Fundraising · Fundraising broker

How to raise funds off of a revenue-sharing agreement?

Anonymous

May 26th, 2016

My venture recently received an offer for a revenue-sharing agreement from a company that'd like to package and sell our data to their clients. Is there such a thing as a fundraising broker who can look at these terms and present the opportunity to angels or VCs? If so, any specific suggestions?
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Peter Weiss President at American Outlook, Inc.

May 26th, 2016

There are many variations on revenue share from the loan structures Robert mentioned to royalties to true revenue sharing agreements with lots of variations and tweaks in between.  Revenue share agreements have been used for many years in the video game business.  Thought about another way, percentage rent in malls is also a form of revenue shares.  So are sales commissions and the fees Apple, Kickstarter, etc. get when you sell through their platforms.

VCs are not likely to do revenue shares although a few VC backed outfits will (Lighter Capital in Seattle is one).  Some angels will do them - it's a question of finding angels who believe you will generate revenue, trust you to handle the funds properly, and like the idea of collecting cash without needing the company to find an exit.  

You need to pay a lot of attention to structure, make sure you think about contingencies and work through the accounting, reporting and tax implications - they can get tricky.

I like revenue shares and their variations.  If designed well to match the situation, opportunity and needs of the business and presented to investors who like the benefits you can offer they are a very effective way to assemble capital.  I've put together at least a dozen deals along these lines over the years and have always wondered why they are not used more often.  

I'd be happy to continue the conversation off-line.




Robert Clegg

May 26th, 2016

There are companies that will loan you money against your cashflow. You need to demonstrate months of consistent revenue for them to loan against it. The rates can be extremely high, but if it's cash you don't have...

I know someone in this field if you need a reference.