TLDR:
- Startups are turning to revenue-based financing to raise capital without diluting equity.
- Platforms like GetVantage, Velocity, and Klub are filling the working capital gap in the market.
Startups are increasingly opting for revenue-based financing as a way to raise capital without diluting equity. Revenue-based financing (RBF) is a type of alternative financing where companies can raise capital in exchange for a percentage of their gross revenue as monthly repayments, along with a fixed fee. This method is gaining traction among startups and digital SMEs, especially those that may not qualify for traditional bank loans due to being loss-making or lacking collateral.
Platforms like GetVantage, Velocity, and Klub have emerged to address the working capital gap in the market, estimated to be over $150 billion. These platforms provide short-term capital to companies with steady revenue flow, such as cloud kitchens, e-commerce merchants, and software-as-a-service firms. The rise of revenue-based financing is a response to the dry flow of venture capital and the limited options for traditional credit.
While revenue-based financing can be more expensive than traditional credit options, it offers a flexible and fast way for startups to raise short-term capital. With an average tenure of 12-18 months and a percentage of gross revenue ranging from 5-20%, RBF has become a top choice for many startups. The uptick in RBF’s popularity can be attributed to the ongoing crunch in equity financing, as well as the increasing awareness of alternative financing options available to businesses.
