What are the differences between RBF and fundraising?

The three main differences between RBF and fundraising

The company's profile

The most appropriate means of financing between FBR and fundraising depends on the profile of the company. 

The RBF is particularly suitable for business models that provide regular recurring revenues such as with a subscription system, otherwise you will be able to finance yourself thanks to your customers. It is also a model that is suitable for SaaS, Software As a Service.

The subscription business in France is growing by 19% per year.

The time it takes to obtain funding

The choice of financing between the two tools depends on the urgency of the company's financing needs.

Indeed, if the need for funding is urgent, founders will have access to cash more quickly with the RBF: between 24 and 48 hours to release the funds generally.

In contrast, fundraising takes longer and can take between 9 months and 1 year.

Dilution

A major difference between RBF and fundraising is whether or not the company's share capital is diluted. dilution A fundraising induces dilution, i.e. a decrease in the share capital of the founders. A fundraising induces dilution, i.e. a decrease in the founders' share capital.

Investors invest in the company in return for a percentage of the company's share capital. In contrast, RBF is a non-dilutive financing system.

Summary table RBF VS fundraising

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Dilutive or non-dilutive?

RBF is revenue-based financing for the company. The financiers advance the future revenues in immediate cash. In return, the funders receive a percentage of the company's revenue based on its performance a few months after the initial financing.

The percentage varies between 6 and 9% of the initial paid-in capital. Thus, RBF, unlike fundraising, is a non-dilutive funding model.

The founders remain the sole owners of the company's share capital. Moreover, the founders do not have to provide any personal guarantees. 

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What is the difference in time?

The FBR system is fast: an entrepreneur can receive funds in less than 48 hours. The cash advanced must be repaid after a certain number of months. 

Unlike RBF, the cash raised in a capital raise does not have to be repaid afterwards. Fundraising is a dilutive financing model that generally takes between 9 months and 1 year. This long period is explained by the numerous steps that characterize a fundraising.

What processes for RBF and fundraising? 

Fundraising

The fundraising process involves several steps: 

• Contacting investors: Start by listing all the investors to contact according to the sector and round the start-up is seeking to raise and contact each investor on the list. This step usually includes sending a pitch or a "profile" , i.e. a PowerPoint presentation of the start-up in less than 10 slides. If the investor is interested, the founders send a more detailed business model or business plan;
• Meet the investors: If the business model screening is passed, the investors want to get to know the start-up in more detail and meet the founders in person. This step is also called the " road show ";
• Negotiating with investors: If investors are interested in the company, they will draw up a term sheet, a document with an investment proposal. This document will be a basis for negotiations between the founders and the investors;
• Auditing the start-up: The audit or "due diligence" stage consists of a verification of several activities of the start-up: financial, tech, legal, accounting and cultural;
• Drafting the investment terms: The investment documents include the shareholder agreement, the investment memorandum and the asset and liability guarantee agreement;
• Closing: Following the closing, both parties sign the document. At this point, the cash is sent by the investors.

RBF with Karmen: a fast, flexible and efficient solution

In the last three years, the number of fundraising events has exploded. With Covid, start-ups that have adapted to the new needs of consumers have raised a lot of money. 

The French entrepreneurial ecosystem has reached a record level of fundraising and valuation. But the market is starting to tighten. Indeed, experts expect this tech bubble to burst soon. Several incubators and VCs, such as Y Combinator, have started to warn their start-ups to reduce their burn rate, the speed at which they use their fundraising money, so that they can last longer. This change will impact start-ups in their funding strategy. It will be more difficult to raise money. 

Start-ups will have to find alternatives. Some will "boostrapper", i.e. create their business without recourse to external financing. For companies with a strong need for financing, the RBF alternative is attractive. 

Indeed, during this time of crisis that impacts the fundraising universe, the RBF is a stable financing method that mainly requires stable revenues. The RBF financing method is widely used in Anglo-Saxon countries, particularly in the United States. A study by Allied Market Research projects that the global RBF market size will reach $42 billion by 2027. 

In e-commerce, companies mainly use RBF to finance their online marketing expenses. Karmen offers this innovative alternative in the form of RBF. Karmen democratises access to non-dilutive financing. Founders can repeat the process as you grow. Karmen's funding service is based on three principles: speed, non-dilution and transparency. 

RBF and fundraising are two different financing tools. FBR is non-dilutive and fast. Fundraising is a dilutive and longer tool. These tools can be complementary, the RBF for example can very well help you to prepare the fundraising. Do not hesitate to contact us for more information!