Revenue-Based Financing First: Business Loans to Finance Your Brand

March 17, 2022

Business owners have many opportunities to find the capital they need to pursue their goals. This is often done by acquiring debt or giving equity in the company to investors. However, these traditional financing structures have many drawbacks. For one, these options are often very expensive. For example, loan terms offered by banks are generally highly restrictive from the get-go. And if a borrower reports a lower-than-expected performance (possibly for reasons beyond their control), those terms worsen even further once additional covenants and clauses are triggered.

Another example is raising money from a venture capital fund. In this case, a business owner receives capital in exchange for a share of ownership in the company. This dilutes the portion of the company owned by existing shareholders. It’s also worth noting that it becomes easier to access funds as a business scales, and raising money from venture funds is dramatically more costly for smaller enterprises. Plus, this financing method lacks the flexibility that businesses may need to survive tough times, even though companies often start seeking additional capital precisely when they face difficulties.

But there’s another option. In recent years, revenue-based financing (the practice of raising a sum of money in exchange for a share of the company’s gross revenue, plus a fixed service fee on the financing line) has become increasingly popular due to its flexible nature and the lack of a dilutive component and aggressive growth expectations that characterise venture capital. With this new form of financing, operators have flexibility both in terms of the repayment period and repayment terms. For instance, if a company is experiencing sustained growth and repaying a fixed percentage of its sales revenue to the lender, individual payments will be higher, therefore reducing the time needed to repay the loan in full. Similarly, if sales are down, the funding undertaken by the operator doesn’t become more expensive. The company still pays a fixed percentage of their revenue, so loan repayment simply takes a bit longer without causing the company to breach any additional covenants.

We have prepared a list of the main revenue financing providers for e-commerce and digital business owners. We’ve included information about vertical specialisation and the maximum financing threshold where data was available.

REVENUE-BASED FINANCING

NameLogoAbout usHQFocusMax Financing (in USD)
AnnumFocusing its financing operations on Dutch businesses only, this provider works with companies that have an operating history of at least two years and a churn rate of less than 20%.NetherlandsDutch SaaSn.a.
ArcFounded in 2021, Arc has made over 160M in capital available to funders and invested in over 100 startups.USSaaSn.a.
BoosteThis revenue-based financing provider caters to e-commerce businesses. Although it was launched only in 2020, it has already raised over $40M to help businesses scale their operations.PolandE-commerce1M
CapChaseLaunched in 2020, this New-York based startup has already made over $1.6Bn available to founders since its inception. The company specialises in financing SaaS businesses with healthy ARR.USSaaSn.a.
ClearcoWith over $1.6Bn invested in over 6,000 businesses, Clearco positions itself as a leading investor in the e-commerce space.CanadaE-commerce20M
Forward AdvancesThis is a UK-based provider that specifically targets founders and small business owners to provide fair and non-dilutive financing. Launched in 2020, it has raised roughly 2.5M to date.UKSMEs1.5M
JeevesThis fintech company provides an all-in-one expense management and financing solution. Jeeves also offers revenue-based financing solutions with its Jeeves Growth program. The startup is backed by YCombinator.USStartupsFrom 50k and up
KlubWith over $30M in capital raised, Klub caters to the founders of brands in the Indian market. It was launched in Singapore in 2019.SingaporeBrands250k
outfoundFounded by Daniel Lipinski, this London-based startup has raised $100M and offers financing solutions to brands requiring a little financial assistance without haggles.UKBrands3M
ParkerThis fintech solution is designed to provide flexible and non-dilutive financing to e-commerce businesses. Parker also provides solutions that allow founders to manage cash flows and expenses.USE-commercen.a.
RequrFounded in 2021 by Tom van Wees and Lennard Kooy, this provider focuses on SaaS and recurring revenue business models. The company has raised 5M since its inception.NetherlandsSaaSn.a.
RitmoThis Spain-based provider has raised almost $20M since its founding in 2020. Standing out from its competitors, the company offers both non-dilutive growth capital and invoicing management solutions.SpainE-commerce4M
Round2 CapitalThis is one of the pioneers in revenue-based financing which appeared on the European landscape back in 2017. Round2 provides flexible capital to online and digital businesses, from e-commerce to SaaS, and invests predominantly in the DACH and Nordics areas.AustriaDigital and Sustainable businessesn.a.
Sellers FundingCapable of deploying up to 5M in 48 hours, this American provider offers a trusted platform to deliver working capital, payment, and analytical solutions to its customers. It was launched in 2017 by Ricardo Pero.USE-commerce5M
SettleThis is a cash flow management solution that addresses fast-growing e-commerce businesses and provides non-dilutive forms of financing for working capital needs (such as inventory). Founded in 2019 by Alex Koenig, it has completed a Series B round of financing, raising over $90M.USE-commercen.a.
StorFundTo address capital challenges faced by e-commerce operators, StorFund democratises access to financing by providing revenue-based financing options to e-commerce business owners. Founded in London in 2018, it has raised over $400M since its inception.E-commercen.a.
UncappedFounded in 2019, Uncapped is one of Europe’s first alternative financing providers. The company has established itself as one of the leading names in the industry by investing in over 500 businesses since its inception.UKDigital businesses6M
VelocityAn India-based provider, Velocity delivers revenue financing solutions to e-commerce brands. While this company is a bit slower than its peers when it comes to issuing approval (up to 5 days), it makes up for the delay with cheaper fees than its competition.IndiaE-commerce40k
ViceversaViceversa is a revenue-based financing provider for European digital businesses. It was founded in 2021 and raised over 20M in funding in its seed round.ItalyDigital businesses1M
WayflyerWith over 800 investments, this Irish fintech company has affirmed itself as a leading name among non-traditional financing solution providers in Europe. Now, with offices worldwide, they give the option of flexibility for many founders across the globe.IrelandE-commerce20M

We believe that companies will benefit tremendously from this new form of financing, as it may provide easier access to working capital and funds necessary for sustaining operations or carrying out marketing activities. With this new possibility, founders and operators can now pursue growth opportunities as soon as they encounter them rather than spending weeks fundraising with investors or negotiating terms with banks. Most, if not all of these providers, have online application processes that provide financing in a matter of a couple of days.

Since the onset of the COVID-19 pandemic, Amazon FBA operators have been faced with increasing inventory, supply chain, and marketing challenges. Costs have increased accordingly, squeezing profitability margins and increasing the need for additional planning to ensure ongoing and uninterrupted sales. As we do not expect any of these issues to improve in the short term, the requirement and availability of funds can become the differentiating factor between growing your brand or having to recover from a stockout, for example.

In short, revenue-based financing provides cheaper capital, more flexibility, and less downside risk than traditional funding structures. To reap the full benefits and repay the commitment as early as possible, revenue performance should be at the forefront of the owner’s mind once capital has been acquired. Thus, online sellers and Amazon FBA sellers with lumpy or seasonal sales may need further assistance in their normal operations. Nuoptima, an Amazon and e-commerce growth agency, helps e-commerce brands scale and grow to their full potential. Get in touch with us for more information on the other services we offer.

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FAQs

How is revenue-based financing a better alternative to bank or VC funds?
Revenue-based financing has lots of benefits over other financing options, including flexible repayment terms (both in the number of payments and the payment amount) and financing speed, which usually takes a few days at most. Plus, it’s a non-dilutive financing method, as it’s raised against revenue (not equity). In the event of negative performance by the company, the obligation does not trigger additional covenants, charges or restrictions – the overall duration of the financing will simply increase. On the other hand, if a company performs above expectations, the repayment period will be shorter.
Who should take advantage of revenue-based financing?
Virtually every business! However, we believe that online and e-commerce businesses and startups will benefit the most from this form of financing, as access to capital is simplified, accelerated, and based on metrics that are more in line with the lifecycle of a company in this space. Revenue-based financing should also be the first stop solution for operators looking to finance their inventory, HR, marketing, and other working capital costs, as it provides the needed capital bridge to secure new opportunities without having to compromise on ownership or take on the burden of operationally-binding debt.
What if my business has been failing to steadily generate incremental revenue?
One of the main advantages of revenue financing is the lack of obligation to honor fixed payments for a fixed period of time, regardless of the environment and the challenges the business is facing. The entire concept of this non-traditional financing method lies in the owner’s ability to repay the financing sum step-by-step according to the ongoing revenue levels. The better the business performance, the sooner the obligation will be repaid, as the contractualized share of revenue will be calculated on an increasing base, leading to an overall higher absolute value. In addition, you will still retain the same amount of shares in the company you had before you undertook the financing.

By: Aman Ghataura

Head of Growth

Linkedin

Aman Ghataura is the Head of Growth at Alphagreen Group. He has been instrumental in building and managing the extensive platform for CBD and alternative healthcare for brands and consumers. After achieving an MSci in Physics from Imperial College, London, Aman has a varied professional background including experience in Investment Banking with JP Morgan. He has also been responsible for running a successful cross-border B2B tourism business. Aman made the decision to pivot into the startup ecosystem in 2019 selling data into private equity firms as the first Business Analyst for Plural AI. He joined Alphagreen Group in 2020.

NUOPTIMA > Insights > Revenue-Based Financing First: Business Loans to Finance Your Brand

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