revenue finance overview

Equity & debt financing aren’t the only op7ons

www.nextstepcapitalpartners.com

Revenue Financing

•  Next Step Capital Partners invest in growing companies in return for a share of topline revenue – Repayment varies with revenue – Full ownership and control retained – No company valua>on required – Returns are capped

•  Compliment / alterna>ve to debt or equity


Debt – low cost when available

•  Requirements –  2-‐3 years of profits –  Loans >ed to assets (personal guarantees)

–  Restric>ve covenants –  Retrospec>ve vs. prospec>ve

•  Specialized debt arrangements i.e. Factoring –  too cumbersome, expensive or not appropriate for many companies


Equity -‐ fits a narrow range of companies

•  Requirements –  Rapid growth & large market –  Exit required for a return –  Investors need to assert a high level of control

–  Company valua>on ?

•  Many companies rejected not because they aren’t sound businesses, they don’t have the right profile.


Revenue Financing •  Fits a broad range of companies –  “Lifestyle” Businesses –  Services –  Family Businesses –  Ownership Transfers

•  Does not an>cipate or require a sale

•  Non intrusive


What we are looking for

•  Market-‐proven product or service •  Scalable growth opportuni>es •  Profitable •  High gross margins •  Successful commi\ed owners •  Capital requirements $250K -‐ $2M


Investment Structure •  Contract to pay –  X % of topline revenue –  Un>l an agreed cap is reached

•  Payments vary with collec>ons •  Revenue-‐share is paid monthly or via direct pay mechanisms –  Lockbox, Credit Card payment split

•  Can be structured as debt or equity* –  Special class of equity with rights limited to repayment

•  Lien on assets only to enforce contract •  Early payment op>on


Investment Example

•  Soeware Co –  $3 Mil Annual Sales –  Profitable –  Projected annual growth 35% with capital infusion –  Require $500K to expand sales & marke>ng

•  Investment $500K •  Revenue Share 4-‐5% •  Total Payout $1-‐$1.5M •  Projected Payoff 3-‐4 years

Revenue Financing vs. Equity

Revenue Financing •  4% Revenue-‐share •  ~ 3 1/2 Year Payout •  $1 Mil Cost of Capital

Equity •  $6.0 Mil Pre Money

Valua>on (2X) •  $500K = 7.7% Ownership •  Valua>on in Four Years

$20 – 50 Mil (2-‐5x) •  Cost of Capital $1.5 –$ 3.8 Mil

–  $3 Mil Sales, 35% Growth, Break even, $500K Capital So=ware Co.

h\p://revenuebasedfinance.com/2011/01/17/what-‐would-‐google-‐do/ Google Example


Revenue Financing vs. Equity

Revenue Financing •  5% Revenue-‐share •  ~ 4 Year Payout •  $2 Mil Cost of Capital

Equity •  $10.0 Mil Pre Money

Valua>on (2X) •  $1,000K = 9.1% Ownership •  Valua>on in Four Years

$28.5 – 71 Mil (2-‐5x) •  Cost of Capital $2.6 –$ 6.5 Mil

–  $5 Mil Sales, 30% Growth, Profitable, $1,000K Capital Manufacturing Co.



Sales Op>miza>on Services

•  Sales Strategy –  Market Iden>fica>on & Segmenta>on –  Channel engagement, Strategic Partnerships –  Value Proposi>on Development & Differen>a>on

•  Sales Team Development –  Interim Sales Leadership –  Hiring, Training, Mentoring, Compensa>on

•  Systems & Processes –  Sales Force Automa>on & Management –  Pipeline Assessment and Revenue Forecas>ng –  Deal Management, Strategy & Execu>on


Principals •  Patrick Drew

–  Strategy and enterprise technology project management and implementa>on at Accenture.

–  Early-‐stage sales and implementa>on team management at i2 and Trilogy Development Group.

–  Extensive experience mentoring high growth companies as an Angel Investor & Consultant

•  Daniel Keelan –  Recognized expert in developing high performance sales teams through

consistent processes, systems, training and mentorship. –  Learned & implemented Valued Based Selling Methodologies and

Complex Selling at IBM, Oracle & i2. Successfully applied these approaches at numerous smaller organiza>ons.

–  Extensive interna>onal sales experience having lived and worked in Asia and Europe.


Patrick Drew 512-‐633-‐4610

[email protected]

Daniel Keelan 512-‐217-‐9012

[email protected]


revenue finance overview

Economy & Finance