Why does Revenue Based Financing (RBF) prepare and complement your fundraising?

What is Revenue Based Financing (RBF)? 

Revenue Based Financing is a new financing scheme based on the company's future revenues. In concrete terms, RBF allows you to transform your future revenues into immediate cash flow, thus unlocking non-dilutive growth capital. 

Simply put, a detailed analysis of the revenues generated by the business will determine its eligibility for Revenue Based Financing. You don't need to be highly profitable from the start. At Karmen, we focus on the company's ability to increase its revenues sufficiently to cover loan payments and operating expenses. This method of financing is very quick to obtain (in less than 48 hours) and remains accessible to the greatest number of people (unlike a bank loan or a capital increase). In exchange, the company will have to pay a percentage of its turnover or fixed monthly payments. 

Unlike fundraising, RBF is a non-dilutive financing method: you remain in control of your company. 

Our solution is based on the three main advantages of RBF: speed, non-dilution and transparency. At Karmen, we support the growth of your digital start-up with a 100% non-dilutive, digitalized financing solution in less than 48 hours! 

What is fundraising?  

Fundraising, on the other hand, is a dilutive means of financing. Indeed, whether from VCs or BAs, investors receive shares in the company in exchange for their financing. 

The higher and riskier the financing - which can be the case for seed stage companies with little revenue and still trying to validate their product market fit - the greater the dilution. After several rounds of dilutive financing, you may no longer have complete control over your company. 

Nevertheless, VCs can add significant value through their networks, their advice and insight, their credibility in the market or for longer-term financing for R&D for example. 

How to prepare for fundraising? 

A fundraising operation consists in opening its capital to investors and giving them de facto more decision-making power. It is therefore essential to prepare your fundraising well and to choose your investors carefully. 

Build a fundraising team 

Your team should be made up of people from different backgrounds. Surround yourself with someone who has a good grasp of numbers to explain your needs to investors, someone who can write and speak well to write letters and grant proposals, and finally a leader who will embody and defend the values of your company. This is always a good idea if it is the CEO or a member of the founding team. Once your team is in place, you are ready to launch! 

Formalise your strategy and storytelling

Getting started, but where to start? The first important point is to prepare the storytelling of the creation of your company. This will be the Ariadne's thread of your presentation and of your motivation to develop your business. 

Weave your storytelling around the birth of your company, the problem you address, its market and your value proposition. Don't forget to include a business plan, your acquisition strategy and your financial projections for the next 5 to 7 years. 

Preparing a budget has two positive effects. First, it makes the project more real and manageable for you and your team. Second, it shows potential donors that you are serious about your project and that you know how it works. It shows the consistency between your need and the funding you are requesting.

Interviewing your community and identifying the right investors

Once you know how much you are going to raise, you need to know with whom. At the end of the (dilutive) fundraising, your investors will have more or less a say in your company's strategy, so it is important to choose them well! 

There is a wide choice of investors in France, so it will depend on your level of maturity and your sector. Your investors must be a plus to your growth not only financially but also strategically. Therefore, choose investors capable of bringing you the right amount of money for your development, who know your sector of activity well and with whom you share a common vision. 

Take action: convince them and be convinced 

Once you have identified the right people, you must take action and make contact. Given the current effervescence of the venture capital market, you must be convincing in your exchanges with potential investors. 

Keep in mind, however, that you must also be convinced. Since your association in the capital is for the long term, a relationship of trust is essential. 

How to convince investors when raising funds?

For all companies

To convince your investors, you need to pay attention to what they are looking at to make their decision: 

• The complementarity and expertise of the founding team (especially for early stage start-ups): in seed stage, the team is the main asset of a start-up. 
• The size of the market in which your start-up operates: you must demonstrate that the size of the market addressed is large enough for you to capture a significant share.
• Positioning against competitors: knowing your market and your start-up well means knowing your competitors well and how you differ from them. This is about convincing your investors to choose you and not them. 
• The product and its key indicators: your differentiation depends on your product. To convince your interlocutors, share your key features that make the difference! The product is a reflection of the team's talents, vision and ambition. Each element that makes it up must be relevant and justifiable. To do this, you can show them different key indicators justifying the value of the different features of your product. 

Speaking of key performance indicators (KPIs), investors are not very keen on such measures. It is therefore necessary to focus on certain indicators that are essential to your start-up model and to take care of them. 

For SaaS

Regarding Saas, if you are in the process of validating your product/market fit, it is best to focus on your acquisition and retention KPIs such as: 

• The number of user registrations
• The turnover
• The burn rate: the rate at which your company ends up using all its cash to pay its fixed costs
• The cash runway: it measures the life of your money at the current absorption rate
• The percentage of customers who consider your product essential and recommend it - the NPS

Once the product/market fit is established, it is important to monitor key indicators of SaaS startups. The success of such a business model relies on 3 linked steps: 

1. Acquire customers 
2. Build customer loyalty 
3. Making money from your customers

Customer acquisition 

Regarding the acquisition, you can rely on : 

MRR (monthly recurring revenue): this is the monthly revenue generated by the company. CAC (customer acquisition cost): this is the sum of all marketing and sales costs related to the acquisition of a new customer. The CAC allows you to know which acquisition channels are the most interesting.

When it comes to customer retention, churn is most often used. The churn rate refers to customers who reduce their service level or leave your solution. Whether it is in number of customers or in MRR churn rate (revenue lost due to the loss of customers), it allows you to measure customer loyalty and satisfaction and de facto service performance. 

Finally, to measure the profit made from your customers, you can rely on LTV. LifeTime Value is an estimate of the average revenue that a customer will generate over the lifetime of the customer. It can help you make many business decisions such as marketing budget, resources, profitability and forecasting...

Improving KPIs with RBF

Using RBF can improve these KPIs in particular. Indeed, between two rounds of investment, it can give you extra room to manoeuvre, continue to grow and improve your key performance indicators. 

If this is not the right time to approach external venture capitalists and dilute further, or to make a deal with their existing investors, RBF allows you to address these needs and improve your KPIs for the next round of funding. 

How can you be sure to close the fundraising?

Once your pitch has been honed, do not forget the legal aspects of such a commitment. To ensure that the association takes place in optimal conditions, sign a non-disclosure agreement (NDA), get legal assistance to compare the various written letters of intent and negotiate the best conditions...

Once your investors have been chosen, the due diligence has been completed and the term sheet has been signed, all that remains is for you to take advantage of the benefits of your new partnership! 

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How does RBF help with fundraising?

FBR can complement your fundraising

This can be the case if you want to finance quick ROI (Revenue On Investment) operations or if you want to take advantage of favorable or unexpected business opportunities quickly. For example, in the context of an internationalization, a decrease in competition or a change in regulations. It can also help you in your recruitment and sales positions such as sales and marketing. 

RBF can also allow you to extend a fundraising cycle. In this case, the fundraising will allow you to release funds for your long-term expenses (equity), while the Revenue Based Financing will allow you to complete the fundraising by financing short-term growth actions (such as acquisition). In this case, the RBF acts as a boost to further accelerate your growth.

Karmen is a revenue-based financing solution for digital businesses that are looking for short-term financing.

In less than 48 hours, Karmen can unlock instant growth capital to fund projects, customer acquisition costs or generate cash. 

In addition to this speed of execution, revenue-based financing is a non-dilutive and more accessible financing solution.

Additional funding

Thus, there is no magic solution, no single cure for your financing needs. Moreover, each type of business has different needs at different times. 

Defining your financing strategy means dealing with the various possible and, above all, complementary options. RBF does not exclude raising and vice versa. On the contrary, when they are put at the service of each other, they can generate even greater growth. Indeed, financing before a fund raising allows an increase in cash flow and a lengthening of the cash runway, i.e. better KPIs to present to investors for a better valuation and less dilution!