Are there any risks associated with FBR?

A brief history of the RBF

Revenue Based Financing is a new and disruptive financing tool created by Arthur Fox, an engineer at MIT in the 1980s in the United States.

As a successful business angel, Arthur Fox is looking for new ways to raise money. During an investment trial, the engineer advances to a company its future revenues. The trial was a great success: the return on his investment exceeded 50% and he recovered the cash invested in less than 30 months. The RBF was born!

Since this discovery, RBF investments in the United States are exploding. A good example of investment is Liquidity Capital, which raised $500 million in RBF in 2019, which is 10 times the amount raised by all French business angels in 2019! This tool is now developing in France, notably via Karmen, the French leader in RBF.

How does FBR work?

Revenue Based Financing concerns all digital companies, both e-commerce and SaaS. The algorithm analyzes the company's data and produces an RBF eligibility score thanks to the Open Banking system.

If the company is eligible, Karmen sends immediate cash within 48 hours.

What are the advantages of Revenue Based Financing?

Non-dilution of capital

The main advantage of the FBR is the non-dilution of the company's share capital.

The principle of capital dilution is simple: you ask for an investment in exchange for a portion of your capital, thus sharing your capital. 

The capital increase realized with an issue of new shares will generate this dilution. By distributing part of your capital, you lose decision-making power. The issue of new shares will generate new voting rights for the benefit of the new associates.

You must then take into account their votes in the decisions. In short, diluting your share capital means reducing your decision-making power within your own company: you are no longer the only captain on board the ship. On the other hand, by using the RBF, you can remain the only captain! 

Quick to obtain financing

A major advantage of FBR is the speed of access to funding. The process is digitized, and Karmen's algorithm allows you to be certain of your eligibility for FBR in less than 48 hours.

Other funding methods can take months without resulting in funding. Conversely, with Karmen, in just 48 hours you can receive funds.

Moreover, compared to venture capital, RBF does not require specific ultra-growth or deep tech criteria from client companies. FBR is a democratic tool open to all types of companies.

What are the disadvantages of Revenue Based Financing?

Financing specially adapted to digital companies

FBR is not accessible to all types of companies. Indeed, the companies mainly concerned by the RBF are digital companies such as e-commerce and SaaS.

Although this type of financing is quite specific, it is a more adaptable model than a traditional bank loan. It also meets a real demand, as banks are often quite shy when it comes to lending to digital companies without assets.

Compared to other traditional players such as banks or fundraisers, RBF is a more innovative and flexible financing tool.

FBR is a loan that is as risky as traditional bank loans. However, the RBF is customized for digital businesses which minimizes the risk they may incur. 

A vision primarily focused on the short term

The amounts granted with RBF can sometimes be limited. Historically, these amounts are lower than those in venture capital in France or in bank loans. 

Indeed, the RBF aims to finance projects with immediate and short term impact. Logically, it is therefore not relevant to borrow large amounts of money. The main thing is to find finances for a defined and current need.  

In the United States, the amounts invested in FBR are much higher than those invested in France. It is surely only a matter of time for the French to catch on.

The RBF-based offers are very flexible. If needed, higher amounts can be granted. 

In case of important needs, the ideal is to complete the RBF financing by another type of financing such as fund raising for example. This allows to obtain a balance between short term and long term investments.

How does the FBR eligibility algorithm reduce FBR risk?

The RBF involves open banking:the lender, in this case Karmen, connects to all the company's financial data in a secure, read-only manner.

After collecting its data, an algorithm analyzes and determines whether or not the company is eligible for FBR. The main eligibility criteria are:

• Min. €300k annual sales
• Positive equity
• No prior bankruptcy of directors
• Based in France only (for the moment)
• Strong revenue growth with high customer retention

These eligibility criteria help limit problems with repayment. Indeed, if a company checks all these boxes, there is no major reason why it cannot repay its FBR loan monthly.

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What are the risks of FBR compared to other financing solutions? 

The main risk of FBR compared to other financing solutions is the lack of regulation. Indeed, like any innovation that has just arrived on the market, the State has not had the time to put in place many laws to structure this service.

This aspect should not discourage companies from using FBR but rather encourage them to choose the right actor to accompany them.

Karmen is a reliable player with a proven track record with numerous clients. The French fintech is the reference in Revenue Based Financing in France, to accelerate the growth of digital companies.

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Karmen has raised 22 million euros to democratize this new financing tool in complete security.

Why choose RBF at Karmen?

Karmen is the player that simplifies access to FBR for everyone. If you are a digital company, Karmen is the reliable player to finance you in FBR.

At Karmen, the steps are quick and transparent. First, fill out the online form in less than 2 minutes available right here. Then Karmen sends you a personalized financing simulation.

Withopen banking you connect your different accounts (bank, CRM, ...) to our platform in a secure and confidential way.

Several products are available from Karmen to best meet your needs. The Karmen offer provides you with rapid cash flow and enables you to finance your growth efficiently.

This financing solution allows you to : 

• establish a simplified reimbursement schedule
• to retain control of the capital through non-dilution at 100%.
• get credit released within 48 hours

Are you planning to raise funds ? Karmen can help you prepare for it.

This financing solution allows : 

• to lengthen the runway
• to improve performance
• to be in a strong position at the time of fundraising
• to be funded without dilution

If you're short of cash for your working capital requirements.

This financing solution allows you to : 

• stabilize major expenditures
• to stop stock-outs
• pay suppliers without affecting cash flow

Finally, receive a financing proposal with no hidden costs and no interest, with only a commission, proposed in advance. Within 48 hours, you will receive a transfer from Karmen directly to your account.

The risks of RBF are limited. FBR is a recent innovation and therefore there is a lack of regulation to govern its use. Abuses can occur more easily than in more traditional investment vehicles such as bank loans or fundraising. This limitation should encourage companies to use recognized and reliable players. Financing with Karmen, which has become the reference in Revenue Based Financing in France, is a guarantee of reliability and security. 

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