Venture Loan or RBF, what to choose?

What is a venture loan?

The venture loan, also called venture debt, is a way for a startup to obtain financing, without having to resort to a bank loan.

The venture loan investment is essentially a loan with an interest rate that is secured and repaid monthly or quarterly, with some security given on the company's stock. This loan can last approximately four years.

The venture loan is a financing system that allows the startup to grant a debt. This is usually done in return for several different elements:

First of all,the interest rate will be higher than that of a traditional bank loan.
Also, warrants (BSA) that will allow the concerned investors to buy shares (one or more) of this company, in order to obtain an additional return on their investment.

Typically, venture loans are granted to startups with strong growth, and without significant assets and/or positive cash flow to use as collateral.

The venture loan differs from convertible bonds in that it is not intended to be converted into shares.

What are the conditions for the venture loan?

The conditions to be put in place to ensure the venture loan vary according to the investors.

These criteria will notably concern the value of the company's turnover, the profitability achieved or close to it, and the growth and development prospects that are linked to a need for financing via a venture loan.

Beyond the conditions for the venture loan, there are certain indications for it. In particular, it is recommended for companies/startups that are looking to postpone their fundraising, or to reduce the amount of the latter to achieve a better valuation over time.

It is also recommended to finance a certain amount of equipment, an acquisition, or as an insurance to anticipate delays in the objectives initially set.

Given the interest rates and terms of the venture loan, investors are generally quite demanding in terms of guarantees and prepayment obligations.

What are the advantages of a venture loan?

The venture loan is a source of capital for a startup, and usually in addition to equity financing. It has many advantages for the players involved.

For example, the venture loan makes it possible to offer the investors concerned a certain return of between 12 and 25% on the initial amount allocated. Also, the venture loan allows to limit the dilution of the company's capital. As a reminder, the dilution of the shares comes from the fund raising of a startup, where the founders will see a decrease of their shares.

The venture loan also makes it possible to reach objectives set under several conditions, such as insufficient fundraising. Finally, the venture loan will notably allow to extend the use of the company's cash flow for a period of about three to six months.

Venture Loan VS RBF Comparison Chart

	Venture loan / Debt	RBF
Time	fast.	Very fast (less than 48h).
Targeted company profile	Those looking for additional financing that is not very dilutive; in strong growth; close to or already profitable.	Companies with recurring revenue and of the type of subscription economy or SaaS.
Dilution	None. However, the bank generally aims for a financial return of 8 to 25% of the amount lent.	None! There is no equity investment in your company.
Interest rates	Between 10 and 15%.	None, commission on the total amount financed (between 4 and 9%).

What is FBR?

Revenue based financing (RBF) is a non-dilutive financing solution, especially for companies in the digital sector, those with revenues, and offering a financing solution by analyzing company data, just like what we do at Karmen.

This solution allows for an advance of cash and the release of capital to allow for the growth of the company in a non-dilutive manner.

Revenue-based financing can anticipate and complement a fundraising because it allows thecompany's performance metrics to be improved in anticipation of this fundraising, in order to dilute less while increasing the company's value.

At Karmen, revenue-based financing is based on three principles:

Non-dilution: so that you retain control of your business;
Speed: with possible financing in less than 48 hours;
Transparency: with transparent and simple commissions.

How can Karmen help you finance working capital?

At Karmen, we democratize non-dilutive financing through revenue-based financing. In concrete terms, we set up a financing scheme based on the company's future revenues. In this case, if your sales drop during a certain month, your royalties will be reduced.

Karmen is a non-dilutive funding solution that helps digital businesses access instant growth capital. Instead of waiting for online or subscription revenues to be collected month after month, Karmen unlocks the annual value of those revenues, up front. Karmen's solution allows digital businesses to access instant growth capital, within 48 hours, to fund their growth expenses (customer acquisition, marketing, recruiting, technology and more).

For start-ups, we are often their first source of growth capital to help them accelerate before raising funds.

For venture-backed companies, we provide an additional source of non-dilutive, founder-friendly capital to help entrepreneurs achieve their growth objectives, while retaining ownership of their company.

From the company's point of view, venture loans have many strengths. Ideal to complement venture capital by reducing dilution or to allow the extension of its cash flow, it is well suited to companies in strong growth and provides them with value. The venture loan also allows to fill liquidity gaps. The revenue based financing will be presented as a financing strategy to unlock capital to push the growth of the company in a non-dilutive way.

At Karmen, we offer you the opportunity to grow your business with an innovative and non-dilutive financing tool. Fast and transparent, it allows you to stay in control of your development.