Everyone, as they say, is selling something. When it comes to fundraising, we might sometimes overlook that. Selling something that investors actually desire is the key. You may sell a portion of your business to a venture capitalist, but in a down market, it won’t be worth as much as it should (and less than it might be in six to 12 months). Even the promise of interest-bearing payments may be sold to a lender, but in order to compete with the other debt they can purchase, you’ll likely have to accept higher interest rates, binding covenants, and even warrants.
However, the one asset you can sell that provides the predictable, steady, and de-risked returns investors seek in a market full of volatility is your revenue. It’s important to note that recurring revenue financing (RRF) is a completely new approach to funding a business, not merely a new credit package. A loan based on your income is nevertheless subject to policy-driven fluctuations in interest rates. Your revenue is treated as a marketable asset under recurring revenue financing, which you sell to investors.
Investors receive a consistent return on their investment when future income streams are sold to them in exchange for up-front financing, and you get to develop more quickly based on revenue that has already been recorded, taking advantage of large possibilities and the time value of money as you scale. RRF assesses your recurring revenue streams to gauge their level of risk using real data connections. Investors anonymously bet on your future revenue using that risk level, allowing you to obtain the most funds at the most advantageous price. Additionally, the program can evaluate your live data in real time, unlike a loan or equity round’s weeks or months-long due diligence procedure.
This is a flexible method of financing expansion for companies with regular income streams when venture capital and loans aren’t the best or most convenient choice. It might also be an excellent supplement to equity funding. You can strategically engage your next equity round at the ideal time for the best outcomes by utilizing your recurring revenue.
How entrepreneurs use RRF, after examining what RRF is and isn’t, let’s discuss how entrepreneurs are utilizing it to expand their companies. RRF is a far more flexible method of funding than traditional finance thanks to a number of significant advantages.