Shaking Up Revenue-Based Financing With Forward Advances
In April, Forward Partners made the bold move to found their own start-up - Forward Advances.
Forward Advances provides capital to founders to fund their marketing spend in return for a fixed % of future revenue until the capital is repaid. For this service, we charge a small fixed fee of 6%. It’s a fair and flexible way for founders to fund their growth.
In addition to the capital, each Forward Advances customer gets access to our VC studio team who use their experience building great businesses to accelerate growth for our customers.
Interestingly, we’ve learnt that founders have found the knowledge from our VC studio team as valuable as the capital itself. When the capital + knowledge are combined it makes for a compelling value proposition that we are uniquely placed to offer.
Below is a deeper view on revenue-based financing and how we plan to shake it up
What is revenue-based financing?
A revenue-based financing (RBF) company provides capital into a business in return for a fixed percentage of a company's future revenue. Typically, an RBF provider charges a fixed fee that ranges widely from 10-75% (which is pretty expensive). For simplicity, you can think of it as a revenue share agreement. The RBF provider gives capital to a company in exchange for a small percentage of future gross revenues. The agreement ends once the advance + the fixed fee is repaid.
The origins of revenue-based finance
RBF dates back to the 1980’s where the energy industry used it as a type of debt financing. It was pioneered by Arthur Fox to help fund early-stage businesses in New England. It’s been around a while in a number of non-tech industries but it wasn't until the last decade that it became a popular option for startups and early-stage companies.
Why it makes sense
Founders typically have two ways to fund their companies:
Accessing capital is stressful, lengthy, costly and dilutive
For startups who are not running the venture race or for VC-backed startups that need to boost growth in-between rounds, the viable options for accessing capital are slim.
Traditional loans can take weeks to clear, and more often than not require personal warranties and high-interest rates. And if the founder doesn't want to give away any more of their company, traditional equity investors aren’t a viable option either. This leaves a large proportion of startups in a bind - they either have to grow slower than they know they can or opt for a sub-optimal funding solution.
Unlike traditional venture capital or standard bank loans, RBF unlocks a novel way for founders to finance their growth without giving up equity, or having to commit personal warranties.
The cost of equity vs Forward Advances
There is an effective APR for equity that isn't always clear for founders. Forward Advances can work well in addition to equity or instead of equity but it's important to understand the costs and impact of each type of financing.
The pros and cons of Forward Advances
- Non-dilution. Capital is provided in exchange for a percentage of future revenue.
- It's fair. We charge a small fixed fee of 6%. No personal security or guarantees. No late fees or penalties.
- It's simple and fast. We can provide funding in days. The process of funding is simple and less time consuming than other financing options.
- Flexible monthly payments. Repayment terms are designed to be flexible for growing businesses because it’s tied to a percentage of your revenue, so if the business is slower on a particular month then repayments will also be lower.
- Access to growth knowledge. We provide access to our VC studio team who can help unlock ways to accelerate growth in your business.
- The commitment of future revenue. When you agree to take out an advance you are agreeing that a small percentage of your future revenue will go towards repaying the advance until the amount advanced + fee are repaid
- Eligibility criteria. Founders need to have at least £10k of revenue per month and have been established longer than 6 months
How we plan to shake it up
Forward Partners has been shaking up the VC world since 2013, and we’ve successfully helped launched and grown dozens of companies like Patch and Gravity Sketch. To grow at startup speed and do it well, we’ve learnt that you not only need access to fast, flexible funding but you also need to have the knowledge and experience of how to make that cash work harder for you.
At the heart of our proposition is the Studio team. They're a team of industry experts with years of experience growing businesses fast and helping founders turn their vision into a reality. These services are usually only available to our Portfolio companies but as part of the Forward Advances offering, you will get unparalleled access to the team.
No two companies are the same, and so it's not a one-size-fits-all approach. Our ‘Growth Surgery’ is where we get to know you and your company in a bit more detail. Whether you are looking for advice on PPC and social media campaigns, improving product conversion or exploring new channels we have a team of trained problem solvers who can help you realise your potential.