September 22, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

Revenue-based Financing for Startups - Everything You Need to Know

For most startup businesses, traditional methods like venture capital and angel investments have long been the go-to sources for funding.

However, in recent years, alternative financing models have gained popularity, and one such model that has been making waves is revenue-based financing (RBF).

RBF offers startups a unique way to secure capital without the typical equity dilution associated with traditional funding methods.

In this comprehensive guide, we'll dig deeper into everything you need to know about revenue-based financing for startups, from its definition and advantages to its application and potential drawbacks.

What is Revenue-based Financing?

Revenue-based financing, or royalty-based financing, is a funding model that allows startups to raise capital in exchange for a percentage of their future revenue.

Unlike traditional equity financing, where investors receive a stake in the company, RBF investors are entitled to a portion of the startup's monthly or quarterly revenues until they receive a predetermined return on their investment, typically with a cap.

Here's how RBF works in a nutshell:

  • Investment: An investor provides capital to a startup. This capital is usually structured as a loan. However, it differs from conventional loans in key ways, as we will discuss later.
  • Term and Cap: The RBF agreement includes a term during which the startup must make payments. There is also often a "cap," the maximum amount the investor can receive as a return on their investment.
  • Exit: The RBF agreement may include provisions for an exit event, such as an acquisition or IPO (Initial Public Offering), which can trigger the repayment of the entire investment amount.
  • Completion: Once you reach the predetermined return (usually a multiple of the initial investment) or the term expires, the RBF agreement is considered complete, and the investor's involvement ends.

Advantages of Revenue-based Financing for Startups

Equity Preservation: RBF enables capital acquisition while maintaining full ownership and control of your company.

Speed and Efficiency: RBF transactions are swift and entail less due diligence compared to traditional funding methods, offering crucial accessibility for startups in need of rapid funding.

Diversification: RBF can be integrated with other funding sources, fostering a diversified capital structure that reduces reliance on a single financing avenue.

Minimal Personal Risk: Unlike traditional loans, RBF agreements typically spare founders from personal guarantees, mitigating personal financial exposure.

Adaptive Payments: RBF payments align with revenue, affording startups greater flexibility than fixed monthly loan repayments.

What Can You Use RBF For?

Revenue-based financing for startups is a versatile financing option that you can apply in various scenarios. Here are some everyday use cases:

1. Grow your business, expand your operations, or invest in marketing and sales efforts.

2. Cover your day-to-day operational expenses, such as salaries, rent, and inventory.

3. Use these funds to develop or launch new products or services.

4. RBF can also bridge financing between equity rounds, helping startups maintain momentum while waiting for more significant funding rounds to materialize.

5. Use RBF to finance acquisition deals, leveraging future revenue to fund expansion.

6. Additionally, you can use RBF to refinance existing debt, providing more favorable terms and reducing the financial burden while getting your business on its feet.

Key Players in Revenue-based Financing

To carry out RBF transactions, several vital participants are usually involved in the process:

1. Startup

The company seeking funding through RBF is, of course, a central player in the process. As a startup, you should evaluate your financial position, revenue projections, and funding requirements before you sign an RBF agreement.

2. RBF Investors

RBF investors are the providers of capital. They can be individuals, funds, or institutions interested in earning a return on their investment based on the startup's future revenue.

3. Legal and Financial Advisors

Given the complexity of RBF agreements, you can seek advice from legal and financial advisors to ensure the terms are fair and align with your goals.

4. Accountants and Reporting Systems

Accurate financial reporting is crucial in RBF agreements since repayments are tied to revenue.

You may need to invest in robust accounting and reporting systems to track and report revenue accurately.

Key Terms and Concepts in Revenue-based Financing

To fully grasp the intricacies of revenue-based financing for startups, it's essential to understand some key terms and concepts:

  • Revenue Share Rate: This is the percentage of a startup's revenue you share with RBF investors. It is a key term in the RBF agreement and typically ranges from 2% to 10% or more.
  • Cap: The cap is the maximum amount an RBF investor can receive as a return on their investment.
  • Term: The term is the duration of the RBF agreement. It can vary but typically ranges from 3 to 5 years. 
  • Trigger Event: Some RBF agreements include trigger events, such as an acquisition or the startup going public through an Initial Public Offering (IPO). When a trigger event happens, the startup may be required to repay the outstanding balance of the RBF financing earlier than the initially agreed-upon term. 
  • Monthly or Quarterly Payments: RBF repayments are typically made monthly or quarterly, depending on the terms of the agreement.

However, the pricing structure of revenue-based financing solutions is not always transparent to founders, who may not have a deep understanding of financial intricacies.

📌 Typically, such solutions involve a fixed fee, which can vary from as low as 6% to as high as 12% in Europe and slightly lower rates in the US.

Under this arrangement, the client will repay the lender a portion of their total revenues until they fully repay the loan.

📌 The specific percentage usually falls within the range of 10% to 25%, depending on factors such as the company's risk rating and its current stage of development.

How to Secure Revenue-based Financing

Securing revenue-based financing for startups involves several steps:

1. Evaluate your business

Before seeking RBF, assess your business's financial health and determine your funding needs. Make realistic revenue projections and understand how much capital you can comfortably repay based on your revenue share rate.

2. Research RBF investors or platforms

You can approach individual RBF investors, often called "revenue lenders," or explore RBF platforms that connect startups with interested investors. To find the right fit, research, and due diligence are essential in both cases.

3. Prepare documentation

Prepare a compelling business plan, financial statements, revenue projections, and a well-structured RBF proposal. These documents will be crucial when pitching your startup to potential investors.

4. Negotiate terms

Engage in negotiations with potential investors to finalize the terms of the RBF agreement. Be prepared to discuss the revenue share rate, cap, term, trigger events, or other specific provisions.

5. Legal Review

Engage legal counsel to review the RBF agreement. Ensure that the terms align with your business goals and that there are no hidden pitfalls.

6. Closing the Deal

Once both parties are satisfied with the terms, close the deal and receive the capital. Use the funds to fuel your business growth or address your specific funding needs.

Challenges and Potential Drawbacks of Revenue-based Financing

While RBF offers many benefits to startups, it is not without its challenges and potential drawbacks:

The effective interest rate can be higher than traditional loans if a startup experiences rapid revenue growth. This is because repayments are tied to a percentage of revenue; as revenue increases, so do repayments.

❌ RBF agreements typically have longer terms than traditional loans, meaning a longer revenue-sharing commitment.

❌RBF agreements can be complex and require careful legal and financial review. You must understand the terms thoroughly to avoid unexpected challenges.

❌ RBF may not be suitable for startups in all industries, especially those with slow or unpredictable revenue streams.

Alternatives to Revenue-based Financing

While revenue-based financing for startups offers a unique approach to funding, there may be better fits for some situations. 

You can explore alternative financing options, like asset-based financing, to determine which aligns best with your business needs and goals.

Asset-based Financing

Asset-based financing is a funding model that leverages your company's tangible assets as collateral for obtaining capital.

This type of financing is particularly well-suited for businesses with substantial assets, such as inventory, equipment, or accounts receivable.

 Here's how it works in the example of Myos financing:

  • Collateral Assessment:

What sets Myos apart from conventional lending practices is cutting-edge AI technology, which assesses the market value of your assets. With data drawn from prominent platforms such as Amazon and Google Shopping, you can get a fair assessment of your merchandise.

  • The Loan Amount:

Myos offers a loan based on the assessed value of assets. The amount of financing available is typically a percentage of the asset's appraised value, which can vary depending on the type of asset.

  • Interest Rates and Terms:

Asset-based financing terms and interest rates can vary widely. Still, they are often more favorable than other types of financing, like unsecured loans or credit cards.

Myos offers a flexible repayment structure, ensuring you're not burdened with a fixed or lump-sum payment with early payment penalties.

Instead, your repayment consists of a monthly fee calculated based on the outstanding capital, with the percentage fee determined by your product scoring.

In case of early repayment, you'll pay a reduced amount.

  • Risk Mitigation:

Since assets secure the loan, Myos offers loans to businesses that may not qualify for other forms of financing. It benefits startups with valuable assets but a limited operating history.

Asset-based financing offers several advantages, including lower interest rates, increased borrowing capacity, and securing funding based on a broader range of assets.

Other Alternative Financing Options

Apart from asset-based financing, startups have access to various alternative funding sources, each with its own advantages and considerations:

1. Traditional Loans

Traditional bank loans and Small Business Administration (SBA) loans are widely available options.

They often come with competitive interest rates and fixed repayment terms. However, securing a traditional loan can be challenging for startups with limited operating history or collateral.

2. Angel Investors and Venture Capital

Angel investors and venture capital firms provide equity financing in exchange for ownership stakes in the company. While this option involves giving up equity, it can provide substantial capital and access to industry expertise.

3. Crowdfunding

Crowdfunding platforms enable startups to raise capital from a large, diverse pool of individuals. Crowdfunding campaigns are an effective way to secure funding and test market demand for a product or service.

4. Grants and Competitions

Many organizations and government agencies offer grants and startup competitions with cash prizes. These can be valuable sources of non-dilutive capital for startups.

5. Bootstrap

Some startups choose to self-finance, or "bootstrapping," to keep their operations running. In this approach, you use your savings or the revenue generated by the business to fund expansion. While this strategy helps you maintain ownership, it can limit the speed and scale of growth.


Revenue-based financing has emerged as a compelling alternative to traditional startup funding methods.

Its ability to provide capital without equity dilution, flexible repayment terms, and alignment of interests between investors and founders make it an attractive option for many entrepreneurs.

However, it's essential to carefully evaluate whether it is the right fit for your startup, considering factors like industry, growth trajectory, and revenue predictability.

What Makes Myos Unique?

One of the biggest drawbacks of revenue-based financing for startups is that your business needs to generate value.

But what if you can rely on a consistent revenue stream but have substantial inventory levels?

In that case, use your assets as leverage to secure a loan.

Our innovative approach empowers you to secure working capital loans ranging from £100,000 to £2,500,000, using inventory as collateral.

Key Features of Myos Financing:

  • No Personal Guarantee Required: Myos does not demand a personal guarantee. Instead, we greenlight inventory and new orders from sellers as collateral. This streamlined approach expedites transactions, eliminating the need for extensive credit checks and paperwork.
  • Flexible Loan Terms: Our flexible loan terms offer the convenience of extending repayments over 12 months. This adaptability caters to your unique financial circumstances, ensuring manageable and stress-free repayment schedules.
  • Use Funds for Diverse Purposes: Whether you require funds to bolster daily operations, fuel expansion initiatives, cover marketing expenses, diversify product lines, or manage inventory, Myos offers funding tailored to meet your needs.

Two Financing Options to Choose From:

  • Purchase Financing: Opt for this option when you need capital to acquire additional inventory or expand your product range.
  • Stock Financing: Choose stock financing when you want to leverage funds for operational efficiency or manage your inventory effectively.

No matter which financing option you choose, you'll enjoy the following benefits:

  • Myos supports businesses with as little as 2 months of operational history.
  • No minimum monthly turnover requirement.
  • Funding tenure extends up to 12 months.
  • Simple and swift online application process, with funds disbursed within 72 hours.
  • No personal guarantee is needed, and no hidden fees are lurking in the fine print.
  • Take advantage of a complimentary eligibility assessment to determine your funding suitability.
  • Myos boasts an outstanding Trustpilot rating, reflecting our commitment to customer satisfaction.

Sign up today and get a free, non-binding offer!

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