There seems to be momentum building around Revenue-Based Financing. Everywhere I turn there are more investors thinking about, or actually using, some RBF Structure. I will say more about RBF in a moment, but fist a couple of words about the current COVID-19 (Coronavirus) situation.
We are in a national and global crisis as I write this, with a pandemic at the early stages of an exponential curve. The wiser folks have taken to social distancing. We’re staying home, and when we venture forth it’s largely for solitary (or family-based) exercise outings in areas where we can be confident that close contact with others can be avoided. Nobody knows how long the pandemic will last, or how many people will be infected or die. At the moment this crisis is (properly) consuming the majority of peoples’ attention. So my musings here are perhaps a little more theoretical than usual.
With regard to the angel investment world, I am finding that a few more of my colleagues seem inclined toward RBF because they feel that exits might be fewer and farther between in this new economy, which continues a trend that may have been foretold a little by some of the recent IPO failures (e.g. WeWork). That said, most of the angel groups are trying to keep things moving, with many members saying that they will continue to invest, though a higher percentage may be reserving funds to help existing portfolio companies weather this storm.
OK, now back to RBF and me.
I’ve begun to put it out there: although my own investment fund is quite low at this point, I still have a few chips in front of me that I can bet with. For the moment I plan to reserve these for RBF deals, no straight equity investments. For all the reasons I’ve gone over in the previous two articles (here and here), I consider this “kinder, gentler” investing (with apologies to George H W Bush, and to all my liberal colleagues for quoting a conservative). I also think it deserves a chance to prove itself as a good money making tool.
I spent some time thinking about raising a fund as a vehicle for investment, but there’s a lot of overhead to a fund, so my current thinking is to form a Boston-based angel group that only looks a companies willing to do RBF. We might be interested in syndicating with investors outside our region, as well. I’ve already gotten some feelers from investors elsewhere.
BUT – this is not the time to try to start something new and different, I’m afraid, so I’m holding off doing anything drastic until we’re out of crisis mode. In the meantime, I am one of the selection chairs for Walnut this month, and at least one of the deals we’re looking at is specifically coming in because they’re willing to consider RBF.
To leave you with another resource for RBF, I offer a webinar that was held earlier this year by Sage Growth Capital.