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Why we chose Revenue Based Financing (RBF)

Novel is a venture debt fund that invests in high growth B2B Software as a Service (SaaS) companies. We founded Novel to invest in and help as many early stage entrepreneurs grow their businesses as possible, but we knew we would be limited by the super high growth and return requirements of the standard venture equity model.

Standard venture equity investment limits the type and number of companies an equity investor can invest in to only companies that have classic hockey stick growth. To overcome this limitation we had to find a different way that also allows us to provide the returns expected by our investors.

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 cash that the company receives from sales of products and services. Once we reach a predetermined return cap the company stops paying the royalty.

Because we do not need a short-term exit or require super-fast growth RBF allows us to invest in a 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 RBF Investment: A simple and flexible approach that works for more companies

  • Investment of $100K to $1M per Company.
  • Investments of up to 30% of company annual revenue.
  • Monthly royalty payment of between 5% 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.
  • Amount invested and terms dependent on
    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 experienced first-hand many of the challenges entrepreneurs face. That’s why
we provide direct operational help in three key areas

Challenge

Many early stage companies find themselves pulled in various directions, chasing too many initiatives, markets and geographies with limited resources. Additionally, many entrepreneurs struggle to find the time to effectively plan the next 6 -12 months, deciding where best to focus and how to allocate resources.

Master strategic focus

We offer a simple and 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 can guide your company for up to the next 4 quarters.

Challenge

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

Accelerate your growth engine

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

Challenge

Most early stage companies struggle to hire the right sales talent, whether it’s account executives, SDRs, etc. It is difficult to recruit, identify, and appropriately compensate the right candidates. Hiring the wrong individual can cost a company 6+ months of productivity. A mistake none can afford to make.

Hire the right talent

We help you recruit the next member of your sales team and vet them leveraging our industry network and experience. We assist in more quickly locating and hiring talent critical to growth, while helping you design a sales compensation plan appropriate for the business.

Why Partner with Novel?

Fast and Flexible Investments

  • Fast investment decision and funding in 45 to 60 days.
  • Larger investments available as you grow.
  • Fixed royalty percentage. You are not stuck to a fixed payment; it flexes with monthly cash flow.
  • We play well with others. We can invest alongside angels and equity VCs.

You’re In Control

  • We want to support you in your journey. Exit your company on your own timeline and your own terms.
  • Capped return. Knowing your cost of capital from the beginning 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 growing, sustainable revenue. No unnatural 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.