What is Revenue-Based Financing (RBF)?
It is a unique financing model that lets you raise funds without diluting equity or providing collateral. There’s no headache of a fixed monthly instalment or tenure. You pay a percentage of your future revenues till you repay the entire capital plus a small fee. You can read more about it here.
We have pioneered revenue-based financing for online businesses in India. The idea stemmed from the fact that venture capital (VC) and bank loans may not be lucrative options for many of these businesses. VCs take a significant chunk of equity and thus, business control. Banks need collateral or personal guarantees, take time and look for multiple years of profitability. These conditions are not very founder-friendly.
We provide a non-dilutive, collateral-free alternative to such businesses. Based on their online sales and revenue data, we offer growth capital of up to Rs. 2 crore up-front. This capital can be deployed to fund repeatable revenue-linked expenses such as digital marketing spends, inventory costs, etc. They repay a percentage of their future monthly revenues plus a small one-time fee on the capital.
Is RBF a good fit for your business?
Here’s a 5-point checklist to simplify this. If your business ticks all the boxes, RBF might be the perfect financing model for you.
1) Transparent online revenues
The capital you raise and your repayments are linked to your revenues. Hence, they should be online and easily trackable.
2) Healthy gross margins
A portion of your future revenues will go towards repayment. So, your business should have healthy gross margins of at least 30%.
3) Positive RoAS
RoAS stands for return on ad spends. An RoAS of over 2x means your digital marketing spends are generating over two times revenues to recover marketing and other direct costs.
4) Repeatable working capital cycles
Marketing and inventory are examples of such cycles. They become predictable after a while and can be funded using RBF.
5) Working capital end-use
RBF is best suited to fund revenue-linked expenses such as digital marketing and inventory.
When is RBF not right for you?
1) You’re too early in your journey
RBF is ideal for businesses that have at least 6-12 months of revenue history. Startups need some time to establish a repeatable working capital cycle.
2) Your business is offline
Currently, we cater to internet-first businesses with trackable revenues. If your business is offline, RBF might not be the best option for you.
3) You need funds for CAPEX
RBF cannot be used to fund capital expenditures and long-term projects such as research and development.
So, is RBF right for your business? We hope this article helped you answer that question. If there’s a topic that you would like us to cover, let us know in the comments.
Velocity provides revenue-based financing of up to Rs. 2 crore to online Indian businesses. We currently cater to direct-to-consumer (D2C) and e-commerce brands. To grow your business with us, apply now and get funded within 7 days.