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revenue royalty certificates

The Great Gaping Valuations Chasm Between Entrepreneur and Investor

Revenue-based Funding.

Revenue-based Funding.

I first started working with startups back in the late 1980s and can guarantee you that the one problem that never goes away is the Grand Canyon-like chasm between the entrepreneur’s and investor’s respective valuations.  Without getting bogged down with unnecessary detail, it usually breaks down like this. Whether the first-time capital seeker is looking for $50,000, $500,000, or $5,000,000, they always seem to settle around the magic 20% mark. That is they convince themselves that their startup is worth so much that whatever the amount being sought is, it should only require the surrender of 20% of the total equity.  Fair is fair, right? Continue reading

For Investors it’s All About the Exit

I’ll gladly pay you Tuesday for a Hamburger today. – Wimpy

Here’s a common scenario that most first-time capital seekers experience. They write their business plan, finish their prototype, add all the suggested window trimmings, and then start talking to potential angel investors. Some of these prospects will initially behave as if they are seriously interested in funding the deal. The entrepreneur then has a series of meetings with them and plans to ask for the check at the next one.  That’s when things abruptly change.  Suddenly the investor stops returning calls and responding to emails. In the minority of cases, they will tell the entrepreneur that they have decided to pass on the opportunity. However, more often than not they will simply become unavailable.

Why does this happen so often? Continue reading

Revenue Royalty Certificate Financing

A fairly old, tried and true financing method for both startups and small businesses needing growth capital is generically referred to as revenue-based financing. It’s also sometimes referred to as revenue participation or revenue sharing funding.  The actual document used is typically called a Revenue Royalty Certificate (RRC) or Revenue Participation Agreement or some combination of the two.

I first learned about revenue based financing from one of the greats among angel investors, Arthur Lipper, who had a particular fondness for the instrument. This was back in 1985. Since then I have used it myself and seen others use it as well to both launch startups and provide growth capital to existing small businesses. Continue reading