When it comes to raising money, we forget that everyone is selling something. Selling something investors really want is the trick.
In a down market, a piece of your company will be worth less than it should be, and it might take six to 12 months for it to be worth anything. You can sell the promise of payment with interest to a lender, but you will probably have to accept higher rates, restrictive covenants and warrants to outsell the other debt they can buy.
Your revenue is the only asset you can sell that gives a predictable, stable, de-risked return to investors.
It's important that recurring revenue financing is a whole new model for financing a company. Policy-driven interest rate changes are still tied to a loan based on revenue. You sell your revenue to investors when you use recurring revenue financing.
By selling future revenue streams to investors for up-front capital, they get a steady return and you get to grow faster based on your already booked revenue, taking advantage of big opportunities and the time value of that capital as you scale.
RRF uses live data connections to determine the risk level of your recurring revenue streams. The risk level that investors use to bid on your future revenue allows you to get the most capital and lowest cost. Unlike a weeks or months-long due diligence process for a loan or equity round, the algorithm can assess your live data in real time.
This is a flexible way to finance growth for businesses with recurring revenue streams. It can be used in addition to equity financing. When the timing is right for optimal results, you can leverage your recurring revenue to enter your next equity round.
Now that we know what RRF is, let's talk about how it is being used to grow businesses. RRF has some advantages over traditional financing that make it an incredibly flexible source of financing.
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