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Revenue-based financing in Europe: Cheat-sheet for 2023

Revenue-based financing in Europe

RBF in Europe is the new kid on the block that everyone in the finance world is watching out for (in anticipation).

Viceversa Team

Articles written, submitted and curated by the Viceversa team and community.

For ages, businesses have debated over equity and debt as the better financing option. Common knowledge says that raising debt save business owners from diluting existing ownership and control, whereas issuing equity does not. However, debt too comes at the expense of high risk to businesses since it’s raised by mortgaging assets. And this is where the knight in shining armour enters the scene: Revenue-based financing in Europe.

In the last few years, revenue-based financing (or RBF) has been gaining a fair share of popularity worldwide. It’s in the headlines for being a valuable source for raising capital for SaaS companies and recurring revenue-based companies. According to this article by Tech.eu, “Revenue-based financing startups are gaining traction in Europe, offering cash-strapped startups an alternative to venture capital, venture debt or bank loans.”

What is Revenue-based Financing?

Revenue-based Financing is a new alternative to more conventional forms of financing. It lets businesses raise funds without diluting equity, and the repayments happen as a percentage of monthly revenue. This ensures that your business always has sufficient capital to take care of inventory and marketing needs. 

Short Story: RBF in Europe is the new kid on the block that everyone in the finance world is watching out for (in anticipation).

It brings both the elements of equity and debt financing into play since neither gets to have any ownership in the company nor needs to make interest payments on the outstanding.

Under RBF, advances are issued on the presumption that the company will repay the investors a certain percentage of money until a predetermined amount has been paid off. For example, your e-commerce company might agree to pay 4% of the revenue each month until the lender receives 1.5x of the amount invested by them. 

When deciding how much money to raise, revenue-based finance investors look at the company’s financial performance, track records of what aspects they want to invest in (such as marketing or inventory data), and analyze its back-end systems to make decisions based on the projected revenue of the company. With minimal paperwork required, your company may not even have to provide a comprehensive business plan to enjoy this quick and flexible mode of revenue-based financing in Europe.

Revenue-based financing: Fad or Fab?

Revenue-based financing in Europe
Photo by Carlos Muza on Unsplash

One might question if RBF is here to stay or if it’s just another short-lived fad in the world of finance. Well, good news. According to the Revenue Based Financing Market Research Report (2022-2027), the global RBF market size was valued at $1.75 billion in 2021 and is now anticipated to blow up to a sky-rocketing $30 billion by 2027.

Revenue-based financing in Europe and the US has witnessed an intensive spur of RBF startups in the past year. Investors too have geared up as the sector gathers incredible momentum. Real-time business monitoring made possible by technological and platform innovation has significantly reduced the percentage of non-performing assets as compared to traditional lending instruments.

Revolutionalizing the traditional way of fundraising and offering multiple benefits to both companies and investors all around the world, this data-driven approach of raising capital is rapidly gaining popularity across the globe. This article by Sifted, says that “18 RBF startups have been founded in Europe since 2019 — more than the number of speedy grocery startups founded in that time”. 

Revenue-based financing in Europe and the world

After North America, the European Revenue-based financing market seems to be the second in running. In fact, RBF startups attracted a record $671M VC investment in Europe in 2021. And while North American RBF startups are making their way towards the European market, a number of players spanning across Europe have sprung up as well. 

Briefly, we have a large number of interesting startups and scaleups in this industry providing Revenue-based financing in Europe. You can find Viceversa in Italy, Capchase in Spain, Wayflyer in Ireland, Outfund in the UK, Re;Cap in Germany and many more.

SAAS funding with RBF

Revenue-based financing in Europe
Photo by Annie Spratt on Unsplash

Thanks to Covid-19, the past couple of years have seen a remarkable rise in the number of SaaS and e-commerce companies. As a matter of fact, the pandemic resulted in a big jump of $26.7 trillion in global e-commerce sales, states one report by UNCTAD.

In such a highly dynamic business environment, companies turn to RBF startups to guarantee a steady cashflow during periods when they need to spend more on stock and marketing. Most SaaS businesses operate on a monthly revenue rate (MRR). As a result, they now have an opportunity to acquire finance through revenue-based financing in Europe, particularly if they are profitable and flourishing but not yet prepared for equity investment or an IPO. In addition, they offer subscription-based services with a predictable working capital cycle, which makes revenue forecasting simpler.

Moreover, the process to qualify for revenue-based financing is a piece of cake in most situations. For example, with Viceversa any European incorporated company with at least six months of trading history in the e-commerce, SaaS, marketplace, apps & games, or online subscription-based businesses can apply for financing.

The company would also need to have:

  • Monthly revenues equal to/above 10,000 EUR
  • Marketing budget above 10,000 EUR

However, Viceversa’s Analytics Platform is free to use for all businesses.

What lies ahead for Revenue-based financing in Europe?

In Europe, the Saas and e-commerce sectors are expanding at the speed of light. And, banks lack the appropriate products and risk appetite to serve this market for structural reasons. During this phase of economic downturn, equity financing is typically not available or less suitable, for businesses that are not yet considered to be disruptive.

The way businesses are founded and operated has evolved due to advancing tech and changing customer needs. For instance, the development of the “as-a-service” business model has made it possible for intangible assets to significantly increase a company’s worth. Our techniques for funding creative businesses, however, have not kept up. 

This is where Revenue-based financing in Europe emerges as a show-stopper. The swiftness at which this mode of financing makes the funds accessible to the ultra-fast growing SaaS and e-commerce startups makes it the perfect financing option.

Revenue-based financing is another instrument in the toolkit to hit your stride in business and advance to the next level without putting your personal assets at risk or having to sell off a portion of your company.

But how does RBF work?

RBF is best suited for subscription-based, e-commerce or software-as-a-service (SaaS) businesses since they mostly generate recurring revenue with ample gross margins. These subscription-based businesses can predict the amount of revenue with more accuracy, and generate enough revenue to cover the periodic repayments.

Revenue-based financing uses the magic of machine learning to evaluate and predict a company’s future revenue to offer a swift capital option to the company. RBF platforms take permission to access multiple data points to underwrite the funding.

RBF platforms, acquire multiple layers of information on the firms they invest in, which they use to enhance their risk-scoring algorithm, but also to provide extra services on top of the financing. Two approaches are often presented: emphasis on additional services or an increase in the pace and precision of capital deployment.

With Viceversa, your company can enjoy the benefits of RBF in 4 easy steps :

  • Register on the Viceversa platform and securely connect your business accounts. Find out if you’re eligible for funding right away.
  • Accept a tailor-made offer for your business out of the funding offers received within 3 days of signing up.
  • Use the data-driven analytics platform to make decisions that boost the growth of your business.
  • Pay a small percentage of your revenue as you grow, without the nasties of personal guarantees or hidden fees.

Know more here.

Is it worth it though?

We’ve already established that revenue-based financing is much easier to avail than other financing alternatives, however, there is much more it has to offer. Here’s a full wrap-up of its advantages –

  • Zero Equity Dilution: Since the repayment of the funding is done based on revenue only, you don’t have to give away any equity for the money you raise. This bit is critical for fast-growing enterprises that require cash influx to boost the business.
  • Payment Flexibility: The performance-based repayment of funding ensures flexibility, unlike traditional loans. That means you don’t have to sweat it out when your business is going through a slump since the amount paid periodically depends on the quantum of earnings in that period.
  • Speedy timeline: While other forms of financing can take months or even years before a deal is struck, Revenue-based financing in Europe can be set up in days or even hours.
  • Data-Driven: One of the main reasons why RBF is so quick to access is to be credited to its data-dependent model. Instead of facing a long procedure to set up, you can connect your data in a matter of a few clicks, and then get a percentage of revenue in terms of availability. Here at Viceversa, we also provide key insights to help you make better business decisions. Don’t worry we keep your data safe 🙂
  • No Personal Guarantee: You don’t need to put forth personal collateral against the funding, making it less risky than traditional debt financing.
  • Complements other sources of funding: Early-stage firms that receive revenue-based financing are better able to gain momentum, which lowers the cost and increases the accessibility of other forms of capital. 

Are there any cons of RBF?

Revenue-based financing gets you to access the funds almost immediately, however, the investments for which the fund is used might not immediately start reaping the benefits. In other words, you might have to wait longer to get returns from the investment made by raising money through RBF, while you still have to make periodic returns to the investor faster than that. This situation might land you in a prickly situation, hence a thorough analysis is needed before making a decision.

Want to know if your company fits the bill to avail revenue-based financing with ViceVersa? Check it out here

Interested to hear more? Check out Viceversa’s RBF platform today.

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