Royalty-based financing VS RBF

What is participatory financing in royalties? 

Royalty-based financing or crowdfunding royalties is a new mode of financing based on participatory financing without dilution.

It falls under the category of crowdfunding. Royalty-based crowdfunding is an investment mechanism in which investors receive financial compensation for their investment in a company. Royalty-based equity financing can be divided into three broad categories.

The gift

The donation is often accompanied bya reward or a presale. The counterpart of royalties, here financial, allows to activate but also to reach a wider community than your customers.

This allows you to raise funds by leveraging your community and future customers. 

The loan or crowdlending

Also known as participatory lending, this isan alternative financing method that allows individuals or companies to lend their savings or cash directly to a company of their choice for a defined project. Payments to investors are flexible. 

The capital or crowdequity

This method of financing allows individuals, institutions or legal entities toinvest in the capital of a company.

Investors are only entitled to a financial consideration but not to shares in the company. Once again, there is no capital dilution. 

What are the terms of crowdfunding royalties? 

Two possibilities

Royalty crowdfunding is a type of financing that is particularly suitable for mature companies whose product or service can be commercialized. 

There are two ways to set up royalty crowdfunding: 

• Provide a commitment on a predefined return on investment without specifying the time
• Make a time commitment without specifying the return on investment.

How to choose ?

In the first case, the duration of the royalty payment depends on the speed of the company's growth. In the second case, the amount of the return on investment depends on the success of the project. In both cases, the investors do not receive shares of capital but a percentage of the sales in remuneration of their contribution. 

Thus, once the company is funded, it can sell its products and return the royalties to its investors.  

Depending on the type of crowdfunding royalties chosen, the investor may receive more or less than initially expected. If the sales are successful, he will be profitable. In the opposite case, he could receive less money than initially expected. 

What are the advantages and disadvantages of royalty-based financing? 

Royalty-based financing allows you to finance your growth without diluting your share capital. It has many advantages but also some disadvantages. Here is a non-exhaustive list of the latter.

The advantages of participatory financing in royalties 

A non-dilutive method of financing

This method of financing offers you the possibility of remaining in complete control of your company. Indeed, it is non-dilutive, which means that you do not have to leave any part of your share capital in exchange for their financing. 

Moreover, crowdfunding royalties allows you toget more visibility and mobilize your community around your business. Indeed, it allows you to evaluate the interest in your company and to reach new potential customers. 

Reimbursement as a percentage of sales

Another advantage of this method of financing is the repayment method. This is done as a percentage of turnover and not in a predefined way as for a traditional loan. The payment of the royalties is indexed on the generated turnover. 

Funds obtained quickly

Finally, it allows you toobtain funds simply and quickly. All royalties are managed by a platform and the fundraising period is usually short. 

The disadvantages of participatory financing in royalties

This type of financing can be expensive for your company. Indeed, the repayment can amount to 2 or 3 times the initial sum.

In addition, crowdfunding royalties impact the company's margin and can have important consequences on activities that are already low margin. Finally, the sums raised can sometimes be insufficient for important and otherwise not recommended financing. This is particularly the case if you are looking to finance R&D for example.

What is FBR? 

Definition of FBR

RBF or Revenue-based financing is an innovative financing method that comes straight from the West Coast, in the United States. It is a type of financing that transforms your future recurring revenues into immediate cash. It is a financing tool that is becoming more and more popular due to its numerous advantages.

It is estimated that the Revenue Based Financing market will reach $42 billion by 2027. So why is it so attractive?

The benefits of RBF

The RBF is built around three characteristics that make it strong: 

• Speed: the process is short and automatic. In only 48 hours your company can receive its funds. This allows you to invest the capital to grow faster and stay focused on your business.
• Transparency: there are no hidden fees. Repayments are made according to your monthly turnover generated and according to a predefined schedule. The counterparty to pay is not a fixed interest rate as for a traditional loan, but a commission on the total amount lent, at Karmen: between 4 and 9%.
• Non-dilution: you remain the captain of your ship. There is no capital investment in your company. As mentioned above, the consideration is not a share of your capital. 0% dilution, 100% control for you. 

Unlike bank loans (often complex and unsuitable for young companies) and venture capital (where only 1% of startups meet the criteria and dilution can be significant), revenue-based financing is an accessible and flexible alternative that meets the needs of a wide variety of companies. 

In particular, it is aimed at digital businesses that operate in the booming subscription economy, or in the SaaS (software-as-a-service) sector.

What are the terms of the FBR? 

The RBF operates in three key stages: 

1. Register with an FBR provider like Karmen 
2. Test your eligibility online and in less than 48 hours 
3. Pay back your financing by monthly instalments

Let's take a closer look. 

Register with an FBR provider like Karmen

Registration is free and takes only two minutes. In just a few clicks you can apply for financing and test your eligibility. 

Then simply connect your accounts and our algorithm will analyze them. Don't worry, all documents and data transmitted are secured and encrypted to respect the confidentiality of your information. It is even possible to sign a confidentiality agreement directly from the platform. 

With our quick and easy integration, we will be able to analyze your company's 360 financial health by connecting to your : 

• Billing tools (Stripe, Gocardless, Chargebee...)
• Bank accounts (Société Générale, BNP, Crédit Mutuel, Qonto...)
• Accounting accounts (Pennylane, Sage, QuickBooks...)

Test your eligibility online 

Once you have completed your application online and without wasting time (no lengthy paperwork!), we will test your eligibility. To be eligible for our funding, you must meet these criteria:

• + More than 9 months of commercial activity .
• + More than €300,000 in annual revenue. 
• company or entity based in France  

Following this analysis, we will establish a score that will allow us to build or not your financing plan. For this step, indicators such as MRR, churn, cash flow, etc. are taken into account. In less than 48 hours, you will receive an answer from our team and they will inform you about the rest of the process. 

Pay back your financing in monthly installments

Once your eligibility is validated, our Karmen teams will send you a financing plan with a monthly repayment schedule. No hidden fees!

Karmen relies on the value of transparency to provide you with the most accurate repayments. These are based on your monthly sales, as opposed to fixed monthly payments that are independent of your income. 

The objective being to adapt to your financial situation, we can also propose a schedule with fixed monthly payments.

RBF and crowdfunding royalties comparison table

‍

At Karmen, we offer you the opportunity to grow your business with an innovative innovative and non-dilutive financing tool. Fast and transparent, it allows you to stay in control of your development.

‍