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Revenue-Based Investing: A New Option for Founders who Care About Control

David Teten

A new wave of Revenue-Based Investors are emerging who are using creative investing structures with some of the upside of traditional VC, but some of the downside protection of debt. I believe that Revenue-Based Investing (“RBI”) VCs are on the forefront of what will become a major segment of the venture ecosystem.

Revenue 60
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Bad Notes on Venture Capital

Both Sides of the Table

Revenue multiple? Convertible notes were previously used primarily for “inside rounds” in which the existing investors provide you with bridge financing to get to the next round. How will you price the next round? Your A round? Him: On metrics. We’ll have some proof points by then. What proof points?

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Ten million users is the new one million users

cdixon.org

. - For consumer startups with transactional models, e.g. e-commerce, the number of users required is often far lower because revenue is the more important metric. Hence, many early-stage consumer startups are switching to transactional models. - VCs are increasingly focusing on B2B for early-stage investments.

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Bad Notes on VC

Gust

Revenue multiple? Convertible notes were previously used primarily for “inside rounds” in which the existing investors provide you with bridge financing to get to the next round. How will you price the next round? Your A round? Him: On metrics. We’ll have some proof points by then. What proof points? EBITDA multiple?

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Know the Mindset

ithacaVC

If the company is already producing healthy revenues, the incoming new investor mindset might be “this company should be sold within 2 years – if not, it could get ugly” There are all sorts of variants on this theme. Sometimes the investor mindset might have a shorter “sell” horizon.