The article discusses a report on revenue-based investing (RBI), which is a financing method that involves investors receiving a percentage of the company’s revenue in exchange for their investment. The report, authored by Thomas Rush and Daniel Birmingham, provides insights into the RBI market and its trends.
Here are some key points from the report:
- Accuracy of terminology: The authors argue that "revenue-based investing" is a more accurate term than "revenue-based financing", as RBI instruments often include equity, warrants, and/or a convertible right to equity.
- Market size: The report estimates that the global RBI market has reached $20 billion in 2023.
- Industry diversification: RBI is not limited to traditional industries like software and technology; it’s also being used in food and beverage, consumer products, fashion, and healthcare.
- Impact investing: The authors mention impact investing as another area where RBI is being used, although they note that their database did not include impact investment investees.
- Demands for transparency: The report concludes by emphasizing the importance of transparency in the RBI market. It recommends that companies work to remove confidentiality provisions from investors’ term sheets and/or contractual agreements before executing them.
Some potential implications of these findings are:
- Increased adoption of RBI: As more industries adopt RBI, it’s likely to become a more mainstream financing option for startups.
- Growing demand for transparency: The emphasis on transparency in the report suggests that companies may need to be more open about their financials and RBI agreements with investors.
- RBI as an alternative to venture capital: With RBI becoming more prevalent, it’s possible that entrepreneurs will have more options when seeking funding, potentially reducing their reliance on traditional VC funding.
Overall, the report provides valuable insights into the RBI market and its trends, highlighting both its potential benefits and challenges.
