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Why We Chose Revenue Based Financing? (RBF)

Novel is a venture-debt fund that invests in growing B2B Software as a Service (SaaS) companies. We founded Novel to help as many early-stage entrepreneurs grow their businesses as possible. We knew, however, the standard venture equity model — which requires super-high growth and returns — would lessen our impact on helping a larger number of entrepreneurs.

Venture equity investment limits the type and number of companies to only those that have extremely-high growth. To overcome this, we use a different investment approach that enables companies to grow while also allowing Novel to provide the returns our investors expect.

Enter Revenue Based Financing (RBF). Instead of buying equity and waiting for an exit, we get our returns via a monthly royalty payment based on the company’s sales. Once we reach a predetermined investment return cap, the company stops paying the royalty.

Without the need for a quick exit or super-fast growth, RBF allows us to invest in a wider range and larger number of companies.

How Does RBF Compare

to Other Tools That I’m
Familiar With?

graph of revenue-based financing for startups vs. other funding types

Novel’s simple and flexible approach works for more companies. 

  • Investment of $100K to $1M per company.
  • Investments of up to 30% of a company’s annual revenue.
  • Monthly royalty payment of between 4% and 8% of gross cash receipts.
  • Royalties capped at 1.5X to 2.0X the capital invested.
  • Investment returns expected in up to 4 years.
  • Amounts invested and terms are dependent on an individual company’s profile.
How Novel Helps You Grow

Revenue Acceleration Platform

At Novel, we’ve been in the trenches. Each member of our team has first-hand experience with early-stage technology companies and the challenges entrepreneurs face. That’s why we provide direct operational help in three key areas:

Challenge

Early-stage software companies find themselves pulled in various directions, chasing too many initiatives, markets and geographies. Additionally, entrepreneurs struggle to find the time to effectively plan, where to focus, and how to allocate limited resources.

Master strategic focus

We offer a simple, actionable strategic planning framework and can facilitate a strategic planning process for your team. Through our strategic planning process, you develop actionable 1-page plans that will guide your company for the next 12 months.

Challenge

A passionate founder who is an industry or technical expert can generate many of the company’s early sales. At some point, however, a company needs a sales process to achieve predictable growth. Without practical experience, it’s extremely difficult to build a sales team and design a repeatable process from scratch.

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Accelerate your growth engine

We provide up to 60 hours of consulting to accelerate the development of repeatable sales processes, helping you conquer your most pressing challenges.

Challenge

Whether it’s sales leadership, account executives, or sales development reps, most early-stage companies struggle to hire the right sales talent. It’s difficult to recruit, identify, and appropriately compensate the right candidates. Furthermore, hiring the wrong individual can cost a company six or more months of productivity.

Hire the right talent

Leveraging our experience and recruiting resources, we help you identify the appropriate type and level of resource, for your sales team. We help quickly locate and hire talent that’s critical to grow your company, as well as assist in designing a sales compensation plan appropriate for the role and the stage of the business.

Why Partner with Novel?

Fast and Flexible Investments

  • Novel makes quick investment decisions and funds companies in 45 to 60 days.
  • Larger investments are available as you grow.
  • You are not stuck to a fixed payment — our fixed royalty percentage means your payment flexes with your monthly cash flow.

  • Transparent investment process. You know where we are in our decision process at all times

  • We play well with others. We can invest alongside angels and equity VCs.

     

You’re In Control

  • We want to support your journey. Exit your company on your own timeline and terms.
  • Novel caps our returns to an agreed amount. Knowing your cost of capital from the onset allows you to better manage future capital needs.
  • No board oversight required.
  • No personal collateral required. No personal guarantees.

More than just capital

  • We have been in your shoes. Our team has real-world entrepreneurial and operational expertise.
  • Novel’s Revenue Acceleration Platform and best practices create lasting value for your company.
  • Our interests are aligned. We both want sustainable success without unreasonable growth expectations.

Explore Success With Us

FAQs

What is revenue-based financing?

Revenue-based financing (RBF), sometimes referred to as royalty-based financing, is a type of financial capital provided based on cash that a company receives from sales of products and services. In other words, with RBF, investors provide a lump sum of capital in exchange for a fixed percentage of monthly or daily revenue. The initial amount, plus a predetermined return cap, is paid back over time by the borrower.

What is a venture debt fund?

Like a VC fund, a venture debt fund is an investment pool actively managed by fund managers who seek out promising companies to invest in. Venture debt can take many forms but typically it’s a type of debt financing that venture-backed companies use to grow their business. However, at Novel Growth Partners, we’re different in that we do not require our portfolio companies to be venture-backed. It’s also worth noting that, because venture debt can take many forms, different funds often have different investment criteria.

When should I seek out revenue-based financing?

The short answer is, it depends. But at Novel Growth Partners, our revenue-based financing is designed for early-stage B2B/Enterprise software companies with the following financial characteristics:

  • Minimum $500k revenue + near profitability
  • 30%+ YoY revenue growth
  • Predictable revenue

One of the advantages of RBF is that it is very flexible for many stages of a company. On top of these financial characteristics, you can be a great fit for RBF if you’re a bootstrapped company, you have prior Angel or VC investment, you’re looking for a bridge round, or you’re looking to wrap up your current fundraise. Finally, at Novel Growth, we prefer to work with founders who need operational help and who are seeking capital targeted for revenue growth rather than R&D.

What happens if my revenues decrease?

Since your payments are based on a percentage of your cash collections, when your revenue or cash collections decrease, your payments decrease. Of course, the opposite is also true. In any case, what happens when your revenues decrease is that your payments become smaller and it takes longer for you to pay back the initial investment. However, unlike other types of debt, the way our revenue-based financing is structured means you pay only when you collect cash, which prevents cash flow issues typically associated with, for example, a term loan.

Does revenue-based financing negatively affect my ability to raise venture capital?

We play well with other investors like Angels or Venture Capital. Most previous investors appreciate the flexibility of our approach, minimal or no dilution, and the tactical sales help we provide. If anything, revenue-based financing can help you bridge the funding gap between valuation milestones, better positioning you to raise your next round.