Revenue-Based Financing

Funding repaid as a share of future revenue instead of equity.

Also known as: revenue-based financing, RBF, revenue share funding

Revenue-based financing (RBF) advances capital repaid as a fixed share of future revenue until a capped multiple returns: borrow $200k, repay 6% of monthly revenue until $260k lands. No equity, no board seat, no valuation event — just faster cash against proven revenue, priced transparently.

fit:  $30k+ MRR, growing, gross margins healthy → advance → repay from revenue share
      cost: capped multiple (e.g. 1.2–1.5×) + speed vs equity's permanence

It suits businesses with revenue but awkward venture shapes: profitable-ish SaaS wanting growth fuel without dilution, seasonal businesses bridging gaps, founders avoiding another priced round’s overhead. It fails where revenue is unpredictable or margins thin — the repayments then strangle exactly when flexibility matters most.

The classic mistakes:

Stacking advances. Three RBF facilities each taking revenue shares sum to a crushing blended rate. Total repayment burden across all facilities is the number — model it combined.
Ignoring the true cost. A 1.4× cap repaid in a year is expensive money annualized. Compare against dilution cost honestly (what equity % equals this cash?) rather than celebrating “no dilution” alone.
Revenue definition drift. Gross vs net, which streams count, how refunds/churn adjust — ambiguity becomes dispute. Define the revenue base precisely in the agreement.
Using RBF for experiments. Debt-like money (even friendly) demands predictable revenue to service. Fund proven motions with RBF; fund experiments with equity or profits.
Covenants unexamined. Minimum cash balances, reporting duties, change-of-control terms — lighter than venture debt but real. Read everything (venture debt for the stricter sibling).

Use it as: a bridge between equity rounds or an alternative to small ones — fast, non-dilutive, self-liquidating from revenue that already exists. Never as life support for a business model that does not work.