Venture Debt : Taking the Route of Royalty

Mr Wonderful

Distilling the RBF Proposition

To get a better grasp of the RBF model, let’s begin with a fictitious B2B E-Commerce business called Muffler, an online rental marketplace. With a capital raise on the cards, it’s looking to onboard its first strategic investor alongside fresh capital to help offset an early cash trough.

  • Exisiting Cap Table: Founder (100%)
  • Volume (Year 0) : 100,000
  • ASP (Year 0) : $25
  • Net-profit margin : 30%
Pro-forma growth assumptions laid out in blue
  • Implies a post-money val. ~ $5.5m
  • Implies a post-money val. ~$1.375m
Deal terms laid out in green
  • However, the RBF stream ends when Mr Wonderful recoups double the principal investment, which by simple calculation is $275k * 2 = 550K. This is the return cap.
  • We can see from the above that by Year 2 , double the principal is paid-back ( $550.7k) by Muffler . Hence from then onwards, the RBF stream terminates and Mr Wonderful is left with 5% straight equity in perpetuity.

The next step for early-stage “Aussie” Tech

Beyond dramatised reality TV, RBF is practiced globally and is becoming more routine in early-stage tech , especially by firms outside the US. In 2010, the year after Shark Tank was aired , five firms were founded and by 2019 more than 30 emerged.

Source : Bootstrapp
  1. Buying stuff

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