving our program. Although a new measure, revenue based financing has already proven great for several startups, e.g. in Jay Batson's portfolio.
Our approach in a nutshell
We invest 50 000€ as a package into you
We don’t take equity or any other control method
We will work relentlessly with you to improve your team, network and business
We focus on climate and cleantech startups that help our world
You don’t need to have stable revenue already!
Our payback starts ticking when you reach a cumulative 200 000€ revenue (and the multiplier depends a bit on your current situation).
We will help you with the next rounds and investors, be it convertible, RBI or equity!
We hosted a video about RBI with industry experts. Check out since it'll probably answer all your questions!
Got questions, recommendations or want to discuss this further? Write to me at email@example.com
PS. our next batch is open! Check HERE to take a look at the benefits the program would bring to our next batch focusing on novel materials, bioresources, agriculture, CO2 offsetting. And apply, when RBI would be something the article kept you interested in ;)
Related: Starting a company in Estonia: Why is Estonia the place to be for a cleantech startup?