26/7/2022
11/4/2024
What is the origin of Revenue Based Financing (RBF)?
Financing is the lifeblood of any new or expanding business. Established companies also need to finance their working capital requirements. Numerous financing solutions exist for the different stages in a company's life. In the pre-seed stage, at the genesis of a project, the recommended means of financing are love money and subsidies. In the seed stage, business angels, banks and seed funds are recommended. A new financing tool is emerging in the seed stage: Revenue Based Financing. Revenue Based Financing is an immediate advance on a company's revenues. This innovative form of financing originated in the United States and is increasingly used in France. But what about 2024?
What is FBR?
An innovative financing model
Revenue Based Financing is an innovative financing model based on a company's revenues. Businesses are being built more and more easily with software, no-code tools or free access to multi-channel networks.
At the same time, business financing is adapting, becoming more flexible and simplifying. Indeed, the times when time-consuming bank loans were the only way to access financing to set up a business are over. Today, financing tools are multiplying and access to quick cash is becoming more democratic. It is in this context that the RBF was born.
The RBF is an advantageous cash advance
The concept of RBF is simple. An investor, in this case Karmen, turns a company's projected revenues into immediate cash flow.
This cash advance is repaid after approximately 9 to 12 months, in proportion to the company's results. This operation is much more flexible than a traditional bank loan which recommends fixed interest rates.
Where does RBF come from?
Originally an American product
The inventor of the RBF is Arthur Fox. Arthur Fox created the RBF in the 1980s. This American engineer, a graduate of MIT, began by working at Hewlett-Packard, before becoming a successful business angel in the 1970s.
In addition to investing in companies, Arthur Fox started looking for new financing solutions. It was during this research that Revenue Based Financing was born.
Arthur tries to invest by advancing the revenues of digital companies. He was very successful: the profitability of his two funds exceeded 50% and the cash invested was recovered after only 30 months.
Express development in the United States
FBR originated in the United States in the 1980s and 1990s, and has spread around the world. Since then, FBR has been a hit in the United States. This tool is becoming the main alternative to raising funds without having to dilute one's capital.
FBR is not only used for small top-ups. Some companies are raising large sums in RBF. In order to be able to offer envelopes adapted to all types of companies, in 2019, Liquidity Capital raised $500 million intended solely to offer RBF. This substantial amount is 10 times more than the investments made by business angels in France in 2019!
A recent boom in France
The growth of FBR in France is slower than in the United States but is starting to explode.
In 2018 in France, RBF represented 15% of participatory financing. This "good plan" is spreading rapidly in the French entrepreneurial ecosystem, to the point of representing 25% of these participatory financings in 2019. Since then, this figure continues to grow.
In 2020, the FBR was more than 3 million investments for 310 companies.
Why is FBR so innovative?
The RBF is an extremely innovative financing tool.
First of all, FBR is a financing solution that is fast. Compared to a fundraising that takes on average 9 months, a financing via FBR can take only 48 hours.
Raising capital involves many steps, decks, presentations and negotiations for the dilution of share capital. This process is time consuming. It is sometimes possible to use a fundraiser to facilitate the process.
Conversely, RBF uses open banking: through integrations with services like Qonto or Stripe, the lender, in this case Karmen, connects to the company's financial data in a secure, read-only manner.
After collecting this data, an algorithm analyzes and determines whether or not the company is eligible for FBR. The main criteria for eligibility are:
- Have 1 year of commercial activity;
- Minimum annual sales of €300K;
- Tangible growth prospects;
- Company or entity based in France.
This concept is digitalized, fast and simple to execute, and does not require personal guarantees from the founders. They receive, in less than 48 hours, cash on their account without having diluted their share capital.
Karmen, leader in RBF in France
Karmen advocates for FBR because it is an effective funding solution that is more democratic than other funding options.
Indeed, the RBF is much more accessible than a fundraising for example. When raising funds in pre-seed or seed, i.e. at the beginning of the company, investors will look at whether the founders have attended recognized schools or if they have substantial personal guarantees. Statistically, many more men receive funding from VCs, venture capitalists or venture capitalists.
To obtain FBR financing, all you have to do is fill in an online form in just a few minutes, without having to provide any personal guarantees or profiles of the founders. The focus is solely on performance.
In addition, a VC may choose to fund only a specific type of start-up such as medical or deep tech start-ups. The RBF allows start-ups from any industry to find funding for their growth. In short, the RBF is democratic and efficient.
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During a project of creation of company or during its expansion, the financing is the sinews of war. Companies that are already well established also need to finance their working capital requirements. Revenue Based Financing is a non-dilutive financing tool that consists of advancing a company's revenues in immediate cash.
Karmen is the main actor of the RBF in France. Karmen offers a fast service in less than 48 hours, personalized and accessible to all. This financing tool proposed by Karmen is non-dilutive and does not require any personal guarantee.
