The concept of revenue sharing is comparable to a royalty agreement. It’s a style of funding where investors inject capital into a company and receive a percentage of that company’s revenue in return (typically 2–10%). Therefore, the rate at which the investment returns depends on the rate of the company’s revenue growth.
If you are a startup founder or investor and are researching funding/investment options, take Corl’s top five revenue-sharing benefits into consideration:
1. Shared Success
The primary benefit of a revenue sharing investment is that its structure allows participants to focus on shared success. The goal between management and shareholders are fully aligned towards generating sustainable revenue.
2. % of Revenue > Fixed Interest
Instead of a typical debt structure where a fixed interest rate is charged, revenue sharing takes a % of an investment’s gross revenue. This means when your company has a slower revenue month, your bottom line is less impacted.
3. Remain In Control
For entrepreneurs, a revenue sharing agreement offers the ability to retain full ownership of their company. Once the Repayment Cap is met, there is no obligation to pay future revenue back to the investor and the entrepreneur retains full ownership and control over the direction of the company.
4. Investment Potential
With the focus of revenue growth at the forefront, the range for potential investments is wider because companies will be evaluated on ability to generate substantial profits and cashflow instead of being candidates for IPO or strategic acquisition. This gives startups a higher chance of being funded and allows companies to grow at a sustainable pace instead of chasing valuations.
5. Simplicity
Revenue sharing removes the complexity of equity. Instead of being owners of the business, capital providers are simply creditors. As a result, there is a clearer direction and businesses can focus on sustainable growth and generating returns. The focus on revenue growth instead of future acquisition metrics makes quantifying success much easier.
Companies that meet Corl’s strict funding requirements are analyzed through qualitative and quantitative data to determine the credit and investment risk. On top of the benefits of securing funding through a revenue sharing agreement, startups that are funded by Corl are subject to a wide range of benefits that can be explored in this blog post.
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Originally published at blog.corl.io.
