Revenue-Based Financing

Funding repaid as a fixed share of a company's revenue until a set multiple of the advance has been paid.

Example

100,000 advanced at a 1.4x cap, repaid by paying 6% of monthly revenue until 140,000 is returned.

Important

Payments fall when revenue falls, so the term extends rather than the company defaulting, but the cost is high relative to ordinary debt.

Related terms

• Venture Debt — Loans made to venture-backed startups by specialist lenders, typically alongside or after equity rounds and often with warrants attached.
• Dilution — The reduction in your percentage ownership of a company when it issues new shares to someone else.
• Cash Runway — The number of months a company can operate before running out of cash, calculated as cash divided by monthly net burn.

Lessons that explain it

• Some companies can be funded without selling equity at all — Revenue-based financing, venture debt and grants provide capital without dilution, in exchange for repayment obligations or restrictions. They suit companies with predictable revenue more than pre-revenue ones. (11 min)

All 578 terms in the Investing glossary