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Revenue-Based Financing (RBF) For Entrepreneurs: Andy Sack, Co-Founder, RevenueLoan (Part 1)

Posted on Monday, Jan 3rd 2011

By guest authors Irina Patterson and Candice Arnold

This is the forty-eighth interview in our series on financing for entrepreneurs. I am talking to Andy Sack, who is a co-founder of RevenueLoan, which gives entrepreneurs unrestricted capital for growth in return for a small percentage of future years’ revenues. In operation since mid-2010, the size of the fund is $6 million. Based in Seattle, RevenueLoan is focused on the Pacific Northwest.

Irina: Hi, Andy. Why don’t you start with your background and how you arrived at this point?

Andy: I’m a graduate of the MIT (Massachusetts Institute of Technology) Sloan School [of Management]. Coming out of business school, I’ve been a serial technology entrepreneur since 1994. I’ve started a handful of companies – depending on how you count, four or five, and I had three successful and one unsuccessful exit.

[Andy was co-founder and CEO of Judy’s Book, a local search social network. Prior to founding Judy’s Book in 2004, Andy co-founded three successful Internet technology companies: Kefta, a provider of real-time customer interaction solutions (acquired in 2007 by Axciom); Abuzz, an enterprise knowledge management solution (acquired by New York Times Digital in 1999); and Firefly Network, an Internet company that pioneered internet personalization technologies (acquired by Microsoft). Andy also spent time as an entrepreneur-in-residence for SOFTBANK Venture Capital (now Mobius VC), where he founded and served on the board of three companies: BodyShop Digital, Quova, and Kefta.]

As my last company, Judy’s Book, was winding down, I decided to start a super angel fund called Founder’s Co-op, here in Seattle.

That company focuses in on very early stage seed equity deals. During the process of running Founder’s Co-op, I became interested in revenue-based finance.

I read about it in a Harvard Business Review article that was written by one of the research assistants for Clay Christensen. He was writing about ways in which the venture capital industry might be disrupted. There was a paragraph about revenue-based finance, and I started to do research in that area.

That led to our doing a couple of deals at Founder’s Co-op that were revenue-based financing for two early stage technology companies. Both of those deals have worked very well. That led to my belief that there was both a market need as well as a market opportunity for an alternative to straight equity and straight debt, and that led to the creation of RevenueLoan.

Irina: When you did your research, how many revenue-based finance companies did you find?

Andy: Revenue-based finance, also known as royalty-based finance, has its roots in the mining and entertainment industries. Arthur Fox of Royalty Capital Management has done royalty-based financing on the East Coast [since 1990s.]

[Lately], revenue-based finance has become a hot topic in the blogosphere. To my knowledge, we’re the first one on the West Coast, and we’re the first one for sure in the Northwest.

Irina: How is your company organized, and what is the size of your fund?

Andy: It’s structured as an initial test fund. It’s a $6 million fund.

Irina: Who many people do you have?

Andy: It’s me and Randall Lucas,  the two of us are partners, and then we have two employees.

Irina: What is your geographical focus?

Andy: West Coast with a focus on the Pacific Northwest.

Irina: Where do you usually get your deal flow from?

Andy: My partner and I have relationships that we’ve cultivated over many, many years, well before RevenueLoan. So, the majority of our deals are referrals. They come from that network. We’ve been getting deals online as well.

Irina: How long have you been in business?

Andy: Just over six months.

Irina: How many investments have you made in the past six months?

Andy: By the end of the year, we’ll have three done.

Irina: How does it work? Let’s go over your process.

Andy: Our target companies are those that have, on the low side, at least $500,000 in trailing 12-month revenue, and on the high side, $10 million in trailing 12-month revenue. All of the companies have good gross margins. That’s an important component.

This segment is part 1 in the series : Revenue-Based Financing (RBF) For Entrepreneurs: Andy Sack, Co-Founder, RevenueLoan
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Will be really interested in learning more. Here in Boston, well-known angel John Landry, as well as Andy Clapp of Arctaris Capital, have been promoting the royalty model, but I'm not yet aware of much traction. Hope the rest of the interview highlights who has been getting deals done within the startup space.

Ty Danco Sunday, January 9, 2011 at 7:27 PM PT

Hi Ty,

Thank you. I will check and see if I can interview these two angels that you mentioned. We are always looking for quality seed financing sources for our interviews.

I have done over 50 interviews here with various financing sources for startup entrepreneurs. I want to note that very few businesses qualify for Angels financing. Most business are not qualified, but it doesn't mean they shouldn't be built. There are many ways to finance a business.

Are you a founder ?

irina Wednesday, January 12, 2011 at 12:18 AM PT