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Revenue-Based Financing (RBF) For Entrepreneurs: Andy Sack, Co-Founder, RevenueLoan (Part 4)

Posted on Thursday, Jan 6th 2011

By guest authors Irina Patterson and Candice Arnold

Irina: Do you have any target returns on investments?

Andy: Yes, we do have targets. We look at it from a portfolio approach, but generally speaking, we tell people that we’re looking for a 20% IRR.

Then there is the question of what happens if revenues decline?

That’s one of the areas where a revenue loan is so great. There’s a natural correlation between payment to RevenueLoan and performance, which shows itself particularly in the downside scenario.

All entrepreneurs are optimistic, but as we know, results are never a straight line. I know that from building four businesses myself.

When I talk to entrepreneurs, everyone shows their projections, which go up and to the right. It looks like a nice curve, but reality rarely plays that way.

The flexibility of a revenue loan is what’s critical. When I talk to entrepreneurs, that’s the most critical thing. Yes, we don’t dilute the company, so it’s less expensive, generally, than equity, but it’s really the adaptive, flexible nature of a revenue loan that’s so valuable. Entrepreneurs need to understand that.

Irina: What character traits in entrepreneurs are important to you?

Andy: We assess entrepreneurs, and we look for many of the same things that equity people would, which are, What have they done in the past; what’s their competence; have they grown revenue? But it’s really a focus on the core business. We’re more focused on short-form core business and revenue growth than traditional equity is. We look for many of the same traits that an equity investor would.

Irina: How do you usually conduct your due diligence?

Andy: Generally, entrepreneurs come to the RevenueLoan website and fill out an application. That starts the process. For due diligence, we look at the market, product, and team, and we do reference checks. We’re looking at all aspects of the business to corroborate that what’s being told to us is the reality.

Irina: How many pitches do you receive a month, roughly?

Andy: A lot. We’ve been in business for a little over six months, and we’ve received well over 200 applications or inquiries. We obviously filter them. I’m having coffee a lot! I don’t have a monthly number; I just know how many we’ve received since the beginning.

Irina: How many of those 200 deserved a closer look?

Andy: We’ve looked closely at 10% of them, probably. And we’ve funded three of them.

Irina: What do you do with ones that don’t get a closer look?

Andy: We try to explain our model and graciously say no. But we don’t do anything else with them. We stay in touch with them because in a number of instances, people contact us and they’re just too early. They’re not far enough along. They don’t understand that they need to have at least $500,000 in trailing 12-month.

A number of the 90% probably will come back to us in the next year. But there are at least 50% of that 90% where there just isn’t a fit. They don’t have enough margin. They’re in some kind of business that just is not interesting to us.

Irina: Thank you, Andy. Very interesting.

This segment is part 4 in the series : Revenue-Based Financing (RBF) For Entrepreneurs: Andy Sack, Co-Founder, RevenueLoan
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Very interesting. But then I feel the Revenue Based Financing (RBF) for small and micro entrepeneur in India will work excellent. In that case I can become also an applicant . The PSU Banks and Pvt Banks or Financial Units operating in India are not actually caring for the Micro and Samll Industries as well as Industries handling and converting Solid Waste Pollution Material to value added highly movable products.

AMBAR ROY Tuesday, January 11, 2011 at 9:13 PM PT