You’re working on releasing a brand-new VC fund; congratulations! I have actually been a conventional equity VC for 8 years, and I’m now researching revenue-vased investing and other new approaches to VC. The question I’m asking myself: should a brand-new VC fund usage revenue-based investing, conventional equity VC, or potentially both (likely from 2 different pools of capital)?
Revenue-based investing (” RBI”) is a brand-new type of VC funding, distinct from the favored equity structure most VCs utilize. RBI usually requires founders to pay back their financiers with a set portion of revenue until they have actually completed offering the investor with a repaired return on capital, which they concur upon ahead of time.
This guest post was written byDavid Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This belongs to a continuous series on Revenue-based investing VC that will hit on: Revenue-based investing: A brand-new choice for founders who appreciate control< a href=" https://techcrunch.com/2019/08/19/who-are-the-major-revenue-based-investing-vcs/" >
From the financiers’ perspective, the benefits of the RBI models are manifold. In truth, the < a data-entity=" kauffman-foundation" data-type=" organization" href=" https://crunchbase.com/organization/kauffman-foundation" target=" _ blank “> Kauffman Foundation has launched an < a href="https://www.kauffman.org/what-we-do/entrepreneurship/market-gaps/capital-access-lab" > effort particularly to support VCs concentrated on this model. The major benefits to investors are:
- Shorter duration, i.e., faster time to liquidity. Typically RBI VCs get their capital back within 3 to 5 years.