Revenue Based Investment (RBI), Also known as revenue-based financing, or revenue-share investment,1 Private equity and early stage ventures are a great next step for the investment industry. However, due to Reserve Bank of India Being a relatively new model, publicly available data is limited.
To address this fundamental gap in market information, we have developed a proprietary data set of 32 RBI investment firms, 57 different funds, and 134 companies that have achieved revenue-based investment.
Bootstrap developed this comprehensive analysis on revenue-based investment with the aim of accelerating the shift towards greater transparency and standardization within the industry.
Upon thoroughly analyzing the data, we identify the total investment firms and the amount of capital included in the RBI industry, the specific verticals and business models that the RBI is most actively leveraging, and the specific profiles of the accessing companies. Are capable of. This form of capital.
These findings are summarized below; An industry-wide report that defines the overall revenue-based investment market as it is today Available for download here.
As a reference, the financial structures used by the chancellors have not developed much since they first emerged in 1957. Today, the model is almost identical, with only incremental changes such as industry standards for more efficient capital markets and structural standards, pricing companies and more.
Recently, we have seen many new investment models and financing tools, including Shared income agreement And Point-of-sale capital. One of the most prominent and popular new models for investors is revenue based investment (RBI).
However, because the model is new, there is a lack of publicly available data, industry standards are not yet fully established, and similarly in the equity investment market, there is very little transparency in the cost of capital that the investment will actually change Pay in is taking on revenue based investment.
Thankfully, there have been some notable efforts to bring transparency in the RBI market. For example, Bigfoot Capital opened its RBI model, Underline this in a blog post And share Their RBI Financial Model And Anonymous vocabulary, But in-depth, quantitative, industry-wide analysis has not been conducted so far.
To raise the RBI, the company must generally generate revenue, but not necessarily to be profitable, although profitability, or at least a near-term path to profitability, is often an important criterion for many investors is. “For startups with revenue, the RBI can be a good option because, even if the startup is not profitable, it can reduce dilution – especially for the founders,” Emily Campbell of the Campbell firm PLLC, a legal Firms that represent serial entrepreneurs and venture backed businesses.
“Taking in some smart equity or convertible debt and money with other financing can be a good strategy for a startup,” she said. Profitability reduces the risk of default and assures that the investor has the ability to service the debt.
With regard to the applications that are best suited to the RBI, B2B software-as-service (SaaS) companies top the list primarily because one is able to – in essence – secure the revenue generated by a company and Then lend capital against that theoretical security. Apart from SaaS companies, RBI is being used very frequently in the investment community as it solves the problem of lack of common M&A or IPO exit paths for impact driven companies and sometimes as an investment structure Is not used.
Beyond B2B SaaS and impact investing, many are also adopting other vertical models, including e-commerce / D2C, consumer software, food and beverage, and more. However, it should be noted that regardless of a specific business model, investing to the company typically requires repeatable sales and a track record, which demonstrates a strong revenue stream, and therefore There is a clear ability to return capital. Investors.
US RBI Scenario
We have identified 32 US-based firms actively investing through a revenue-based investment instrument, with those firms managing 57 separate funds representing an estimated $ 4.31 billion in capital. Through our analysis of those firms, funds and investments, we found that:
- The number of companies and the amount of capital for the RBI are increasing, and we predict that this trend will continue.
- B2B software was surprisingly not the largest consumer of the RBI,
- There was a surprising amount of activity in industries that are not yet typically associated with revenue-based investments such as food and beverage, consumer products, fashion and healthcare.
If they are actively making revenue-based investments, the data set (and by extension, is actively determined) included:
- Invest in companies using an instrument from which returns are generated from principal plus a flat fee, which is paid back through a fixed percentage of revenue.
- Investors are paid on a monthly (or more) basis.
- The payback period is expected to be over 12 months.
The number of specific firms we consider to be fairly accurate, representing active, US-based revenue-based investment firms. However, the number of funds can be underestimated. This is due to the fact that, although each firm is associated with at least one fund, we did not include additional funds unless they were confirmed through other sources, such as the firms’ public communications, SEC Form D Or other sources as outlined in the methodology section on the conclusion of the entire report.
The total amount of RBI capital that has already been allocated to all companies and companies in all years is $ 2.1 billion. However, it should be noted that this includes outliers in our dataset, i.e. Kapitus, Clearbank, Bravo and United Capital Source. Once we remove those firms, the remaining 28 firms, representing 51 funds, have allocated $ 592.8 million.
This figure of $ 592.8 million is almost certainly underestimated due to the fact that out of 32 companies, only 19 had an “amount of capital allocated”, while the remaining 13 firms had unknown values (i.e. , Zero). Thus allocated away. Therefore, if all 32 firms have a valid and confirmed amount of capital allocated, we can logically conclude that the number would increase dramatically from the current figure of $ 592.8 million.
RBI’s increasing popularity
New RBI firms have been set up every year since 2013. In 2010, five firms were established and in 2015 four additional firms were established, then from 2014–2019, two or more firms were established each year.
Clearly, there has been a major upsurge in the RBI firms being set up since 2005, with a relatively large number of new firms being established in the 15 years since. In the last 10 years, only 25 RBI firms have been set up.