How revenue-based finance can help you grow your business

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Rob Wilson Portfolio Manager

Rob Wilson, Portfolio Manager, works alongside the brilliant businesses that have turned to Outfund to grow. Rob also runs a podcast where he interviews founders of businesses that have run successful equity crowdfunding campaigns.

In this piece we will explore what revenue-based financing is and if it is right for your business.

What is revenue-based finance?

Revenue-based financing is a new alternative financing option for online businesses to allow them to access fast and flexible funding without giving away equity.

Historically, debt funding has not been an option for many early-stage companies. Thanks to the technological advancements in open banking and APIs, companies like Outfund are able to use data to provide funding to revenue-generating startups without the need for securities or personal guarantees.

Unlike traditional debt funding, companies are charged a flat fee and repayments are only made through a share of online sales.

How is it different from equity funding?

As a founder, there are a few things to be aware of when considering equity finance. Firstly, you will realistically need to set aside 4-6 months preparing, pitching and closing the round – taking you away from working on the business. If you are fortunate enough to receive a term sheet, you will need to carefully consider the investors as they will likely be joining your board and will have their own growth expectations. The final thing to consider is the cost of capital, which is often overlooked in all the excitement.

Whilst in most cases, revenue-based finance will not provide the same amount of funding as equity finance can upfront, it can be used as a way to supplement a round. Most revenue-based finance providers focus on funding marketing and inventory expenses and are able to offer up to 1-1.5X your average monthly revenue – which can be scaled up to £2m. Unlike equity finance, founders can apply for revenue-based funding in minutes and have access to funding in days, without giving away any equity.

What kind of businesses are right for revenue-based finance?

Most revenue-based finance providers will need to see at least 6 months of trading history with £10k+ per month in online revenues. Companies will need to have sufficient GP margins and runway (if loss-making) to be approved. Ideally, companies will have high-growth potential and are looking to use the funding to scale marketing and inventory.

What are the long-term commitments?

There are no long-term commitments – usually companies are expected to repay the facility within a 6 month time frame and have the flexibility to take on additional funding in this time or pay off the facility quicker if they wish.

Is debt viewed badly by investors later down the line?

Not that we’ve experienced. In fact, many of Outfund’s clients have gone on to successfully raise equity investment – including TheVeganKind who recently secured £3.5m.

Many investors see our speed and flexibility as a benefit – allowing companies to extend their runway and/or providing additional cash flow. Also, this way, existing investors are not diluted.

What is the process like?

At Outfund, we have a simple online application where companies are required to connect their card processors, business bank account and accounting software on a read-only access basis.

Our experienced credit team will then review and, if successful, approve a funding offer.

It is that simple!

How can people get in touch with you?

For any businesses that think revenue-based financing may be right for them, head over to the Outfund contact page and tell us a little bit about yourself.