2020

State of the Industry:

Revenue-Based
Investing

Published by
02
 Table of Contents

Introduction................................................................................................................... 04

Overview of Revenue-Based Investing....................................................... 05

RBI Landscape.............................................................................................................. 08

Summary of the Market.................................................................................. 08

Data Analysis, Investors.............................................................................................. 10

Increasing Popularity of RBI........................................................................... 10

Increasing Popularity of RBI Funds Raised by RBI Investment Firms... 11

Total Amount of Capital Allocated to RBI Funds....................................... 14

Dry Powder........................................................................................................ 15

Number of Deals Executed by Revenue Based Finance Firms.............. 15

Data Analysis, Investees............................................................................................. 17

Average Revenue of RBI Investees............................................................... 17

Industry Analysis............................................................................................... 18

Age of investees................................................................................................ 20

Conclusion...................................................................................................................... 22

About Bootstrapp......................................................................................................... 24

Methodology................................................................................................................. 25

Limitations...................................................................................................................... 28

Further Reading............................................................................................................. 29

03
Introduction
Revenue-based investing (RBI), also
known as revenue-based financing, or
revenue-share investing,1 is a natural
next step for the private equity and early-
stage venture investment industry. The
financial structures used by VCs haven't
evolved much since they first emerged
in 1957. Today, 63 years later, the model
is almost precisely the same, with only
incremental changes such as more
efficient capital markets and industry
little transparency into the cost of capital
standards for structuring deals, pricing
that investees truly pay for taking on a
companies, and more.
revenue based investment. Thankfully,
there have been some notable efforts to
More recently, we have seen numerous
drive transparency in the RBI market. For
new investment models and financing
example, Bigfoot Capital open-sourced
instruments, including shared earnings
their RBI model, outlining it in a blog post
agreements and point-of-sale capital.
and sharing their RBI financial model and
One of the most prominent, and popular,
anonymized term sheet.
new methods for investors is revenue-
based investing (RBI).
However, to address the remaining
foundational gaps in market information,
Due to the RBI model being relatively
we have developed a proprietary data set
new, publicly available data is limited.
of 32 RBI investment firms, 57 distinct
Furthermore, industry standards have not
funds, and 134 companies that have
yet been fully established, and similarly
secured revenue based investing.
to the equity investment market, there is

1
Despite the popular nomenclature of “revenue-based financing” the authors determined that “revenue-based investing is more accurate
and inclusive. Due to the fact that RBI instruments often include equity, warrants, and/or a convertible right to equity, we felt that the
term investing was more appropriate.

04
 used structure in which the payment to
the landlord is rent plus a percentage of
gross sales. 2

Arthur Fox also deserves much credit

for thinking through the use cases
of revenue-based investing, and for
extending the model into the territory of
venture funding. He is often credited with
bringing the model into more mainstream
investment portfolios, as he utilized RBI
in the 1980s and 1990s by investing
Overview of in early-stage startups, later founding
Revenue-Based Investing Royalty Capital’s first fund in 1992.
More recently, RBI model has gained
In many ways, revenue-based investing much more visibility, particularly with
is one of the oldest methods of finance the increased use of the software-as-a-
and used in international trade going service (SaaS) pricing model employed
back to at least the Medici’s. Prior to by numerous technology startups and
modern accounting standards and audits, enterprises alike. 3
revenue-based agreements had the
benefit that revenues were much easier Revenue-based investing occurs when a
to define and harder to manipulate than company receives capital and commits
a concept like net profit. Even in the to returning that capital, plus a fee, using
modern era, revenue-based payments future revenue. Typically, the repayment
have been included in deals across of the capital is structured in such a
many industries. Examples include the way that a fixed percentage of capital is
minerals and mining industry. In real returned to investors, until the principal
estate “percentage lease” is a commonly and the fee are paid in full. The typical

2
Credit to John Berger for his thoughts on the history of revenue based investing.
3
A list of in-depth articles covering the topic can be found here if you’d like additional reading.

05
percentage ranges from 3 to 8 percent the IRR cap.
of monthly revenue. Some agreements
contain a “repayment cap” which is the It should be noted that some individuals
maximum amount the investee must and organizations refer to revenue-based
repay, often expressed as a multiple of investing as “royalty-based” or “royalty
the principal amount - equating to 1.5x share financing“, which is incorrect,
- 3x the principal. Alternatively, investors primarily due to the fact that for any
may also leverage the use of an IRR cap, payment to be a royalty, it must relate
meaning an investee continues to pay to the use of a valuable right such as a
until a predetermined IRR is hit for the trademark, service mark, or copyright.4
investor, which may produce less total RBI’s long-term nature ought to also
return risk to the investor, but more risk distinguish it from short-term merchant
to the company. This is because when finance, merchant cash advances, and
using a repayment cap based on the various forms of factoring.
principal, the risk created by the time-
value of money is borne by the investor. Furthermore, although some revenue-
For example, if it takes longer to hit that based investing instruments include
cap, then the investor generates a lower elements of equity (such as warrants,
IRR. On the other hand, if the financing a convertible right to equity, or direct
instrument includes an IRR cap, the purchases of equity), this analysis focuses
investor does not bear that risk; however, on instruments that are primarily revenue
the company may be taking on the risk focused. In our view, this is distinct
that, if they perform below expectations, and separate from another emerging
they may be forced to pay the investors investment model, typically referred to
for a longer period of time before hitting as “Flexible VC”.

4
Royalties are subject to a particular type of tax treatment, which only applies if specific conditions are met. In the U.S. "to be a royalty, a
payment must relate to the use of a valuable right. Payments for the use of trademarks, trade names, service marks or copyrights, whether
or not payment is based on the use made of such property, are ordinarily classified as royalties for federal tax purposes". If payments (for
example, payments to an investor) do not fit that criteria, one can not consider the payments a royalty, nor could a company or investor
treat it as such for the purposes of their taxes. However, the once-common use of this term has caused the term to be used casually, and
thus there are still many who think that RBI is in some ways functionally equivalent to royalty finance, despite that not being the case.
The term has descriptive value but may lead people to the wrong conclusion about the nature of the financial instrument being used, and
how it will be treated by the U.S. tax code. A huge thanks to John Berger for his help in clarifying these points.

06
Although Flexible VC is not within the scope of this paper, the most common form of
Flexible VC uses an investment structure which combines elements of revenue share
with those of an equity instrument. Typically speaking, the Flexible VC investor purchases
either equity ownership, or a convertible right to equity, and a right to regularly scheduled
payments based on the company performance. The primary differences here are that in a
“Flexible VC” investment, the amount of equity sold by the company is greater, and often,
that same equity can be effectively repurchased by the company (from the investor) through
the revenue based payments made back to the investor.

In order to raise RBI, the company must normally be generating revenue, but is not
necessarily required to be profitable. However, profitability, or at least a near-term path to
profitability, is often an important criteria for many investors. "For start-ups with revenue,
RBI may be a good option because, even though the start-up may not be profitable, it can
reduce dilution -- especially for founders," said Emily Campbell, Esq. of The Campbell Firm
PLLC, a New York City law firm which represents serial entrepreneurs and venture-backed
businesses. "Taking in some smart equity or convertible debt and balancing that money
with other financing can be a good strategy for a start-up."Profitability decreases the risk of
default, and assures that the investee has the ability to service the debt.

In regards to the applications which are best suited to RBI, B2B software-as-a-service
(SaaS) companies rise to the top of the list primarily because one is able to — in essence
— securitize the revenue being generated by a company and then lend capital against that
theoretical security. In addition to SaaS companies, RBI is being used quite frequently in
the impact investing community as it solves the problem of a lack of normal M&A or IPO
exit paths for impact-driven companies, and are sometimes marketed as a non-extractive
form of investment structure. Beyond B2B SaaS and impact investing, many other verticals
are adopting the model as well, including ecommerce/D2C, consumer software, food &
beverage, and more. It ought to be noted, however, that regardless of the specific business
model a company employs, the investee is typically required to have repeatable sales and
a track record which demonstrates a strong revenue stream, and therefore a clear ability to
return the capital to the investors.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 07

RBI Landscape
Summary of the Market

We have identified 32 U.S.-based firms actively

investing via a revenue-based investing
instrument, with those firms managing 57
distinct funds representing an estimated
$4.31B in capital. Through our analysis of those
firms, funds, and investees, we found that:

1. The number of firms and the amount of

capital committed to RBI is increasing, and
we forecast that this trend will continue.
2. B2B software was not surprisingly the
largest consumer of RBI,
3. There was a surprising amount of activity
across industries which are not yet typically
associated with revenue-based investing
such as food & beverage, consumer
products, fashion, and healthcare.

Firms were included in the data set (and by

extension, determined to be actively making
revenue based investments) if they:

1. Invest in companies using an instrument

where the return is generated from the
principal plus a flat fee which is paid back
via a fixed percentage of revenue

08
2. Payments to investors are made on a
monthly (or longer) basis
3. The payback period is expected to be
longer than 12 months
However, it should be noted that
throughout the course of our analysis,
the boundaries of the revenue-based
investing industry became increasingly
nuanced and difficult to define. For the
second and third criteria listed above,
we did not have visibility into the terms
of investments made, and therefore we
were only able to deduce these factors
for each firm based on other factors
such as their external communications,
amount invested, diligence process, and
more.
Also, broadly speaking, the number
of payment methods is increasing as
payments move onto emerging digital
payment rails (stripe, crypto, etc.) and
the frequency with which capital moves
between parties is increasing. Therefore
the boundaries of the industry begin
to blur when considering instruments
which appear to fit the criteria of being a
revenue based investment in many ways
except for the frequency of payments
2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc.
made back to the investor and the total
payback period. For example, Square
offers financing to merchants which
is paid back to them based on a fixed
percentage of a merchant’s revenue.
Revenue that is generated via Stripe (and
not solely debit/credit cards) can be used
used for repayment, yet the investment
amount and terms of agreement as
we understand them typically warrant
payback periods shorter than 12 months,
and the fee is paid on a daily basis (or as
often as revenue is being recorded by the
investee). In this way, the Square model
is closer to MCA, however, and therefore
was excluded from the dataset.
The specific number of firms we believe
to be quite accurate, representing
only active, U.S.-based revenue-based
investing firms. The number of funds
however may be underestimated. This is
due to the fact that, although each firm
is associated with at least 1 fund, we
did not include additional funds beyond
that unless they were confirmed through
other sources, such as the firms’ public
communications, their Form D, or other
sources as outlined in the methodology
section at the conclusion of this report.
09
Data Analysis,
Investors
The total amount of RBI capital that has already been allocated to companies across all
firms and all years is $2.1B. However, it should be noted that this includes the outliers
in our dataset, namely Kapitus, Clearbanc, Braavo, and United Capital Source. Once
we remove those firms, the remaining 28 firms, representing 51 funds, have allocated
$592.8M. This figure of $592.8M is almost certainly an underestimate due to the fact that
only 19 of 32 firms had a known “amount of allocated capital”, whereas the remaining 13
firms have unknown values (i.e. zeros) for the amount of capital they have allocated thus
far. Therefore, if all 32 firms had a valid and confirmed amount of allocated capital, we
can logically conclude that the number would rise dramatically from the current figure of
$592.8M.

Increasing Popularity of RBI

New RBI firms have been founded every year since 2013. In 2010, five firms were founded
and in 2015 four additional firms were founded, then from 2014-2019, two or more firms
were founded each year.

Cumulative Number of RBI Firms Over Time

Number of firms

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 10

Clearly, there has been a major uptick in RBI firms being founded since 2005, with a
relatively consistent number of new firms being founded over the 15 years since then. In
the last 10 years alone, 25 RBI firms have been founded.

RBI is a very young financial instrument, and when considering the number of new firms and
funds being formed in recent years, we envision that RBI will serve not as a replacement
for traditional venture capital, but instead as a substantial complement, or perhaps even as
a feeder to VC and other forms of startup financing. A key point in considering the future
of the RBI model, is that it likely serves a wider array of companies than traditional equity-
based venture capital, which requires extremely fast growth and large returns. Therefore
this provides RBI with a bright future, and the opportunity to co-exist with the broader
capital markets.

Increasing Popularity of RBI Funds Raised by RBI Investment Firms

Since 2015, 35 distinct funds have been formed by the 32 firms in our dataset. This leaves
only 16 funds which were formed prior to 2014, and 6 funds for which we could not confirm
the year of formation. With the number of firms entering in the space, it follows that the
number of distinct funds would grow accordingly. One particular area of interest, although
not addressed in this paper, is whether or not these new firms are directly competing with
traditional venture capital as they fundraise, or if they are perhaps raising funds from other
pools of capital.

In regards to capital allocation, the data If revenue-based investing overall

seems to tell the story that there are a
large number of firms still allocating
capital from their first fund, as there were
10 firms that formed their first fund since
2017, therefore it’s likely that many, if not
all of those firms are actively investing
out of their first fund today, depending of
course on their individual fund lifecycles.
That said, it stands to reason that the
number of firms investing out of their
inaugural fund is likely to be higher now,
in 2020, than it ever has been before.
provides expected, or higher-than-
expected returns for investors and
LPs alike, we're likely to see a further
increase in the amount of capital flowing
to startups through this type of vehicle.
Our hypothesis is that the RBI industry
is set to grow faster than the VC industry
over the next 10 years. This will be due to
a number of reasons. First and foremost
being that the VC industry is more mature.
However, RBI investing should have lower
dispersion of returns, or in other words, a

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 11

 more narrow range of possible returns,
than traditional venture capital — making
it attractive to a larger LP base. In other
words, the combination of faster access
to liquidity and lower dispersion ought
to be a major incentive for potential LPs
who have been traditionally skeptical
about VC.5
If this holds true, we expect that the
majority of existing funds will raise
additional funds in the future, further
increasing the cumulative number of RBI
firms, the number of RBI investors, and
the total amount of non-dilutive capital
available for both small businesses and
high-growth startups.
Total Number of Fund
Name of Firm (Year Founded)
5
Thanks to David Teten and Marco Cesar Solinas for their thoughts in this arena.
The chart below shows 32 firms
distributed along the x-axis in the order
in which they were founded. For any firm
actively investing via a revenue based
instrument, but which was not associated
with a distinct fund in our dataset, we
appointed a single fund to them to
account for the fact that they are almost
likely to be investing out of a distinct
legal entity, most likely to be a fund. As
seen below, 14 of 32 firms have raised
subsequent funds, with Lighter Capital
raising the highest number of funds (5),
and having been founded in 2010 —
earlier than 20 other firms in the dataset.
12
 The conversion rate of firms being able to
form subsequent funds is starkly linear. Distribution of "Funds"
The data in the table and subsequent Across All Firms
chart below demonstrate that at most,
# of Funds Formed Conversion rate from
50% of firms are able to invest their Fund #
by RBI Firms previous Fund
first fund and then leverage their track
Fund 1 32 n/a
record to raise a subsequent fund. This
pattern continues as firms pursue a third, Fund 2 14 43.75%
fourth, and fifth fund as well. However,
Fund 3 7 50.00%
as noted previously, there are 10 firms
Fund 4 3 42.86%
that have formed their inaugural fund in
just the past three years (2017 - 2020), Fund 5 1 33.33%
and therefore we hypothesize that this
Total 57 n/a
data will shift to show more favorable
conversion rates as the industry matures,
and as a portion of those 10 firms raise
subsequent funds.

Distribution of "Funds" Across All Firms

Number of funds, All firms

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 13

Total Amount of Capital Allocated
to RBI Funds

Narrowing further to focus solely on investors,

we found that the mean fund size is $56.2M,
while the median fund size is $20M. There are
57 funds associated with the 32 firms in our
dataset, with 51 funds being associated with
firms that are not outliers. The capital we were
able to confirm has been committed to distinct
funds is equal to $1.85B. This figure overall
is low, and shows that only $6M of the $1.8B
is managed by the firms identified as outliers:
Kapitus, United Capital Source, Braavo, and
Clearbanc. For each of those firms, we were
unable to confirm the size of their distinct
funds, and therefore this figure woefully
underestimates the assets under management
for each of those firms, who collectively claim
to have allocated several billions of dollars in
capital to small businesses.

Out of 57 funds, 33 had a known fund size,

while 24 remain unknown. Among those firms
with known values we found that the average
fund size is $56.2M, while the median fund size
is $20M.

14
Dry Powder

We estimate a calculated total of $2.18B in dry powder across the industry. Reaching this
figure was difficult due to the fact that there were 24 funds for which we did not have any
concrete total committed capital data. Therefore, estimating the amount of unallocated, yet
committed capital is inherently challenging. However, in an effort of good faith to calculate
the amount of dry powder in the industry, we took an oversimplified view of the data and
made several assumptions to arrive at the final estimate of $2.18B. 6

Number of Deals Executed by Revenue Based Finance Firms

When analysing the number of deals executed by firms involved in RBI, 7 Kapitus, United
Capital Source, Clearbanc, and Braavo appear to be executing investments at a pace which
is far and above the other firms by an order of magnitude. A major caveat to this is that
we don’t have access to data reflecting the specific number of RBI deals executed, and
therefore we estimated this figure using the total number of deals executed by the firm,
dividing that figure by the number of products each firm offer. The shortcomings of that
methodology are obvious and could certainly be skewing the data dramatically higher than
it is in reality. Additionally, Kapitus and United Capital Source (UCS) may both have lower
customer acquisition costs when pursuing investees, as they can potentially cross-sell
products to existing customers. Kapitus, UCS, and Clearbanc in particular appear to also
focus originating investments in a more automated fashion, again skewing their figures
much higher than those leveraging less quantitatively-driven methods of diligence .

6
More information on the method used to arrive at this figure can be found in the Methodology section.
7
The authors debated as to whether or not Square Capital ought to be included in the scope of this paper, however, ultimately it was
decided that they ought to not be included as Square provides shorter-term loans with payments made to Square on a very frequent
(often daily) basis, often paid via debt/credit transactions.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 15

 Number of Investments, By Firm

Firm

When removing the outliers at the top end, all of whom self-report originating over
thousands of loans each, there is a steep drop-off to the remaining firms, revealing the
long-tail of RBI firms, and also those firms which fit more squarely into the definition of
revenue based investing.8 These firms have all originated less than 40 RBI investments
according to our data set. These figures are likely to be under-reported as we do not have
a comprehensive view of their portfolios. However, the authors were compelled to only
report the data as it is available, and not include data based on assumptions. One example
of note, is Stripe Capital - which has surely originated more than zero loans/investments.
However, as they don’t self-report any data on their website and data was not available
elsewhere, we were limited to marking the number of loans originated at zero. A similar
process was executed for the other firms marked at zero. We believe those firms have
indeed been active investors, however, with a lack of data we were unable to report their
activity as such.

8
There is debate among the authors and contributors of this analysis as to whether or not to include the outlier firms of Kapitus,
Clearbanc, United Capital Source and Braavo. However, Kapitus and UCS both explicitly claim to offer revenue-based financing as an
instrument, and we believe Clearbanc and Braavo fall into the category based on our definition of RBI, although neither of them self-
identify as RBI investors or lenders.

16
Number of Investments, by Firm
(Outliers Excluded)

Firm

Data Analysis, Investees

The majority of the below investee 9 data has been collected through primary research.
We gathered data on 134 companies, all of whom have received revenue-based investing.

Average Revenue of RBI Investees

The average annual revenue of the investees in this data set is $33.4M, while the median
annual revenue is $5.4M. Our hypothesis is that the data set itself is skewed towards
larger, high-revenue companies as a result of the larger financings being more publicized
than smaller transactions which are less likely to warrant press coverage or publicizing
from investors.
The vast majority of companies leveraging RBI typically generate less than $20M in
annual revenue, as shown in the chart below. The data included in the chart represents
89 companies (with their identities redacted), and therefore does not include the 45
investees with unknown revenue.

9
To clarify the terminology being used, we are referring to all recipients of RBI as investees. However, there is certainly a possibility
that some of these companies entered into agreements with a number of variations, including purely being debt-based instruments,
warrants or other instruments that may convert into equity for the investors. In other scenarios, firms may structure the RBI instrument
itself as an equity instrument, though one that is entitled to revenue-based dividends (rather than dividends computed by reference
to share count). Then, typically, the investor-return payments change in characterization from dividends to redemption payments, e.g.,
after about 5 years.

17
Annual Revenue

Investees

Industry Analysis

As expected, the industry that received on SaaS revenue securitization, and the
the highest number of RBI loans was B2B potential for creating a high-yield fixed
software, equating to 42 companies of income product off the back of it. It’s
134, or 31.3% of all investees. Companies interesting to see the first half of this
within the “B2B software” category equation coming to life in the form of
included those who were targeting any this investee data, yet the industry hasn’t
type of business customer, including matured enough yet where the proposed
large enterprises, small businesses, derivative financial products may benefit
independent creators, entrepreneurs, from any sort of mass adoption.
retailers, or others.
Following B2B software, surprisingly,
B2B software was expected to be the is the food and beverage industry,
leading industry, and validates (at least which consisted of 19 companies,
by correlation) several theories that demonstrating a larger number of
have been shared recently by others companies than both e-commerce and
closely watching the RBI space. For consumer software. Following food &
example there has been a recent focus beverage, industries which followed

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 18

Number of Investees
Industry Category
were education (10 investees), consumer
(10), and e-commerce (9). As mentioned
elsewhere in this analysis, impact
investing is another use case which was
consistently referenced by contributors
to this paper. In the case of impact
investing, many of the deal terms may vary
as you look at revenue based investments
made outside of the B2B SaaS realm.
In general, B2B SaaS companies are
more homogenous in their business and
finance profiles, making standardization
of RBI terms easier to standardize as
well. However, when operating within
the impact investing space, an investee
2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc.
may have a need for an identified capital
asset, and thus the investor needes to
incorporate its cost into the revenue-
based payments. For example, if a farm
that knows it will need a tractor in a few
years, an investor may base the revenue-
based payments on a metric that exists
between revenue and profit, and which
excludes a reserve amount that can only
be used for those specified capital needs.
This is indeed a nuanced execution of
revenue based investing, and we hope
to include more impact investments in
subsequent analyses.
19
Age of investees
When reviewing the years in which RBI
investees founded their companies as a
cohort, there is a clear rise in the number
of number of investees/companies which
were founded in the years from 2011 -
2015, before the data starts dropping
back down, culminating in only one
investee who was founded in 2020 and
has still managed to execute an RBI
deal since then. We were able to obtain
the year founded for 127 out of 134
companies, making the data relatively
complete for our purposes.
Number of Investees
Year Founded
2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc.
Because the number of RBI deals have
consistently dropped since 2015, if
viewed in isolation this data may lead an
individual to infer that RBI is declining in
popularity. However, that line of thinking
does not take into account the fact that
companies may simply need 3-5 years to
establish a repeatable business model
and gain enough traction before they
qualify for substantial RBI loans. The
other side of the coin is that companies
must mature to a point where they fit
the risk profiles of RBI investors as well.
20
Therefore the fact that the number of companies that were founded in years 2016 -
2020 is lower than previous years is likely attributable to this fact, and furthermore,
that the administrative and transaction costs of applying for, managing, and paying
down an RBI loan may not be worth it companies that are only 1-3 years old.

The oldest company within the data set - a well-known hospitality brand - was founded
in 1950, whereas the company founded most recently was formed in 2020. We found
that the median year of a company’s founding in our data set was 2012, while the
average year founded is 2009.

• 85 RBI investees, or 63.4%, were founded in the years 2010 - 2020

• 114 RBI investees, o 85.1% of investees were founded in the years 2000 - 2020

This is an interesting counterpoint to our understanding of the age of investees above,

which illustrates that although RBI investees typically must be more than three years
old, they also are almost never more than 20 years old.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 21

Conclusion
The goal of this report is to increase the transparency of the overall RBI market, and to
provide both investors and investees with concrete data and industry insights. We believe
that nearly all of the data point to a growing RBI industry with increasing amounts of capital,
higher frequency of originations, specialization among investment firms, and perhaps most
importantly, the standardization of investment terms and industry norms, which will allow for
even greater transparency and price-competitiveness, ultimately benefiting entrepreneurs.
Bootstrapp developed this extensive analysis on revenue-based investing for the purpose of
accelerating the shift towards greater transparency and standardization within the industry.
As we build a platform that speeds up and makes more transparent fundraising for non-
dilutive capital, it’s become clear that one of the foundational issues that exists for founders
today is simply information asymmetry, which this analysis aims to address head on.

To that end, we’ve been able to confirm several of the common hypotheses that are shared
within the broader RBI community.

01
First, the number of firms and the
amount of capital entering the RBI
industry are both increasing, and we
expect this trend to continue as the
industry matures. Despite not being
directly addressed in this report, the
awareness of RBI among entrepreneurs
and small businesses is still low, and we
expect that, as this awareness increases,
the demand for this type of financing
instrument will grow proportionally.
02
Second, among all investees, B2B software
companies are the most active subset of
investees, theoretically confirming that
their business model is best suited to
RBI and that predictions of the industry
effectively securitizing recurring revenue
will continue to ring true over time.
Investees are also relatively younger
companies, with over 63% of RBI investees
being founded in the past 10 years.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 22

Customer acquisition costs, coupled with
standardization of metrics and analysis Ultimately, we believe that the
of B2B software companies, which overarching lesson to be derived from
often deliver their product via a SaaS this work is that the demand-side
model, result in the ability for investors (investees) of the RBI market will greatly
to compare companies in a like-for-like benefit from greater transparency. It
manner. This means that investors can is therefore our recommendation to
reduce the risk associated solely with founders, CFOs, and executives to
the investee, and take more risk by demand greater transparency from
experimenting with new structures. Our their RBI investors. More specifically,
hope is that the large number of RBI deals we recommend that companies work
being executed in the B2B SaaS vertical to remove confidentiality provisions
simply represent an early-adopter wave, from investors’ term sheets and/
and that as investors focused outside of or contractual agreements before
B2B software become more comfortable executing them. These confidentiality
with the risks and costs of the general terms solely benefit the investors and
RBI structure, they too will adopt the RBI hurt the overall efficiency of the market.
model for their target investees.

03
Third, there was a surprising amount of
activity across industries which are not Authored by Thomas Rush and Daniel
typically associated with revenue based Birmingham, with a massive, and well-
investing. Food & beverage, consumer deserved thanks to all those who
products, fashion, and healthcare were contributed to the creation of this
unexpected, and we believe that the use analysis, especially: David Teten, John
of RBI in these industries may prove it Berger, Alawi Alshurafa, Brian Parks,
to be a more flexible instrument than Jonathan Bragdon, Zack Mueller, Brian
previously thought. Anecdotally, we Mikulencak, Samira Salman, and Marco
include impact investing in this category of Cesar Solinas.
other investment areas as well, although
we unfortunately did not have impact
investment investees included in our
database.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 23

About Bootstrapp

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and actively identifies all the
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24
 Methodology

The data used to write this paper consists of information on over 140 companies, 34
firms, and 51 funds. The data was primarily collected from publicly-available sources
such as the websites of investors and investees, as well as interviews, articles, press
releases, and individuals operating in the industry. For each of the RBI firms, we searched
the North American Securities Administrators Association’s website, the Electronic
Filing Depository for all Form Ds that had been submitted by firms in the Bootstrapp
database. Finally, we also contacted each of the investment firms referenced in this
report to provide them with an opportunity to supplement or correct the data that we
had collected previously.

The scope of this report is limited to U.S.-based revenue based investing firms.
There were several firms that were proposed to the authors near the conclusion of
the development process — each of which operate and invest within the U.S. but are
ultimately owned by international parent companies. These firms were not included in
the final report but will likely be included in future publications.

Furthermore, this work builds on the writing of David Teten, Founder of Versatile
Venture Capital, who wrote the first thorough overview of the revenue based investing
industry, and Lighter Capital who has also published useful data on the industry with
a focus on their own lending activities.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 25

RBI Data: For this inaugural analysis,
data from all firms, funds and years was
included to establish an inclusive baseline.
This means that firms like Kapitus were
included, yet when they operationalized
revenue based investing at their firm,
and began including it in their offerings
to investees, is unknown to us at this
point. Therefore it’s likely that some of
the assumptions made for the purposes
of this analysis are overstating the size
of the industry. Erring on the side of
inclusion certainly may overestimate the
amount of capital within the industry,
however we believed it was the more
prudent choice when compared to the
alternative of intentionally choosing to
not include those types of firms in the
final analysis of RBI funds when we have
confirmed that they explicitly leverage
RBI instruments.
Dry Powder Calculation: First, this
figure was calculated by removing the
outliers from the data, providing us with
a more accurate figure of $1.2B in total
committed capital, with $592.8m already
allocated (shown in the table below).
Therefore, 50.53% of the total committed
capital (again, excluding outliers) remains
2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc.
unallocated and is therefore dry powder
in theory. If we assume that these same
proportions apply to all firms — including
the outliers — we can calculate that
the total amount that has already been
allocated to investees ($2.13B) equates
to 49.47% of the total, which would be
calculated as $4.31B in total committed
capital across all firms, and $2.18B of
dry powder. However, the $2.18B in
dry powder is likely incorrect for two
separate, yet competing reasons. First,
these figures do not take into account the
vintage of the funds across all RBI firms.
The average year the RBI funds were
created was 2015, meaning that the first
five years of the funds - and therefore
the heaviest years of capital allocation -
have already passed, suggesting that the
amount of dry powder is lower than the
estimated $2.18B. On the other hand,
as stated earlier, there are numerous
records of both firms and funds with
missing data, therefore representing zero
dollars in committed capital within the
dataset, and thus reducing the amount of
total committed capital and dry powder
accordingly. Modeling these assumptions
further was a consideration, and may be
incorporated into subsequent analyses.
26
 All Firms Total Capital / Sum of all funds 1,853,373,334

All Firms Total Amount Funded 2,132,790,000

Dry Powder
All Firms -$279,416,666
(Total Capital - Amt. Funded)

Outliers Only Total Capital / Sum of all funds $6,000,000

Outliers Only Total Amount Funded 1,540,000,000

Dry Powder
Outliers Only -$1,534,000,000
(Total Capital - Amt. Funded)

Outliers Excluded Total Capital / Sum of all funds $1,198,343,334

Outliers Excluded Total Amount Funded 592,790,000

Dry Powder
Outliers Excluded $605,553,334
(Total Capital - Amt. Funded)

This analysis and subsequent report is the result of our efforts to create greater
information symmetry and transparency across the capital markets serving early-stage
startups and small to medium sized enterprises.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 27

Limitations
There were a number of limitations present during the analysis, which are summarized
here:

No access to deal terms: Although we would have preferred to include details of the
specific terms that investees and investors have agreed to, we simply did not have access
to those documents. Additionally, in several cases we are aware of, investors include
specific language in their term sheets and contracts which explicitly prevent investees from
sharing the terms of the financing they have received. Although this is not surprising, it is
unfortunate in that it represents an intentional attempt to withhold their cost of capital,
investee requirements, and other stipulations from potential investees in the marketplace.
We view this as an artificial moat which promotes an inefficient market, albeit one which
we believe will become increasingly efficient as those details become more well known
over time.

Lack of industry standards and terminology: There is a need for increased standardization
across the industry, particularly in regards to the terminology (and furthermore, the
nomenclature) which is used to describe the industry actors, mechanisms, terms of
engagement, and more. Not having this in place made it difficult at times to understand
which firms were squarely within the industry of revenue based investing and which are not.
For example, there are numerous impact investors leveraging ‘alternative structures’ which
we believe may need to be included in the future once we’re better able to understand the
mechanics of their investments.

The inaugural analysis: As a natural obstacle, this was the inaugural study of the revenue
based investing industry, and therefore everything was built from the ground up. Despite
this being an obvious limitation that every analysis must overcome when first being
executed, it was still a limitation which was felt acutely throughout the process as we
built the database, understood the relationships between different data, and were able
to properly verify both the data itself, as well as the qualitative summary provided in this
document.

2020 State of the Industry: Revenue Based Investing | Bootstrapp Inc. 28

 Further Reading

Revenue Based Investing: a new option for founders who care about
control

Who are the major Revenue-Based Investing VCs?

Why are Revenue Based VCs investing in so many women and

underrepresented founders?

Should your new VC fund use Revenue-Based Investing?

Should you raise venture capital from a traditional equity VC or a

Revenue-Based Investing VC?

Revenue Based Investing in VC: A Study on Playing Averages Over

Home Runs

After Funding 500 Deals, What Have We Learned? The First Ever
Revenue Based Investing Industry Report

The first book about RBI: The Next Step for Investors: Revenue-
based investing, and the associated video and workshop.

29
 2020
State of the Industry:

Revenue-Based
Investing
Published by Bootstrapp Inc.